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August 2, 2021

The Week at a Glance

Argentina: The season of FX stress begins

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

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( 2 mins)

The last 4 business days of last week the Central Bank had to sell dollars in the FX market so as not to alter the routine of daily devaluation of 3 or 4 cents. The last time it had a seller balance for 3 days in a row was at the end of last November. Until this change of direction, the BCRA had bought USD 7,512 million in the market and managed to accumulate USD 3,638 million. The difference was in payments to international organizations for USD 1,123 million, sales to the Treasury for USD 1,171 million and the item others for USD 1,587 that includes exchange differences with the yuan, the price of gold, transactions with the Bank of Basel and especially operations to control the blue-chip-swap rate, in which the Central Bank sells bonds in pesos and repurchases them in dollars in an operation that sterilizes pesos and consumes reserves.

Loans have been falling for nine months

Economic activity has not yet finished recovering what was lost in the pandemic, but it had a significant rebound. However, this improvement in aggregate demand was not accompanied by a demand for bank financing. Loans to the private sector in pesos at 3 business days from the end of July are 12% lower than at the end of October, measured in real and seasonally adjusted terms. Measured against July of last year, total loans in pesos fell 10% in real terms, while the economy in the first 7 months of this year is 10% larger than last year. We are clearly talking about a more deleveraged economy. This raises questions about the ability to grow without credit, on the one hand, but it is also an opportunity. If the planets align and Argentina achieves credibility and stability, there is a lot of space to finance investments, exports and consumption.

Employment and Activity, two different stories

We believe that economic activity has entered a path of uninterrupted growth since June which, if there is no epidemiological outbreak or FX turmoil, will last until after the elections. That is, practically until the end of the year. Being optimistic, growth in 2021 could be even closer to 7.5% than 7%, which for now we keep as a base scenario, mainly because the aforementioned risks have a non-negligible probability of occurrence.

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