[Markets] Once again, Buenos Aires extends the deadline for BP21 holders’ consensus to February 3rd. Guzman defined an agenda. The Blue Swap Chip and the sovereign spread moved upwards. The government issued Lebads for ARS 18.7bn. Buenos Aires province issued bills for ARS 9.3bn. The government has obtained the approval of the restructuring law in the Chamber of Deputies. There are doubts about the AF20 capital payment. On the following week, the treasury will have to disburse USD 400m and ARS 5.3bn.
[Exchange balance] As we expected, in December the private current account reached USD 1.7bn while the financial account left evidence that capital controls were more effective than we thought (USD -1.3bn) since the premium was higher than expected. Also, by 2020 we expect capital controls to continue to strengthen and to affect the external front negatively. Likewise, and in line with expectations, the dollars demand for the payment of imports of goods remained high in December due to the expectation that capital controls for imports will be reinforced in the coming months. On the other hand, the Blue Swap Chip remains at the highest level in historical terms while the official Real Effective Exchange Rate continues to appreciate.
[Monetary] The Central Bank reduced its reference rate from 50% to 48% of the previous week and returned to a more expansive monetary policy. Furthermore, short term rates private market decreases significantly. In addition, the BCRA had absorbed a significant number of pesos by its instruments that was not enough to offset the expansion by FX purchases and, mainly, treasury financing. For its part, private Badlar continues its downward trend. Regarding FX purchases, after the FX agro sales and the Buenos Aires aggressive restructuring proposal, the Central Bank has reduced FX purchases. Finally private aggregates grew at the most significant rate of the previous years.
[Markets]
Once again, Buenos Aires extends the deadline for BP21 holders’ consensus to February 3rd – After having extended it from January 22 to the 31, the province extends once more the deadline due to the fact that it did not reach the 75% consensus level from BP21 bondholders. However, as we stated in our report from January 17th, we believe that they will not reach the 75% consensus level but will pay anyways to not complicate the national government negotiations.
In this context, the Blue Swap Chip closed this Friday at ARS 85.7, which implies a premium of 42%, +2.5% WoW. On the other hand, the EMBI+ reached 2083bps, +0.6% WoW – The premium is on the highest levels since the imposition of capital controls last year. Blue Swap Chip premium
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Guzman defined an agenda – In the Treasury Department‘s website, it has been published the “Schedule of the actions to manage the Process for the Restauration of the Sustainability of the External Public Debt” that indicates the steps and dates to follow in order to continue with the process of restructuring. As it was pointed out by the government, this agenda agrees with the fact that the deadline to finalize the negotiation is in March’s last week, a date that we consider is too optimistic. From our view, it is likely that the negotiation will extend to the second semester even in a “market-friendly” restructuration scenario. In a more aggressive scenario, we expect that the negotiations will extend even more, as we stated in our report “The Ways of debt restructuring“.
The government issued Lebads for ARS 18.7bn – It issued two types: one was an extension from the one issued last week with maturity on May 28th (ARS 10bn) and the other is a new one with maturity on August 28th (ARS 8.7bn), at a Badlar rate + 2%. We believe that it was in its majority from the private sector because the public sector participated entirely in last week’s bond exchange.
Buenos Aires province issued bills for ARS 9.3bn – Although it did not inform how much was from the public sector (we estimate its participation was considerably high), the province achieved to roll over almost 100% of the maturities (ARS 9.6bn). It was issued ARS 2.5bn for 28 days with a 35.5% APR, ARS 2.5bn for 60 days with a 36.5% APR and ARS 4.3bn for 181 days at a Badlar rate + 5.75% APR.
The government has obtained the approval of the restructuring law in Chamber of Deputies – This bill allows that the restructuring of the external debt will be voted in the Senate House the following week.
There are doubts about the AF20 capital payment – Although the disbursement is on ARS, by having USD denomination for being a “dual bond”, there are rumors that there may be an exchange because Guzman pointed out in the last week conference press that they won´t pay “USD bonds amortizations”. On the following week the treasury will have to disburse USD 400m and ARS 5.3bn – On the other hand, last week it paid USD 508m and ARS 15mm.
Net USD debt service for the rest of the year – in USD millions
Net ARS debt service for the rest of the year – in USD millions
[Exchange balance]
As we expected, in December the private current account reached USD 1.7bn while the financial account leaves evidence that capital controls were more effective than we thought (USD -1.3bn) since the premium was higher than expected. In line with our estimation, the current account is mainly explained by the result in goods of USD 2.0bn driven by export incomes (effective USD 3.2bn and anticipated USD 1.5bn) and also by the increase in import payments (USD 3.7bn) due to the expectation that the capital controls will continue to strengthen. On the other hand, the External Assets Formation surprised to the upside reaching USD +0.1bn against USD -0.5bn, which was expected due to the restriction in the bill purchases.
By 2020 we expect capital controls to continue to strengthen and to affect the external front negatively. Thus, we estimate that the current account for 2020 will reach USD 5.6bn (1.2% of GDP) corresponding to the public sector USD -8.0bn and for the private sector USD 13.6bn. The latter is explained by a positive balance of goods of USD 22.5bn and a negative balance in services of USD -8.2bn. On the other hand, we estimate that the financial account for 2020 will reach USD -10.7bn (-2.4% of GDP) explained by USD -12.5bn for the public sector and USD 1.8bn for the private sector. The private financial account will continue to increase due to the lack of incentives to export because of restrictions and the appreciation of the real effective exchange rate. In this way, we expect the FAE to ascend to USD 0.4bn and that both portfolio investment and foreign direct investment will remain low at USD 0.3bn and USD 1.1bn, respectively.
In line with expectations, the dollar demand for the payment of imports of goods remained high in December due to the expectation that capital controls for imports will be reinforced in the coming months. In this way, there is still a coincidence between what the importers accrue (USD 3.1bn) and what they liquidate (USD 3.7 bn) associated not only with the controls but also with the recession observed in recent months.
Imports MULC & ICA
The Blue Swap Chip remains at the highest level in historical terms while the official REER continues to appreciate. In this way, the Blue Swap Chip was at 85.24 to January 29 (highest value) and, for its part, the official REER reaches 60.45 to January 30 product of crawling peg, since it is expected that the central bank will maintain the official ER as a nominal anchor.
REER – REER Blue Swap Chip
[Monetary]
After a brief pause, the Central Bank returns to a more expansive monetary policy. This Thursday, the BCRA reduced its reference rate from 50% to 48% of the previous week and returned to a more expansive monetary policy after a brief pause during last week. We believe that it is a risky move when there is still a high uncertainty about the restructuring process and, furthermore, there is no clear sign of inflation deceleration. This action increases the risk of depreciation of the FX, mainly in the non-official FX markets.
Short term rates of the private market decreases significantly. After the modification that reduced BCRA repo rate from 43.75% to just 24%, private loans between banks reduced from 37.3% to 32.7% in just one week.
Short-term rates
Private Badlar continues its downward trend. In January 29th stood at 34.3% decreasing 63bps compared to the previous week and 600bps to a month ago.
BCRA reference rate and private badlar
In January 27th the BCRA had absorbed a significant number of pesos by its instruments that was not enough to offset the expansion by FX purchases and, mainly, treasury financing. In the previous 30 days the Central bank absorbed pesos by ARS 49bn with Bills and expanded by ARS 46bn by FX purchases and ARS 85bn in treasury financing, resulting in an expansion of ARS 78bn or 4.2% MoM, not showing any signs of a less expansive monetary policy.
Monetary base expansion factors
After the FX agro sales and the Buenos Aires aggressive restructuring proposal, the Central Bank has reduced FX purchases. After December and November, when the BCRA purchased USD 1.121bn and USD 2.202, respectively, in the last 15 days, the Central Bank has purchased only USD 38m. This situation could be mainly explained by the less FX agro sales and the unexpected aggressive restructuring process of the province of Buenos Aires.
Private aggregates grew at the most significant rate of the previous years. Money in circulation, private M2 and Private M3 have grown at its highest monthly rate of the previous recent years, growing: 0% MoM, 4.6% MoM and 3.9 MoM, respectively.
Monthly growth by monetary aggregates: Money in Circulation, Private M2 and Private M3.
[Annex]
