Central Bank nearly broke !

[Johnny]

This is the calm before the real storm no matter who takes power. Macri made the mistake of thinking a few cosmetic reforms and some pro business talk would bring in dollars. Initially investors had hope, and then later fled as they saw nothing significant was going to change. Unfortunately he didn't have the courage to push real structural reforms in the current economic model that would give investors reasons to move capital to Argentina.

FF will most likely implement stronger currency controls, price controls, higher export taxes - all things that will temporarily give Argentina some more life - but will just band aid the current problems and further kill economic activity. Then they will turn to China for funding and economic projects. 5G networks, renovation of ports and highways. They will include 50 year contracts that will siphon money off of Argentina for decades to come.

At end of 2020 the world economy will go through a major correction. Argentina will be set on fire. China, the US, Europe and rich Argentines will strip it of it assets on the cheap. The most vulnerable will be devastated. FF and Macri will blame each other. All the political class will be to blame.

The lithium boom will be a small bright spot in the Argentine economy. Bringing wealth to the northwestern part of Argentina. Salta Governor Juan Manuel Urtubey will take credit and be elected president in 2023 as the economy begins to recover, blaming both sides for the crisis, while claiming to be different. Nothing will change. The cycle will start again.

Will Diego still be manager of Gimnasia?

 

[AlexS]

Will Diego still be manager of Gimnasia?

Diego will have found God after an overdose and will be ambassador to the Vatican!

 

[Dougie]

Bloomberg - Are you a robot?

 

[on the brink]

Bloomberg - Are you a robot?

Can't access the piece - there's a firewall. Can you post it? Thanks....

 

[Jimbob]

Argentina’s New Obsession Is Watching Foreign Reserves Evaporate
By
Jorgelina Do Rosario

At Argentine brokerages and banks, the calls come in every day with the same question: How many dollars does the central bank actually have?


Keeping a close eye on international reserves has become a ritual for Argentine investors as they try to figure out what comes next for the peso and $65 billion of recently restructured overseas debt.

Calculations for the exact amount of net liquid reserves vary from negative $2 billion to as high as $1.3 billion depending on how various piles of money are counted, but almost everyone agrees that it’s ominously low. As the balance heads ever lower, the government is piling on measures to stop the bleeding. The latest effort came last week as officials cut taxes on some exports, said they would allow a faster devaluation of the peso and raised a local interest rate in their desperate effort to hold onto dollars.

“I’m getting hammered with questions and calls,” said Juan Manuel Pazos, chief economist at TPCG Valores in Buenos Aires. “What they want to know is our view and how we expect policy makers to respond.”

While Argentina’s central bank publishes its total dollar reserves five times a week, investors are most interested in the country’s net liquid reserves, basically what’s available in cash. That figure is just a fraction of the $41.3 billion gross amount, but arriving at an exact number is tricky. The central bank doesn’t tally it on its own and a press official declined to comment on analysts’ estimates.

Argentina's Piggy Bank
Almost half of the gross reserves are made up of a swap with China

Source: Portfolio Personal Inversiones
Note: Estimated data as of October 2; Reserve requirements data as of Sept. 30.
“The trend is the key,” said Emiliano Anselmi, an economist at Portfolio Personal Inversiones in Buenos Aires. “And the trend shows the reserves keep falling.”


In mid-September, Argentina had tried to limit the drawdown by putting severe restrictions on dollar purchases, both for individuals and companies, but demand for greenbacks showed no signs of slowing. A parallel exchange rate used to skirt controls has fallen to a record, with the peso worth almost half of what it fetches in the official market.
Meanwhile, prices for Argentine bonds issued just a month ago have fallen ever deeper into distressed territory, with most new dollar notes trading at around 40 cents on the dollar.
It’s all a giant vote of no confidence in President Alberto Fernandez’s administration just weeks after the country won some $38 billion of savings in its restructuring with promises of stability to come. Inflation has remained stubbornly above 40%, unemployment is at a 16-year high and Argentina’s economy is forecast to shrink 12% this year, its worst one-year contraction on record.
Running Out of Cash
Argentina's net liquid reserves are falling toward zero

Source: ECO GO consulting firm on the basis of the Central Bank data
* Data excludes gold and IMF's Special Drawing Right (SDR)
Lens on the Numbers
Amid the gloom, investors are focused on international reserves as a key indicator. To calculate how much of its own money the central bank has on hand, analysts first subtract $12 billion of commercial bank deposits from the $41.2 billion figure for gross international reserves.
Then there are approximately $25 billion of currency swaps, drawing rights and other lines that aren’t liquid. Some shops also exclude $2.4 billion from repo operations and U.S. bills. And without the $3.7 billion of gold bars, net liquid reserves are negative $2 billion, according to Portfolio Personal Inversiones estimates. That’s a similar number to JPMorgan Chase & Co.’s latest calculations.
But other shops are more generous in calculating reserves. TPCG Valores counts $200 million of liquid reserves and Eco Go says the total may have been as high as $1.3 billion as of the end of September.
Almost half the gross reserves amount comes from a 130 billion yuan ($19.1 billion) currency swap with the People’s Bank of China. It’s been around for more than a decade and was renewed in early August.
The swap line allows Argentina to ask for the money if it needs it, though the PBOC is under no obligation to disburse it, according to Fausto Spotorno, economist and director of the Orlando Ferreres & Asociados consultancy in Buenos Aires.

If the country asks for the money, it will need to start paying interest on the credit line. The same happens if Argentina taps the $3.2 billion that comes from a line with the Bank for International Settlements.


Argentina also has $2.8 billion of Special Drawing Rights with the International Monetary Fund, which could probably be converted to cash fairly easily, though the fund’s board would have to approve. Then there’s the gold bars, which would have to be sold or offered as collateral on a loan.
“It would be a really bad sign if the central bank sells the gold” because it’s a source of stability, Anselmi said. “It’s like you have nothing left.”
— With assistance by Scott Squires, and Sydney Maki

 

[QuilmesSlo]

I am afraid inflation is just getting started; when the reserves are done, it's going to go crazy.

 

[EL_TIGRE_de_Tigre]

I am afraid inflation is just getting started; when the reserves are done, it's going to go crazy.

Quilmes,

Reserves are an important ingredient in the recipe for sure. But I am more concerned with the lifting of price controls.

Sooner or later, the government will have to step out of the way and let the market dictate pricing. And when that moment comes, it will be game over for the vast majority of people in Argentina who depend upon and work with the Peso. (Anyone with dollars y Euros will be fine.)

I am expecting 60%+ of people to be instantly placed below the poverty line. The next 25% struggling to stay above it. The next 10% to worry, but not go beyond a scary moment. The last 5% to be insulated while they contemplate their next moves of staying on top of the heap!

 

[QuilmesSlo]

Quilmes,

Reserves are an important ingredient in the recipe for sure. But I am more concerned with the lifting of price controls.

Sooner or later, the government will have to step out of the way and let the market dictate pricing. And when that moment comes, it will be game over for the vast majority of people in Argentina who depend upon and work with the Peso. (Anyone with dollars y Euros will be fine.)

I am expecting 60%+ of people to be instantly placed below the poverty line. The next 25% struggling to stay above it. The next 10% to worry, but not go beyond a scary moment. The last 5% to be insulated while they contemplate their next moves of staying on top of the heap!

Yes, I skipped a step in the logic chain -- collapse of reserves leads to lifting of price controls. Peso collapse initially by market pricing, further fueled by furious printing.

This will lead to much suffering and, and to worsening security issues. Argentina will ultimately survive but right now, it's hard to see the recovery over the wall off water the storm will bring.

 

[on the brink]

Someone in my building is seven months behind in expenses, and the rest are being charged extra to cover the deficit. How long will be able to do it? What happens when we cannot deal with the extra expense?

 

[EL_TIGRE_de_Tigre]

Yes, I skipped a step in the logic chain -- collapse of reserves leads to lifting of price controls. Peso collapse initially by market pricing, further fueled by furious printing.

This will lead to much suffering and, and to worsening security issues. Argentina will ultimately survive but right now, it's hard to see the recovery over the wall off water the storm will bring.

Quilmes,

You are on target, your post indicates you understand the process to a degree. You need to be aware I am not an economist, but at the same time, this is a fairly easy one to figure out if a person is halfway intelligent. (I hope to God I qualify for halfway!)

I am very much on record in this forum for stating on more than one occasion that Argentina is staring at a lost decade at the minimum and more like a lost generation. A generation is a period of time between 20 y 30 years! There is a long time of trouble ahead. It will not be pretty.

As a result of the turbulence to come, there will be an exodus of those who are able. And this exodus will leave The Republic even weaker due to the brain drain as it is called.