Argentina raises the dollar and imports in a nod to the IMF – 07/24/2023 – Market

In the midst of an economic crisis, Argentines will pay more in the dollar to save and import from this Monday (24th), according to a package of measures announced by the government and aligned with the IMF (International Monetary Fund). The objective is to contain the flight of foreign currency and increase the country’s collection to be able to settle the debt and avoid a general devaluation of the peso.

Without the credibility to get international credit, the neighboring nation made a loan of US$ 57 billion with the Fund in 2018, the largest in history, during the management of Mauricio Macri. To avoid default, his successor Alberto Fernández rescheduled the debt and renegotiated the amount to US$ 44 billion in 2022, providing for ten quarterly reviews of the agreement.

The fifth of them is taking place now, which is why a government team has been in Washington since the last 16th. On the one hand, the country wants the fund to release loan installments and extend payment terms; on the other hand, the IMF pressures the country to balance its accounts. Argentina needs to meet several targets for cutting spending, fiscal deficit and inflation, but so far it has failed to meet many of them.

This Sunday (23), both parties announced on social media that they had finally reached a principle of agreement. “The objectives and central parameters that will serve as the basis for a ‘Staff Level Agreement’ were agreed [acordo em nível de staff] which should be finalized in the next few days and then proceed with the revision of the program”, they announced.

Hours later, on Monday, the government formalized the package of changes it will make to show goodwill to the Fund and also calm exchange rate pressures – the parallel “blue” dollar, which governs the day to day of Argentines, has jumped from 495 to 528 pesos (7%) in the last two weeks. The intention is to avoid more drastic measures, such as a generalized devaluation, due to the shortage of foreign currency in the country.

Instead, Economy Minister Sergio Massa, who will run for president in October on the Peronist coalition, decided to devalue the peso in just a few sectors. This is possible because in Argentina there are about ten different quotations controlled by the government — this is also why the parallel market, in clandestine exchange offices, has grown in recent years.

Now, the dollar officially bought by Argentines in banks to save money, called “savings dollar” (or “ahorro” in Spanish), has become more expensive and equaled the “tarjeta dollar” (paid by them in international purchases on the credit card). The high was about 15%, from 426 pesos to 490, according to the values ​​of last Friday (21).

The change affects around 900,000 people, equivalent to 2% of the population, who usually buy that dollar every month. Not everyone has access to it because, as reserves dried up, the country’s Central Bank imposed more restrictions. For example: it is only allowed to buy up to US$ 200 per month, and those who receive government subsidies cannot buy it.

It also became more expensive to import, since the government increased the tax included in the “dollar for the importation of goods” and in the “dollar for the importation of services”. The rate will be 7.5% in the case of goods, except for medicines and basic basket products, and 25% in services, also with exceptions in the areas of health and education. According to the government, imports that generate exports, such as soybeans and the automotive sector, will not be affected.

Another quotation that became more expensive was the “agro dollar”, this time to stimulate exports and the inflow of foreign currency into the country. Afraid of the devaluation of the peso, many Argentine producers tend to store tons of beans in “chorizos”, giant plastic sausage-shaped bags, instead of selling them.

From time to time, then, the government has increased the value of these products to encourage them to get rid of stocks. Until today, farmers received 300 pesos for each dollar equivalent sold, now they will receive 340 by the end of August. But this time, the increase is not valid for soybeans, the country’s main export, whose last crop was affected by a historic drought.

It also still does not compensate for the high price of imports, according to Juan Pedro Malacalza, 31, a producer from the city of Zárate, 90 km from Buenos Aires. “You sell your cereal stock at low prices and have to buy inputs to sow again at high prices. I doubt that anyone will sell thinking that the price will devalue in a short time”, he says.

Minister Sergio Massa defended himself against criticism from the countryside at an agro exhibition in the Argentine capital this Monday. “There are transitory measures that can be more or less pleasant, or more or less questionable, but that have to do with the reality of the moment. And you cannot analyze them without taking into account the conjuncture”, he spoke.