The government will continue to protect the central bank’s reserves amid energy import pressures into 2023
Firms should continue working with local chambers of commerce to rally support for loosened restrictions, or, when applicable, make the case to the Sistema de Importaciones de la República Argentina (SIRA) that their inputs classify as indispensable given the risk of paralyzing production of essential goods. In the meantime, however, firms will need to adapt to operating challenges that are likely to persist throughout at least H1 2023. Import restrictions and barriers to USD access are already straining firms’ relationships with suppliers; firms should work to preserve key supplier relationships and mitigate long-term reputational costs. Local teams should ensure that they are communicating often and closely with headquarters and, where possible, establishing alternate supplier repayment strategies.
Overview
- In June, Argentina tightened restrictions to USD access for imports, which the government then expanded in October. These restrictions are hitting MNCs operating in the country hard, particularly firms within the industrial sector, which could be forced to suspend production due to lack of inputs, as experienced, for instance, by Fiat’s factory in the Córdoba province in late October.
- The restrictions implemented in June strained importers with non-automatic licenses, who were asked to wait up to six months to a year to access the USD needed to pay their suppliers. For firms with automatic licenses, an increasingly narrow group, access to USD was capped at 5% above the amount imported in 2021, with some key exceptions.
- In October, the government further tightened import restrictions by implementing the SIRA system to closely regulate import requests. The SIRA system facilitates SME operations by reducing the import payment timeline to 60 days (down from 180). However, larger firms are not only still subject to the 180-day timeline, but are also experiencing increased barriers to securing import permits, severely impacting operations.
- Within two weeks of its implementation, the SIRA system had only approved 50.8% of operations, with the other half of the firms that applied unable to secure an import permit. Key actors in Argentina’s industrial sector, including mining, manufacturing, forestry, and auto, have warned the government that the USD crunch may lead them to suspend production.
Our View
While the government stated that the restrictions would remain in place until December 2022, FrontierView expects these restrictions will likely be extended into 2023 given Argentina’s fragile reserve position. Argentina’s September soy FX rate boosted reserves by close to US$ 8 billion, but net reserves remain at multi-year lows, as an increasingly challenging external environment and global energy crunch continue to strain the net energy importer—overall imports increased by 40.4% YOY, propelled by an upsurge in fuel imports (164.4% YOY). Recent measures taken by the government, including renegotiating Paris Club debt and implementing a local debt swap and a currency swap with China, may somewhat release pressure on reserves, but energy import pressures are expected to heighten as global tensions with Russia persist and Argentina enters its austral summer. Therefore, we anticipate that the government will continue to prioritize protecting the central bank’s international reserves, particularly in the months prior to the Q2 2023 harvest when the country can expect higher USD inflows.
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