The influx of USD will enable the BCRA to maintain a controlled pace of ARS devaluation for an additional few months
Finance “Super” Minister Sergio Massa’s meeting with IMF officials on September 12 will be crucial, as Argentina remains unlikely to reach targets included in the agreement, but a wholehearted effort to tackle macroeconomic imbalances may improve the likelihood that the IMF will water down or extend the goals Argentina needs to meet to secure future disbursements. On the FX front, we expect the pace of USD depreciation to continue to accelerate; however, a large, one-off devaluation is no longer imminent. Still, firms should continue to monitor Argentina’s international reserves position, as risks of a messy devaluation in 2023 remain high.
Overview
Super Minister Massa is making strides in shoring up the country’s international reserves to stave off a harsh devaluation. Not only was Massa able to secure around US$ 6 billion in additional funding from the World Bank and the Inter-American Development Bank this week, but also, the new special exchange rate that he implemented for Argentina’s soy producers is already strengthening the BCRA’s reserve position. The “dolar soja” enables producers to sell USD from exports at a rate of 200 ARS:USD during September. Previously, agricultural producers exchanged USD at the official rate of 139 ARS:USD, with a 33% tax on soy exports. With a devaluation seemingly on the horizon, producers held on to grains after the Q2 harvest in hopes of securing a more profitable exchange rate. However, soy exports are a key source of USD for the BCRA, leaving reserves in dire straits and putting immense pressure on the ARS. Within 72 hours of implementing Massa’s decree 576/2022, close to US $1.1 billion was liquidated amid record grain sales. Per the decree, the government aims to push exporters to cash out above US$ 5 billion during September.
Our View
While Argentina will not be out of the woods if it succeeds in securing its US$ 5 billion dolar soja target, the influx of USD will enable the BCRA to maintain a controlled pace of ARS devaluation for an additional few months. It will also strengthen the government’s negotiating position entering its September quarterly review with the IMF, as Argentina is so far falling short of the fiscal deficit, monetary emission, and reserves targets established in the agreement. Still, this move comes with key drawbacks—biodiesel prices rose close to 50% this week, hitting SMEs hard and raising risks that, if prices remain elevated, headline inflation could rise even further this month.
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