the government will wait for the outcome of the lawsuit in the Court of Appeals in New York, after the offer to the holdouts that Lorenzino’s ream is preparing to present before March 29.

Ambito Financiero

At Olivos, talk of a “financial coup” and new measures

 

Thursday, March 21, 2013

 

By Carlos Burgueño

 

For the government, the Executive has become a victim of a “financial coup similar to what Cristina de Kirchner suffered after her victory of October 2011.”  According to official sources, “we will act in kind.”  However, at the same time, yesterday for the first time it was acknowledged at Olivos that there are heavy macroeconomic inconsistencies in the model that have to be corrected.  This includes an important correction in the high exchange rate and a lowering of the level of monetization and public spending.

 

"The modifications will be made, but in the medium term.  Now the coup must be confronted,” high government sources assured this newspaper last night, as yesterday they were discussing at Olivos until late the hard financial day that the markets lived through.  Assembled were Central Bank President Mercedes Marco del Pont, Economy Minister Hernan Lorenzino, and Vice Minister Axel Kicillof.  Via telephone at times there was also Commerce Secretary Guillermo Moreno, especially when the discussion focused on soy farmers.

 

All the officials agreed, who were circulating at the presidential compound, where yesterday’s meetings were taken since the President chose to work there upon returning from Rome, that the highs in the “blue” dollar rate were unjustifiable and “fruit of the speculators that are seeking a megadevaluation.”  For officialdom, they have a first and last name: the soy producers that are holding their product in silos and silobags without selling, which by official calculations adds up to US$4 billion.  Other private sources speak of US$3 billion.   The government is pointing directly at these sectors and also their friends in the financial world (some of them at other times were close to the government), who in recent days have surfed on the rise of the “blue” rate and rumors of a big devaluation.  “It cannot be that a marginal market of less than US$30 million is driving us with economic expectations; that has to stop,” said one of the officials yesterday that is working on the way to carry out a kind of “final battle” on high speculators in the illegal market.

 

According to the thesis at Olivos, the measures from the AFIP to widen and generalize the 20% tax on all tourist operations to the exterior was “the excuse the soy producers chose and their allied banks to generate pressure on the dollar in the last 48 hours.”  The official interpretation compares the situation on Tuesday and Wednesday with the days after the election of Cristina de Kirchner in 2011, where for the government they saw pressures on the dollar for the re-elected president to devalue the peso.  Those were important days for the government.  It was decided at that time to set aside the financial economic plan put together by Amado Boudou, Hernan Lorenzino, Juan Carlos Pezoa and Roberto Feletti (the exiting team), to reduce the fiscal deficit, begin a controlled devaluation process and sound out the possibility of taking forward debt to recover reserves.  When Olivos interpreted that in that October they were living through a “financial coup d’etat for a mega-devaluation that benefits the soy farmers,” the plan turned and up came the currency clamp and the appearance of a “blue” dollar separate from the official rate, which after various measures of deepening, is what reigns today.

 

According to what was discussed last night at Olivos, in the midst of a marked presidential bad mood, profound changes are needed, but these are not the days to carry them out.

 

There was only one moment for presidential smiles: when the rumors were spoken of from the market around changes in the economic team and the Central Bank.

 

Before, beginning today, there must be a confronting of “the current coup with all the weapons that are at our disposal.”  This includes a double path: the financial market and the stored-away soybeans.

 

Meanwhile, concrete measures are being prepared for the medium term.  One of them is the gradual revaluation of the official exchange rate, today at 5.105 pesos to the dollar, a value considered more than low for all the important interlocutors of the government.  The idea is to proceed with recovering value, but with a controlled “blue” market, trying to close the gap that today has reached a scandalous 72%.

 

For this it would require two deep advances, which mean radical changes in the official view held until this moment.  Monetary emission would have to be controlled and, in relation to this, a reduction of certain aspects of public spending, like subsidies.  Vice Minister Axel Kicillof will have to work on the issue with great speed.

 

Also discussed yesterday at Olivos was the continuation and deepening of stimulus on demand in place today to sustain consumption.  Here the government is divided.  One sector says this kind of measure is indispensable, more so in an election year; and, in consequence, must be sustained.  Another sector said yesterday that keeping these measures is inflationary today, more so at a time of problems for the reserves and monetary emission.

 

Before applying any profound measure on the economic model, the government will wait for the outcome of the lawsuit in the Court of Appeals in New York, after the offer to the holdouts that Lorenzino’s ream is preparing to present before March 29.