The 2024 result in terms of financial investments will remain in history as one of the unrepeatable parties.
The average price of shares, according to the Merval index of the Buenos Aires Stock Exchange, increased more than 120% measured in dollars while global bonds gained 105% and savers in government peso bills obtained 42%.
It is worth comparing these yields with the 4.576% annual rate proposed by 10-year Treasury bonds from the United States, considered one of the least risky investments globally.
The backdrop of the party in the markets in 2024 can be explained by the strong pruning of public spending national 27%, equivalent to 5 points of GDP (with a strong impact of the real cut in pensions), due to presidential vetoes to laws approved by Congress that were considered attacks on stability, due to the result of the bleach that surprised the markets and due to the fall of the dollar.
Between the US$31 billion deposited through laundering and the 30% drop in free dollars starting in July, the mood and financial gains changed.
Consulting firm 1816 says in its New Year’s Notes that “the official exchange rate closed 2024 at $1,030 and the cash settlement rate was below $1,200 when “The market was expecting $1,700.”
This drop in the free dollar reflected the market’s new bet and was decisive in the change in the balance sheet of companies in the second part of 2024 and that they now face 2025 with a path of exchange rate appreciation that also appears inexorable.
Investors expect the Government to announce in mid-January the reduction from 2% to 1% of the rate of increase of the official dollarwhich would consolidate the path towards a fixed exchange rate, although it is still unknown if it will lead to a floating dollar scheme.
The President Javier Miley had anticipated that the reduction to 1% monthly of the devaluation rate would be ordered if December inflation was similar to the 2.4% increase in the cost of living in November, but that case is not resolved. We will have to wait until Tuesday the 14th when the INDEC data is known.
Meanwhile, a point to consider is that the possible reduction in the rate of devaluation would be available in the middle of a process of strengthening the dollar worldwide and when the Brazilian government is making an effort to avoid the devaluation of the real which, at 6.15 per dollar, is being the delight of Argentine tourists in Florianópolis.
On the other hand, the Government makes it clear that it already has the US$ 7,000 million it needs to meet all external commitments until July, seeking to consolidate the idea that the financial panorama is free of dark clouds.
A key element to consolidate that idea was the Central Bank’s announcement on Friday about obtaining US$ 1,000 million from a repos operation with a buyback clause with five international banks.
The Central said that in the “inaugural auction held on December 27, received offers for US$ 2,850 millionexceeding the tendered amount by almost three times” and that the cost of the operation was the equivalent of a fixed rate of 8.8% per year.
An important point of the statement referred to the possible destination of those US$ 1,000 million, saying that “it increases the flexibility of the BCRA to mitigate imbalances that may exist between the supply and demand of foreign exchange in the local exchange market.
In other words: now the Central has more firepower in dollars to intervene in cash with settlement in the attempt to reduce the gap to anchor to the exchange rate.
By 1816 this Repo “is essential for the country to recover the access to international credit, so that the financial account of the balance of payments does not generate net demand for foreign currency” and highlights that the stock of deposits generated by laundering made loans for US$ 4,000 million possible.
With money laundering and the Repo under his arm, the minister Luis Caputo will advance looking for fresh funds through a new agreement with the IMF, but there is a doubt that does not dissipate: will the Fund give it more dollars without demanding a devaluation and when the real exchange rate is at a low level?
A part of the answer may take shape starting on January 20, when Donald Trump inaugurated for the second time as president of the United States. The Government expects a lot of help from Trump and has the support of the strong fiscal adjustment made.
The search for foreign currency to strengthen the Central Bank’s reserves and keep the dollar anchored is two of the fundamental economic pillars for the start of the political campaign by Javier Milei in a key electoral year.