Argentina Macroeconomic Perspectives

The government placed new FX regulations aiming to preserve international reserves amid a confidence crisis due to political uncertainty:

• New measures followed last week´s term extension of short-term debt as Treasury was unable to roll them over. Since 11A primary elections, the outlook changed significantly due to Macri´s low reelection chances, negatively affecting confidence. Hence, US dollar demand increased, and dollar denominated deposits dropped USD 3.7b in 11 working days

• Similarly, international reserves fell USD 12.2b in two weeks, mostly used for debt repayments, but also due to Central Bank´s trading in the FX market. The CB also increased the policy rate by almost 10 pp to 85.28%

• Despite latest regulations distinguish between individuals and businesses, in order to safeguard individual investors and does not affect the grand majority of them, the government is paying a high political cost. Furthermore, the IMF is delaying the approval of a USD 5.4b disbursement

• The immediate effects were peso appreciation together with the rebirth of the informal or blue dollar market. Where spreads with the official exchange rate will likely reach 10%. On the supply side, exporters are now obliged to settle funds within a specific time frame, which should help stabilize the exchange rate. While the banking system´s US dollar liquidity is expected to be enough to satisfy saver´s demand