Milei plays hard at the start of the election year

For the markets, the REPO for US$ 1,000 million that the government obtained from five international banks generated a new injection of optimism.

The opening of a path to obtain funds in the international market (they had offered US$ 2,850 million) fueled the euphoria lubricated, furthermore, by the payment to bondholders of US$ 4.4 billion.

Just as the US$31 billion deposited through money laundering changed the financial face of the last quarter of 2024, this REPO generated the idea that it will open a new stage.

The dance of Argentine dollars had an outstanding result in 2024 with a Central Bank purchasing US$ 22,000 million, but due to various disbursements (among others US$ 3,000 for the Bank for International Settlements and US$ 4,000 million to intervene in the exchange market) allowed it to accumulate gross reserves , according to the calculation of the consulting firm Quantum, for US$ 9,695 million.

The Central bought a lot, but also paid a lot, it allocated a lot to lower free dollars and, therefore, Net reserves remain in negative territory.

Quantum (by economist Daniel Marx) says “that the stock of gross reserves went from US$ 21,209 million to US$ 30,904 million while the net liquid reserves went from being negative at US$ 11,708 million in December 2023 to negative at US$ 4,335 million on January 9, 2025”.

This cocktail of numbers, together with a key definition of the president Javier Miley During the week, they talk a lot about the short-term future in exchange matters.

Milei announced that the reduction in the rate of increase of the official dollar would be imminent, maintaining the reduction of inflation as the primary objective.

The reduction from 2% to 1% in the rate of devaluation would be sooner rather than later if the inflation data for December, which will be known on Tuesday the 14th, is similar to the 2.4% increase in the cost of living in November 2024.

Private forecasts place it between 2.6% and 2.9%but market operators are still betting on the imminent reduction of the crawling peg considering that the shortage of dollars would not be a problem for the government today.

Milei assured that will seek US$11 billion this year with a new agreement with the IMF or the international market that will have the purpose of clearing the Central Bank’s liabilities on the way to lifting the exchange rate which, he said, he hopes will be this year.

The combination of the money laundering dollars and the REPO dollars of the banks moved away from the exchange scenario the discussion about whether the government would eliminate the “blend” dollar that allows exporters to settle 20% in cash with settlement, CCL.

The wholesale dollar is at $1,040 and the CCL at $1,190 with a resulting gap of 14%, a low level that the government would seek to consolidate.

Eliminating the “blend dollar” would be good news for the Central’s ability to buy more reserves, but It would hit the relationship with agricultural exporters very hard.

They are already strongly feeling the appreciation of the exchange rate, the withholdings and the price of soybeans, which is under pressure in the international market at US$370 per ton, although it improved by 10 dollars compared to the previous week.

The cocktail that involves laundering generating creditsthe REPO, Milei seeking US$ 11,000 million to finance 2025 and, at the same time, kicking forward the lifting of the stocks, with the decision to intervene in the exchange market and lowering the rate of devaluation from 2% to 1% leaves in clear the anchored dollar strategy for the election year and that the market celebrates.

Of course, the last word has not been said and the surprise regarding the creation of jobs in December in the US (256,000 jobs with unemployment falling to 4.1%) was enough for the interest rate on Treasury bonds shoots up to 4.7% annually.

The consequences are not linear either, but an increase in this rate tends to strengthen the dollar in the world and that, in turn, It can affect the prices of raw materials, which would be a problem for Argentina.

When the dollar strengthens (the market assumes that Donald Trump will promote this policy when he takes office on January 20), the currencies of emerging countries tend to devalue, but, at this moment, Argentina is going for revaluation: cheap dollar when the world makes it more expensive but in the government’s vision, the political necessity of the election year will justify it.