Friday , December 3 2021

Five financial indicators hold warning signs in the short term


Argentina's economic vulnerability increases as the international context worsens. The disappointing forecasts for the global economy led, for example, to December Wall Street will be negative in 2018 and both Local exchanges as the foreign exchange market accused the coupon in a year close that already made red numbers in full.

There are five indicators that must be followed day by day as they provide a clear signal of the deterioration in Argentinean prices, making it possible to quantify the economy's fall in 2018, which may be the worst year since the 2009 recession.

1) Land risk. Above 700 points, this index that measures the exchange rate differential for the emerging debt against the US government bonds reveals impossibility for Argentina to finance its public deficit without the help of the International Monetary Fund.

Today, the 10-year US government bond yield returns to 2.89% per annum (289 points). Argentina would have to reduce its country risk to 300 points, to lower its governmental rates to 6% per annum in dollars, a very high return relative to what is paid by other economies, but relatively available for future repayment of the debt.

Argentina has less than two years to reach that goal, then the agreement with The IMF guarantees the payment of the debt until 2020. Land risk in highest level of four years -marked 800 units on December 17, 2014- expresses the level of distrust of investors about the opportunity to return to the voluntary credit markets.

2) Waterfall in dollars. The leader in the actions of Býma (Argentina bags and markets) lost half of its value in 2018 when measured in dollars. Even in pesos, there is almost no profit (+ 3.7%) in one year inflation exceeds 45 percent.

The Merval panel began the year with 29,974 points, approximately 1,607 points in dollars, when the register was divided by the exchange rate at the end of 2017. It is now around 815 points, after plumbing a floor of 710 points on September 4th.

With inflation as high as Argentina, Merval can only show gains in pesos by replicating the average price path for the economy, but it will not be one palpable recovery until The result can be reported in hard currency and with a consistent volume of business that gives strength to the increase.

3) High prices. the exchange by 2018, caused by collapse of accumulated debt in the central bank balance sheet, catapulted the resignation of two presidents of the unit within a few months. the The devaluation of the Argentine peso "disappeared" this debt, as for the letters Lebac, was replaced as an instrument for liquidity absorption by Leliq from October, which occurred from 110% of international reserves at the end of April to 42% at the end of November.

But that was it Record interest rates that included escalation of the dollar. They reached 73.5% annually in pesos in early October and went back now to 59%, but they remain extremely high and deepening the contraction of the economy. At this rate, it The stock of BCRA debt continues to rise and again the company's debts It could be a threat for financial stability as it happened from the second quarter of this year.

High interest rates are effective in the short term, but with continuity for several months they start to produce an effect that is contrary to the sought-after: Expectations on inflation and devaluation are increasing. Therefore, it is important that the reference rates fall in the short term to a level closer to the expected inflation.

4) Price on the dollar. the highest inflation rate of 27 years which registers the Argentine economy It has to do with the exchange rate: If prices of goods and services go up, then the price of the dollar makes a good one in the economy. So many marketable products have the dollar value as a significant part of the price, and the dollar's upturn also affects these goods more expensive in the domestic market.

In 2018 the dollar price was raised more than 100 percent, after accumulating a strong slowdown in 2016 and 2017. Cumulative inflation since the government's adoption Mauricio Macri It was close to 162%, while the dollar's increase was 181%, from $ 13.93 the retail dollar was December 17, 2015 – when the stock "stock" was released – to 39.19 USD today.

That is to say that Dollar recovered this year lost the ground against inflation and exceeded it by almost 20 percentage points, in a behavior that would not be surprising because of the uncertainty about the economy's development. But that would be another The government's mistake to re-invest in the debt to speed up a reactivation in the election year because the sudden hopes of the kind of change that happen with these episodes destroy the expectations.

5) Reservations. The central bank's international assets are backup of all weights issued by the central bank. The dollar provided by the IMF goes as fast as they enter because they have an exclusive function of paying the national debt and avoiding a standard.

That is why it is important that Argentina returns to generate dollars through real activity, with trade surplus on goods and services, so that foreign exchange reserves grow in a sustainable manner and follow one role as a stabilizing factor for inflation and the dollar and guarantee the ability to payment of the debt in foreign currency.

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