The specter of total dollarization of the economy in the short term lost strength with the result of the first round of elections and that may play in favor of some stability of the dollar in the very short term.
The market came into the election with an extreme level of exchange coverage (all types of present and future dollars, global bonds, dollar link bonds, etc.) but now knows that Javier Milei’s feared dollarization has less political support.
Perhaps many of those “bought” expect a devaluation in the short term must turn around to attend to obligations financial institutions supported, also, in the belief that Sergio Massa will try by all means to avoid another devaluation like the one on August 14.
Without much information, last night the financial market operators were betting that Sergio Massa, winner of the first electoral round, would subscribe to the old football precept of “team that wins doesn’t change.”
The recipe that has been applied for a year: delay the official dollar and rates with respect to inflation, maintain tooth and nail the exchange rate for most payments abroad and issue to put pesos in the pockets of consumers.
Why is Massa going to change his electoral strategy if it gave him political results despite the fact that Inflation accumulated 25% in two months and poverty grew to 40%?
It will be difficult for the minister-candidate to maintain the official dollar at $350 until the runoff when in the market there is a conviction that there is a devaluation on the near horizon and the exchange gap with cash with settlement is 164%.
The government has in its portfolio the second tranche of the Central Bank of China swap, which is equivalent to US$5.2 billion to be used in the 33 financial rounds remaining until December 10.
And that figure is net of the US$ 2,587 million that Massa must pay the International Monetary Fund this week, although in Economy they speculated about a possible postponement.
Be that as it may, the net reserves of the Central Bank are on the negative level around US$ 7.5 billion and the payment to the IMF would deepen that “negativity.”
With Massa betting everything on not devaluing again, and clinging to the official dollar of $350 (vice minister Gabriel Rubinstein had anticipated that it would remain at that level until November 15) one fact to consider is that with the Chinese swap has US$ 158 million per day until December 10. Will it be enough?
With Massa clinging to the official dollar of $350 until the runoff so that the one who devalues it is the incoming president, even if it is him, another of the big questions arises.
Between Massa and Milei today there are no incentives to cooperate in the transition: the winner wants the dollar as calm as possible and the challenger has already said that the higher the dollar is, that will favor the dollarization that he promotes.
The minister has already experienced the painful experience of devaluing without applying a plan that simultaneously lowers the fiscal deficit with the 20% exchange rate jump on August 14 (the day after the PASO) that unleashed a spike in prices with an increase in the cost of 25% life.
And on that point, Massa already calculated the cost of having devalued and encouraged inflation and the political benefit that the “Platita Plan” gave him with bonuses and increases for retirees, reduction of Profits and freezing of rates and the dollar.
Missing 33 wheels until the inauguration of the next President, No changes can be expected with respect to the traditional scheme that Argentine governments face in pre-electoral periods: maintaining the official dollar and backward rates and trying to expand consumption.
On the side of Javier Milei, who was seen as a possible winner in the first round, can we expect a review of the strategy of proposing the total dollarization of the economy and the elimination of the Central Bank as the only way to combat inflation?
How much influence has his call not to renew deposits in pesos because the peso, in his words, “is worth less than excrement to scare savers?”
The result of yesterday’s election does not allow us to eliminate the risk of the transition, especially in a market that, when thinking about a runoff between Massa and Milei, did so assuming that the libertarian would occupy first place.
Now with Massa as the most voted, doubts revolve around what capacity Milei will have to attract the voters of Together for Change after his repeated attacks on “the caste.”
While the political alignments against Massa and Milei will take shape, the background of the economy will continue to weigh and the need for a stabilization program will continue to be present.
The short-term transit will be difficult because the inheritance that Massa will leave or will leave for himself is very heavy and characterized by a lack of dollars and trust.
Just as it can be risked that one reason for voting for Massa was the “Platita” plan, it can also be read that 60% of the electorate (Milei, Bullrich and Schiaretti) voted in favor of fiscal balance and an economy with fewer taxes and controls than that implemented by the government.
After the climb that took the blue dollar to the record of $1,050 and turned on all the red lights on the expectation of a devaluation, one question is whether the result of the first round of the elections leaves room for any lasting decompression.
The strategy of patching the patches with new debt or of fiscally moving away from the commitments made with the IMF to finance consumption before the elections, plus the fear of dollarization or the elimination of the Central Bank, helped to an electoral result that does not clear exchange rate uncertainty.
The transition risk changed the position of some of the doubts but the horizon remains clearly uncertain.