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March 22, 2021

Econviews Monthly

Argentina: The Month at a Glance

BY Miguel A. Kiguel, Alejandro Giacoia, Andrés Borenstein, Lorena Giorgio, Rafael Aguilar, Isaías Marini

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( 3 mins)

RECENT DEVELOPMENTS

• With an USD 1.9 trillion relief bill and full vaccination as early as June, the US is set for a stronger than expected recovery in 2021. International markets remain bullish, but inflation anxiety is on the rise even if actual inflation rates have not shown a sharp increase so far. Brazil’s problems complicate Argentina’s objective of appreciating the real exchange rate. The Brazilian Real shot up to 5.8 per dollar last week as Bolsonaro clashes with top economist Guedes over reforms, fiscal adjustment, and intervention in key public companies such as Petrobras. A weaker BRL puts pressure on the ARS. Market expectations on growth have decreased in Brazil have dropped by 20 bps to 3.23% for 2021. Central Bank of Brazil raised rates from 2% to 2.75%

• The government is trying to increase the corporate income tax rate to 35% from 30% for companies making over 2.1 million pesos a year. This not only increases taxation but also unwinds the tax reform of 2017 under which income tax would have gone down to 25%. Congress recently passed a special stimulus package for construction, which includes a tax amnesty and the exemption or deferral of taxes until 2023.

• YPF rose the price of oil this week another 7% on average and has scheduled further hikes for April and May but may freeze prices afterwards in line with the electoral agenda.

 

WHAT’S COMING NEXT?

• The idea that a new arrangement with the International Monetary Fund will have to wait until after the October midterms is now widely accepted. Minister Guzmán is set to meet with IMF chair Kristalina Georgieva in late March. We also believe that the Government will not pay a USD 2.4 billion maturity with the Paris Club in May, instead choosing to renegotiate that debt towards the end of the year.

• President Fernandez was scheduled to meet in person with his Brazilian counterpart in late March, but the summit was suspended over Covid fears. This rapprochement with Brazil is exemplary of the pragmatic shift undergone by Argentine diplomacy in the last months. Fernandez will visit Beijing in May and his team is working on a bilateral with Biden.

• The lack of rainfall in February and early March could reduce the expected soy harvest from 49 to 45 million tons, although higher prices will compensate the effect on the commercial balance. Soybeans are trading around USD 520 per ton.

• The bill to reform income tax which is being debated in Congress proposes increasing charges on businesses to compensate raising the minimum taxable income for persons, a change that could hurt investment.

 

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