Pushing a plan to take new debt and bring the reserves up to US$40 billion
The government seeks to finalize loans as soon as possible for the dams in Santa Cruz and 15 other projects. Boudou and Kicillof want ANSeS to sell debt for US$5 billion
Friday, November 22, 2013
Debt reduction has ended. The government is working to bring the reserves back up to US$40 billion through credits abroad and the funding of the ANSeS. The intention is to strengthen the Central Bank (BCRA) to take apart the pressure on the dollar with Chinese financing at soft interest rates for infrastructure projects and with a sell off of bonds from the agency led by Diego Bossio, according to what El Cronista could reconstruct from official sources of different areas of the Executive and others from the private sector.
The plan is as ambitious as it is difficult and threatens to produce new internal battles on the economic team. It is being pushed by Vice President Amado Boudou and Economy Minister Axel Kicillof. Bossio is resisting. And it comes at a time when the reserves fell to US$31.656 billion, after the BCRA sold US$180 million yesterday.
The Chinese leg is the most ambitious. The outgoing Economy minister, Hernan Lorenzino, was working on the return to the markets at low rates and to finance projects. The government or the company that carries out the project would take on debt, bring in dollars, exchange them for pesos and start building, while the reserves would grow. The Chinese state banks are offering this chance for other companies from that country to make investments.
The emblematic case is the one of the Néstor Kirchner and Jorge Cepernic dams in Santa Cruz, which will be built by the holding company made up of Electroingeniería, of Gerardo Ferreyra, and the Chinese firm Gezhouba. Two weeks ago, the Public Works secretary at the Planning Ministry, José López, and Finance Secretary Adrián Cosentino, with International Economic Relations Secretary and future Commerce Secretary Augusto Costa. The financing contract will be written up in the coming days, with an interest rate of Libor plus 3.8%. They will contribute US$3.7 billion in five years. Lopez made a stopover in Russia. The first disbursements will arrive at the start of next year.
They will not be the only ones. Planning Minister Julio de Vido will travel in early December to China and Russia to do a “road show”. He will show a “multi-year plan” of 15 projects for between US$15 billion and US$20 billion, his people said. The projects have been dormant for years: the improvement of potable water in the Rio Deseado, in Santa Cruz, a communications tower in Avellaneda, hydroelectric projects like the Chihuido 2 dam in Neuquén and others in Mendoza and Jujuy, among others.
The other leg of the plan, the more urgent one, is the Fund of Guarantee of Solidarity (FGS) of the ANSeS. Boudou and Kicillof want the pension agency to sell bonds abroad and bring the dollars to the country. That hard currency would be added to the BCRA reserves.
The entity led by Bossio has bonds available for US$7 billion at the “contado con liquidacion” rate. Economy believes that it could sell up to US$5 billion. But for ANSeS, the operation would generate a drop in prices that would lead to a capturing of US$3.5 to US$4 billion. The plan contemplates smoothing out this loss with the big investment funds as buyers, at a time when the country is reaching out to the markets at the hands of Gramercy and Fintech, among others.
In practice, the country will go back to taking debt. It will stop refinancing bonds that the ANSeS will sell to the private sector and will have to pay the maturities. But in ANSeS they are resisting. While it did it in the past, they believe that it’s not the time to liquidate its assets and that it can’t happen from one day to the next.
Dollar: Capitanich and Kicillof analyze four options
Friday, November 22, 2013
by Marcelo Bonelli
The government is studying making an adjustment on the economy to try to halt the drainage of hard currency and contain the fall in reserves. Among his intimates, Axel Kicillof admitted his concern about the external front, and Jorge Capitanich knows the exchange rate delay from the suffering in the heartland. Sources from the Casa Rosada confirmed that Capitanich, Juan Fábrega an Kicillof are working on a series of measures that include four alternatives to make a currency exchange adjustment: one alternative is a shortened split currency rate for tourism and luxury items.
Another option under study is a fiscal devaluation in the style of the competitiveness plans of Domingo Cavallo.
The third would be to speed up the daily mini-devaluations.
The fourth possibility directly points to producing an initial currency exchange rate spike of 10 to 15%.
In addition, these measures are being studied:
Gradually raising interest rates.
Eliminating subsidies and raising rates on gas, electricity and transport for middle and upper classes.
Trying to normalize the INDEC. Now Guillermo Moreno is naming his most unconditional followers as the “permanent staff”.
Moving forward on international actions to allow for a return to taking debt and therefore strengthen the reserves.
Reaching a secret agreement with the IMF to renew its audits of Argentina (they had been blocked by Nestor Kirchner).
The formulas that will be used to put these possible measures into course are generating internal debate and have to overcome the President’s political filter and the panic that is generated by this reality that is increasingly distant from the Cristinista “narrative”. To pretty-up the adjustment and to please Cristina, Kicillof is using new phrases and changes in the “narrative”: he speaks of “heterodox borrowing” and “discriminating service rates.”
He is doing it because Cristina already paralyzed his core idea of a split currency market.
Now she will have to endorse the manner and magnitude of the economic adjustment.
Capitanich let the bankers know that, from the Cabinet Chief’s office, he will push adjustments to get the economy back on track. The “prime minister” admits that he’s going towards a presidential candidacy and knows that the sooner the adjustment is made the better he’ll be in 2015.
But the visuals already generated the first differences with Kicillof, which was reflected yesterday in an unusual competence or the media spotlight.
Kicillof felt strengthened and didn’t want to be obscured by the Capitanich-Fábrega duo. This week top line economists met and there Javier Alvaredo said sincerely: “Luckily, Coqui and Fábrega are bringing rationality to the government.” Fábrega is close to Capitanich. All of Marcó del Pont’s aides have already left and he named Juan Carlos Isi –a historian – as director general of the BCRA.
Kicillof also wants to put directors in at the BCRA and dispute power and monetary decisions there.
But the minister has a one-eyed task: control inflation. He placed an intimate in as Commerce Secretary.
Augusto Costa comes to that post with a terrible precedent: he had serious political stumbles in his time as a secretary at the Foreign Ministry. Three weeks ago he was snubbed by the Brazilian Foreign Minister at a Mercosur discussion and in China he didn’t manage to get the financing for the hydroelectric dams in Santa Cruz.
Guillermo Moreno accused Kicillof of being a “traitor” and used profanity to attack him: “I am a Peronist. He is a Marxist. But what I didn’t know is that he’s a traitor son of a ....” The attack follows both having made a political pact of survival. For that agreement, Moreno would promote Kicillof and the economist would guarantee Moreno’s job. Moreno met business leaders together with Kicillof, to demand that they subscribe to BAADE bonds. In those meetings, he’d repeat: “Axel will be Economy Minister, after October. He is here, with me, because he shares my request that you subscribe to the BAADE.” The information circulated after three witnesses told of it in an ADEBA bankers’ meeting: Saúl Zang (Hipotecario), Ernesto Medina (Macro) and Luis Ribaya (Galicia).
For that, Moreno didn’t expect the end he faced and believed that Kicillof would defend him to Cristina.
His “accord” with Kicillof was the last straw in his “collection of failures”. In truth, it was Capitanich who played a fundamental role in the final hours: he conditioned his taking the post with Moreno being thrown out of the government.
The President decided to do away with Moreno and Marcó del Pont, both responsible for the disastrous currency exchange rate policy and the currency clamp. She also has Ricardo Echegaray under observation.
But Moreno’s exit has a secret plot twist: governors and mayors in the greater metropolitan area accused him for the electoral defeat and asked for his head after the primaries. Daniel Scioli, José Gioja before his accident and Capitanich agreed that inflation took away votes and Moreno was to blame. The mayors launched a similar offensive and the leader of La Matanza, Fernando Espinoza, was the one who took it to Cristina. In mid-September, in the Olivos compound, the President surprised them: “Moreno won’t continue. But I’m looking for the way and the timing for his exit.” And added: “I don’t want to give Clarin a victory with that head on a platter.” Guillermo Moreno did enormous damage to the Argentine economy. But the governors and the mayors hold a key political fact: Moreno didn’t act along and always had the backing and consent of Cristina Kirchner.
Argentine bankers went to the U.S. seeking dollars but came back with empty pockets
The meeting of the Latin American federation of banks in Florida was the framework to seek credit to pre-finance exports and bring in fresh capital. Credits remained closed off from uncertainty
Friday, November 22, 2013
by JULIÁN GUARINO Buenos Aires
Argentine bankers traveled to the United States with an excuse and a purpose: the excuse, the meeting of the Latin American Bank Federation (Felaban), which this year was hosted at the International Bankers Association of Florida (FIBA), and which brought together 1,800 bankers from 54 countries. The purpose, to negotiate lines of bank credit to pre-finance exports with the biggest banks in United States, historically the country that generated the most funds for Argentine authorities. The United States bank sectors enjoys a good reputation in the financial sector: they point out that they represent a "more flexible" banking that could quickly activate almost US$ 1 billion in loans to local banks.
However, there was little result. According to what El Cronista could find out from several bankers, while there are expectations over the new economic measures, for now credit for local authorities remains mostly closed off, as uncertainty is translating into risk for U.S. bankers. American bankers told local colleagues that the restrictions on moving dividends and the delicate situation of the reserves in the Central Bank mean "risks" that had to be evaluated and they remained "hopeful" over the new measures.
In recent years, since the imposition of restrictions on the purchase of dollars, dollars from financing ceased entering. According to the Broda firm, estimates based on official data have gone from a net income of US$3.426 billion in 2011 to a net pay-down of US$3.544 billion in 2012. In fact, during the first half of this year, US$ 2.052 billion was paid out abroad. It is that businessmen chose not to take more credits abroad and banks partially closed off their lending. Instead, businessmen chose a net pay-off of loans to cover an eventual devaluation.
One of the Argentine banks that is most interested in getting funds abroad is the Central Bank itself. In this way, it could build up its sagging reserves, since all loans in dollars are turned into pesos at the official exchange rate to gain entry into the country, and the business owner is given a line of credit in pesos. To encourage this behavior, in recent days the BCRA ordered an easing in the current regulations for all those exporters who are funded with lines of credit from abroad, either through pre-financing of exports or through advance payment of export. Through a statement, the Central Bank extended the limits and extended shipping deadlines for exporters to convincingly show to local authorities that exports were completed. On the other hand, the Central Bank ordered local banks to honor a ceiling on their lending capacity for export firms, especially to grain producers. Thus, the big exporting firms that had gone for financing in pesos on the local market due to the strong devaluation of the peso began going in the opposite direction. They are now being forced to take on debt in dollars.
One should also remember that the controls over the entry of dollars for payment of tax obligations were relaxed, as well as those intended for capital assets. Foreign capital was thereby exempt from the obligation to hold a non-remunerated deposit (capital reserve) of 30% of the amount involved in the operation, for one year. One of the speculations of the City even points out that "in political terms it would be less expensive to try to increase the flow of capital for the capital account than it would be to put a clamp on tourism.”