Martín Guzmán and the IMF talk about accumulating reserves in 2022 but do not explain how it will be achieved

The accumulation of reserves is one of the priority objectives that the IMF imposed on the Argentine government for 2022. To such an extent that it was an aspect highlighted by the organism’s statement that was known last Friday, after the meetings held in Washington between the Fund staff and representatives of the Argentine Ministry of Economy. It is, however, an expression of goodwill: until now no one has explained how the Central Bank will be strengthened.

In theory, the almost USD 42,000 million of reserves that the BCRA has would be enough to prevent any type of external shock and reduce economic fragility. They represent 10% of GDP, a “floor” when evaluating optimal levels for any country. Of course, this is a “liar” figure: it includes some USD 10 billion of reserve requirements in dollars (corresponding to savers) and another USD 20 billion of the currency swap with China, which is difficult to apply.

The coinciding calculations of the economic consultants estimate that only about USD 5 billion of net reserves remain and the level of liquid reserves is at critical values. In other words, the BCRA has almost run out of foreign currency to intervene in the exchange market, it can only do so in a trickle.

All this despite the spectacular trade surplus achieved this year, close to USD 15,000 million. The good harvest and high international prices were key to such a result. To this was added the equivalent of USD 4.3 billion granted by the IMF through the distribution of Special Drawing Rights (SDR). The Central Bank missed a possibly unique opportunity to strengthen its reserve position and remain in a less fragile position.

For next year there will no longer be extraordinary draws from the Fund. In addition, the trade surplus will fall substantially, because the prices of soybeans and other raw materials will no longer be as high and imports will increase faster. The Minister of Economy, Martín Guzmán, ratified yesterday when he presented the guidelines of the 2022 Budget in Deputies that the trade balance will reach about USD 9,000 million next year.

Accumulating reserves in this context is almost impossible, unless there is a sudden recovery in confidence. The economic team has already taken some concrete measures that aim to lose less dollars. In that direction was the decision to stop selling reserves to maintain the price of financial dollars . This caused a strong initial jump in the MEP dollar and the “cash with liquidation”, although in the last few days the prices dropped significantly. In the last year, the BCRA sold more than USD 3,000 million to prevent the exchange gap from widening, although the attempts were unsuccessful.

The government missed an extraordinary opportunity this year. Despite the trade surplus of USD 15,000 million, the Central remained in a critical position of reserves and the reduction of the exchange gap is complicated

The agreement with the Fund also aims to dedicate fewer dollars of the surplus to reducing commitments with multilateral organizations. It will be necessary, of course, to allocate dollars for the payment of debt with private bondholders, although the amounts are not so significant. In January, for example, there are maturities of almost USD 700 million that will have a direct impact on reserves, but then the volume is substantially reduced.

On the other hand, the BCRA will continue to intervene to smooth the rise in the official exchange rate. The goal is to accelerate the rate of depreciation, but gradually. Guzmán himself assured that the intention is that there are no sudden movements in the exchange rate in 2022, but for that he will need to maintain a strict exchange rate and continue with the official intervention to supply the supply of dollars. On the other hand, companies also demand foreign exchange to meet the debt maturities that arise, although they can only access 40% of the total. The rest must be refinanced, as has been the case since the end of 2020.

The key to turning around this trickle in reserves despite exchange restrictions would be a recovery in confidence, accompanied by a drop in country risk. This would allow companies to regain access to markets and thus bring in dollars. In addition, foreign exchange earmarked for investment could also enter. But for that, we will have to wait for the agreement with the Fund and improve expectations based on an economic plan, which for now still does not appear.