By Jorge Vasconcelos

Like every government in its last year of management, the north of the administration is in the antipodes of the correction of the imbalances of the macro. It is only a matter of obtaining financing to coexist with these imbalances, which implies continuing to increase the debt in pesos of the Treasury and the Central Bank, and also resorting to foreign trade credit from Banco do Brasil, promoting Argentine imports of that origin, to be paid in 2024.

All the instruments point in the same direction, but already high debt ratios and political uncertainty can combine so that the financing of these imbalances ends up being incomplete, forcing the government to use more “inflation tax” than recommended by the manuals of the politics. If financial jargon were more popular, the appropriate title for this article would be: “it all depends on rollover”. These are tribulations that Uruguay, the “little brother”, does not go through, with a GDP that this year will be 6 points above the pre-covid level and a poverty rate of 10%.

At the start of 2023, the government’s concerns were aimed at stopping the widening of the exchange gap, which had once again exceeded 100%, and removing obstructions to the supply of imported products, due to the collateral effects that this has on inflation and the activity level.

To partially compensate for the shortage of imported inputs, an extension of the terms of Banco do Brasil’s foreign trade lines is being negotiated, an option much humbler than the declaimed “common currency”. Regarding the exchange gap, something similar happened, since a process of “liability management” was overreacted and ended with a simple operation that seeks to justify sales interventions in the exchange market by the government, in order to limit the rise of the free dollar. And, since this mechanism does not seem to give results, a tightening of monetary conditions is outlined due to a series of measures by the Central Bank.

In 2023, the gross issuance due to interest from Leliq and central bank interventions in the secondary bond market will very likely exceed 8 points of GDP, multiplying the Monetary Base by 1.7. The scaffolding is fragile and is only supported by the sustained demand for fixed terms and Treasury debt bonds. Regarding the level of activity, official data confirms that the peak was in August, and the slide threatens to continue in the first months of this year.

A negative number for the change in GDP in 2023 is increasingly likely. One factor that operates in this direction is the displacement of credit in favor of the public sector, which leaves loans to the private sector as the adjustment variable. In 2022, of every 100 pesos of increase in bank deposits, only 35 pesos were derived towards loans to families and companies. A change in this dynamic in 2023 does not seem feasible, given that the measures established at the start of the year to combat the widening of the exchange rate gap reinforce the role of the Central Bank as a “vacuum cleaner for private savings.”

Another of the factors that explains the slowdown in GDP is the lack of imported inputs, and it is on this level that the government perceived the negotiations with Brazil as a “lifeline”. Of course, the “little brother” is Argentina: while the net reserves (5 billion dollars) are enough to pay for a month of imports, the foreign assets of the Central Bank of Brazil (325 billion) are equivalent to 15 months of their purchases abroad.

It is not a question of creating trade, but of diverting flows, substituting Argentine suppliers that are less willing to increase their credit to the country. Nor will there be exchange insurance for importers, who will have to anticipate how many pesos they will need to pay for today’s purchases in a year. If this new line works, Argentina’s bilateral deficit with Brazil will have to climb from 3.3 billion dollars in 2022.

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