energy to reserves

energy to reserves

Of the four objectives that Sergio Massa set to start his term as Economy Minister, the two most urgent are the accumulation of reserves and the containment of the social situation. The fiscal order and the increase in the commercial surplus, the other two, have longer execution periods and results that are seen in months.

The departure of 700 million dollars from the Central Bank this week accelerated the times. In his first announcements, Massa displayed a range of options in which he works to obtain foreign exchange for reserves. With that he managed to placate the exchange rate run, which before his appointment had brought the price of financial dollars to 340 pesos, to go back to 290 this Friday. But the bleeding of greenbacks did not stop.

The main reason is the need to pay for energy imports. The invoice of each ship that brings liquefied gas reaches 130 million dollars, while those of diesel are located around 30 million. It is a daily pressure on the reserves that the Government, until now, decided to assume, in order to avoid the collective and political bad drink of having to have rationing of gas consumption.

The possibility of sustaining that decision will depend on the success of Massa in his plan to obtain dollars in the next two weeks. If it works, foreign currency will continue to be disbursed for the purchase of energy, without affecting industries or eventually other users. But if the mission to collect dollars does not reach the goals projected by the minister, restrictions seem inevitable..

Another key issue is what cost is accepted to pay to get foreign exchange. The three foreign banks with which the Minister of the Economy is negotiating Repo-type financing lines, with guarantees of public titles, for some 2,000 million net dollars, would seek an annual interest rate of 15 percent in dollars. The fourth ongoing negotiation is with a Qatari investment fund, but the talks are at a less advanced stage.

In 2016, then-minister Alfonso Prat Gay took similar loans at 11 percent, and it was already considered excessive.

The account of costs and benefits of each determination stresses the Front of All. For some, reopening the voluntary debt market is an important signal to contain the very strong devaluation pressures, while others understand that validating such a high interest rate exposes the seriousness of the financial drowning and will only make things worse.

To cut or not to cut

“In Europe they are taking forced energy saving measures and are looking for a way around it to reduce consumption. Spain passed a law so that air conditioners do not work below 27 degrees. Here we are partying, importing with dollars that we do not have”, protests one of the economists of the ruling party. “By not assuming the political cost of limiting energy spending, we are going to eat the political cost of running out of reserves”alert.

The greatest effort for gas and fuel imports ends this month. Ships still have to be brought in at a rate of 35 to 40 dollars per million BTU, against the 8 dollars that were paid at this point last year. The cost grew from $600 million to $800 million per month in 2021 to $2 billion today.

The forecast for September is to replace the purchases of ships with LNG for gas brought from Bolivia, at a much lower price, from 16 to 18 dollars per million BTU. The energy account falls by half, about a billion dollars, while in October and the following months a gradual decline continues until it stabilizes at around 700 million at the end of the year.

One factor that now plays in favor is that hydroelectric dams are providing more and more energy, much cheaper, and this trend tends to consolidate. Instead of running out of water, there is now more than enough. Brazil’s generators are almost at full capacity and Yacyretá’s supply is also improving.

These data strengthen the position of those within the government that Alberto Fernández and Massa should cut gas imports this month, if there is no other option, but not risk continuing to lose reserves and be exposed to an uncontrolled devaluation.

How to get greens

Massa, as was said, deployed a battery of actions to build a fund of some 7 to 8 billion dollars over the next 60 days. One of the sources that officials of the economic cabinet see with more possibilities are the disbursements of international organizations, including the Inter-American Development Bank (IDB), with whose head, Mauricio Claver Carone, the minister was negotiating during the week. There are about 2,000 million dollars, adding what would come from CAF, the IDB and, later, the World Bank.

On the other hand, the greater controls of the Customs and the AFIP to avoid maneuvers of underinvoicing of exports and overinvoicing of imports try to close a hole through which between 400 and 500 million dollars are lost per month, according to estimates of the last days.

As for the dollars that the field can contribute with the sale of soybeans held in silobags, thanks to the new incentives, expectations are rather moderate. “The large rural producers are in a militant action for devaluation and most of the leaders are going for a destituent movement. They are part of a political apparatus”, they evaluate in the government. In any case, officials acknowledge that “with this exchange rate gap, it is almost impossible for them to liquidate.”

the vicious circle

“As long as the expectation is maintained that there will be some kind of improvement for them to sell, be it new incentives or an exchange rate correction, they will sell less until they see what happens,” they analyze.

That creates a vicious circle. Without foreign exchange to reinforce the reserves, Massa does not want to advance with a devaluation. Last week it was published here that the minister’s options are to devalue, unfold the exchange market or create new incentives for those who have dollars to liquidate them. The latter is what happened with the announcements of last Wednesday. The sequence, if reserves grow, would then be to split the exchange market between a commercial dollar, for exports and imports, and a financial one, for hoarding and tourism, and finally produce an “orderly” exchange rate correction.

“The devaluation will be compensated or it will not be. The market wants a jump of 40 to 50 percent. That is impossible without producing an inflationary collapse. At best, an adjustment of 15 to 20 percent can be considered in the future, but with strong policies of price containment and recomposition of popular income, as was done in 2014”, they point out in the government.

The reinforcement for retirement and pensions that will be announced next Tuesday, as Massa anticipated, plus the meetings with unions and employers to shore up wages are essential actions at this time. Social needs, beyond the dollar, are also pressing and the Front of All must respond to have room for political actionin a scenario that is expected to tighten and continue restrictions.

Source: Pagina12

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