Massa, minister: the free dollar fell and stocks and bonds stabilized, pending the implementation of the economic plan

Massa’s announcements were well received, but implementation is awaited.

The financial indicators ratified a certain stability and caution regarding the implementation of economic plan presented by Minister Sergio Massa this week. The dollar prices outside the “stocks” yielded, the prices of stocks and bonds ended up in balance and the country risk was close to 2,400 points, far from the almost 3,000 recorded two weeks ago.

The index S&P Merval of the Buenos Aires Stock Exchange, at 121,003 points, subtracted 1.2% weekly in pesos and did not change measured in dollars “counted with liquidation” implicit in the prices of Argentine ADRs on Wall Street.

Source: Rava Stock Market.  Prices in dollars.
Source: Rava Stock Market. Prices in dollars.

For Argentine stocks and ADRs on Wall Street there was price dispersion. While Free Market (+25.9% driven by an excellent balance in the second quarter), Edenor (+13%) and Globant (+16%) advanced strongly, other reference papers such as YPF (+1.2%, at USD 3.75) and Grupo Galicia (+0.2%) rose moderately.

Global bonds, in dollars with foreign law, averaged a slight drop of 1% on average, while the JP Morgan’s country risk, at 2,398 points, did not offer variations in the weekly balance, thanks to the compression of rates with US Treasury bonds. The performance of Treasurie a ten-year bond rose 20 basis points in the week, to 2.84% annually.

Massa, communicated a series of important measures: strengthening of reserves with the sum of USD 7,000 million, maintenance of the fiscal deficit goal of 2.5% agreed with the IMF, adjustment of subsidies and the reorganization of social plans, among others.

Diana Mondino, economist and former General Director of Standard & Poor’s for Latin America, pointed out that “to be effective, the measures have to be aimed at three simultaneous objectives: reduce public spending, promote exports and reduce BCRA liabilities. It’s hard to accomplish all three quickly, of course; but -at least- they must be in that direction”.

“Short-term measures are by definition a palliative and will be more effective the sooner structural changes can be attempted. It is not fair to the new minister to pretend that there are drastic changes, but it is not desirable that there be delays in implementing them, “said Mondino, and pointed out that “the announcement that no more transitory advances will be requested from the BCRA is positive and that, in addition, will refund $10,000 million. Also the announcement that they will unify a large part of the expenses of the decentralized areas of the State. Hopefully I can make it.”

The Free dollar gave up three pesos at the beginning of August, at $293 for sale, while the stock market parity of the “cash with liquidation” also subtracted three pesos, to 285.22 pesos. The MEP dollar closed at 281.51 pesos.

Joaquin Markdirector of UG Valores, stated that “in order to achieve the announced primary fiscal adjustment, the political power will have to move away from its dogmas and go against its voters, which is why if it is carried out it will have great political effects on the coalition of government, and inconveniences in the neglected sectors that have accompanied government policies until now”.

“The market considers the announced measures insufficient and believes that they are just a patch to get to the World Cup and the summer and then take advantage of the trade election with the polls, similar to what happened in 2015 when the expectations of a change of government managed to finance and sustain the assets in a year of great economic complexity”, Marque pointed out.

In any case, the director of UG Valores observed that “at the moment investors are giving the economic team a few days to settle down and see if the measures stated were just voluntarism or will be supported with concrete actions. Since Sergio Massa joined Economy, greater coordination has been observed in the different economic areas and between the BCRA and Lisando Cleri’s team”.

An indicator that aroused concern was the sales made by the Central Bank in the exchange market. The entity ended its intervention for the week with an accumulated negative balance of $700 milliona decline that impacted the level of net reserves.

Gabriel Torres, Moody’s vice president and senior analyst for Argentina, stated that the measures “include the commitment to meet the primary fiscal deficit target of 2.5% of GDP agreed with the IMF, for which energy subsidies will be reduced and there will be no more transfers from the Central Bank to the Treasury. Massa also announced the strengthening of the BCRA’s international reserves through incentives for exporters to liquidate more foreign currency and financing from the private sector”.

“Moody’s considers that these measures are moderately positive in credit terms, since the Argentine government has had great difficulties in sustaining fiscal consolidation. Given the high political volatility in the country, Moody’s expects little general support for austerity policies before the 2023 presidential elections, which will continue to weaken the country’s ability to meet IMF targets, especially on fiscal matters. ”, underlined Gabriel Torres.

“Achieving a significant and lasting impact on the external sector would require a correction of the exchange rate policy, but to carry out this task it would be necessary to strengthen the fiscal and monetary anchors, with deeper measures than those announced,” he said. Jorge Vasconcelos of the Mediterranean Foundation.

Vasconcelos estimated that “there may be fear of the impact that this would have on the level of activity, but the first data for July already show a brake, originating in the acceleration of the inflation rate and the difficulties in the supply of imported products. , forces that depress demand and supply at the same time”.

the financial analyst Christian Buteler He highlighted that “the first thing he marked was a fiscal order. In this fiscal order, the first point speaks of meeting the goal established with the IMF of 2.5% public deficit. It is positive that this figure is maintained, because the fiscal deficit is one of our main problems and that they really want to maintain and comply with this. It seems to me that this is one of the positive points without going into detail about what expenses are going to be cut sharply in order to achieve this, given that there is not much more to gain from the income side either.”

“The other point that it marks is that there will be no more Treasury Advances that will be requested from the Central Bank in the remainder of the year. Honestly, for me that is the best thing that has been mentioned in this conference. Cutting off advances from the Treasury means cutting the issuance a bit, and that is one of the main measures we need to be able to start ordering the public accounts and lowering inflation,” added Buteler.

Convener the IAE of the Austral University, Edmar Bacha, a Brazilian economist who instituted the Real Plan for Brazil, considered that “the announced measures go in a good direction, in order to restore confidence in the conduct of Argentina’s economic policy. They remind me of the Immediate Action Program announced by Fernando Henrique Cardoso in June 1993, before the launch of the Real Plan in December of that year”.

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