Report Nº: 91716/06/2021
The high soybean price sparks optimism due to the inflow of dollars. But the distortions accumulated in the Argentine economy mean that even high export prices are no longer enough. It must be emphasized that several of the government’s mistakes were supported in Congress by the opposition.
In October last year, the black market exchange rate reached over $170. This was the result of the huge money printing boosted by the measures to alleviate the confinement. From that moment on, the economic authorities changed their strategy. The national Treasury began to finance itself more with indebtedness and less with monetary expansion. In addition, a more conservative behavior in public spending and some loss in its real value by high inflation allowed to show practically no primary fiscal deficit in the first four months of the year. This made it possible to keep the black market dollar at around $150.
Coincidentally, also in October last year, the price of soybean (Argentina’s main export complex) began to rise steadily. From a relatively good value of U$S 380 per ton, it reached U$S 500 in January and U$S 580 at present. In addition, international prices of wheat and corn, two other products with a high impact on exports, also increased. This is excellent news in the face of the exacerbated shortage of foreign currency.
How did this boom in the prices of exported products together with the lower monetary expansion impact the Central Bank’s reserves? According to Central Bank data it is observed that:
These data show that the high price of soybean is still not enough to revert the loss of reserves caused since the new government took office. The reason is not that exporters are hoarding foreign currency (the Central Bank bought U$S 6 billion since October to date) but that it had to face obligations of the Treasury in dollars (mainly with international organizations) and of the Central Bank itself (dollar-denominated debts that it has with domestic and foreign banks). Furthermore, the Central Bank had to sale foreign currency to pay for imports. That is why reserves are not growing enough.
High international prices, together with the deceleration of the fiscal deficit and money printing, are making it possible to pay imports and honor commitments in dollars. But the situation of the Central Bank and the economy continues to be extremely precarious. The slowdown of the fiscal deficit is mainly supported by the (transitory) value real loss of salaries and pensions. The counterpart of the lower monetary expansion is the strong growth of both the Central Bank’s debt (Leliqs and repos) and the Treasury’s debt (Bills). These instruments reduce short-term money issuance, but increase future issuance due to the interest accrued on this debt.
What is becoming clear is that not even the high price of soybeans is enough to compensate for the growing disorder of the public sector. Cases of inefficiency and carelessness prevail. Congress approves a law reducing the income tax and, up to now, it has not been implemented. The update of the Monotributo (small taxpayers’ regime) is delayed for 5 months, generating tax debt to those who were up to date. Gas subsidies are extended to the so-called cold zones, adding more high-income families to the subsidy while a large number of poor people are excluded because they do not have access to the gas network. What is most discouraging is that the government’s mistakes were made with the legislative support of the opposition.
The sardonic phrase that “God is Peronist”, alluding to the fact that when Peronism governs, the price of Argentine exports rises, has good grounds. Nevertheless, with the bad management of public policies, these opportunities have been historically wasted. The novelty, in the current context, is that the level of degradation has reached such a level that not even with the good luck of high international prices is enough.
