They estimate the economy will be missing $20 billion next year: three exchange rate scenarios predicted by the market

Current exchange schemebased on monthly devaluation of 2% and stocks, He is showing his limits and next year will bring more trouble. It happens that significant amounts of debt are coming due, international export prices are falling, and demand for imports could increase both as a result of eliminating COUNTRY Tax and the appreciation of the peso due to some degree of recovery in economic activity. Together, this would create a foreign exchange shortfall of nearly US$20 billion next year.

According to a report by CP Consultora, from January 2025, even assuming financing is obtained to cover capital maturities with private lenders (repo of USD 3,000 million), the central bank should anticipate a decline of reservation minus a monthly average of around $1.4 billion. It should be noted that these are already in the red at around $6,000 million.

“The general result allows us to estimate a a foreign currency shortfall of USD 19.7 billion for the full year 2025. Given the starting point of negative net reserves, the scenario looks extremely complex. In this sense, a certain type of definition of the exchange rate scheme can be expected between the end of 2024 and the beginning of 2025, which will allow for greater external consistency on the way to the 2025 electoral process,” the consultant emphasized.

In this regard, three possible exchange rate scenarios are mentioned for 2025, which are not without risks:

The endogenous dollarization It is a strategy without precedent in recent economic history, in which a shortage of pesos seeks to facilitate foreign currency financing of the foreign deficit in the hands of the local private sector. With this aim, the fiscal commitment is strengthened and a monetary adjustment is announced, which has not yet taken place.

“It is important to emphasize that, as the monetary program was defined, the bet requires first to spend the surplus pesos that are currently allocated in the BCRA (as the counterpart of LeFi) and in the Treasury (as the counterpart of the placement of Lecap )”, the CP states, emphasizing that “there is a risk that the foreign currency shortage will arrive before the monetary pressure to resolve it occurs”.

The flip side of this alternative is a recessionary scenario with a negative impact on credit, payment chains and public debt in local currency.

Elimination (or reduction) of the dollar mixture for exports, which means a settlement of 80% in the official exchange rate and 20% in the CCL, “seems a natural solution to the problem of the shortage of 2025 dollars”. The point is that spending on supplying parallel markets through the differential exchange rate and intervention in the MEP would exceed USD 20,000 million.

The risk of this option is that as the supply of foreign currency contracts, the exchange rate gap widens “to levels that could destabilize the official market and financial quotations. But at the same time, this decision would enable a convergence of positions between the government and the IMF, as it is the organization’s requirement to reach a new agreement.”

The consulting company Equilibra also thought in the same spirit: “It’s not brave to think that personnel The IMF observes the same thing as most analysts: the exchange rate scheme is not consistent with the target of reserve accumulation. It is clear that this is the source of the greatest tension between the government and the IMF. The tension is manifested by the fact that on both sides it appears that they do not even know when the ninth revision of the current program will take place and that they are not discussing a new program.

As a more radical alternative, there is the devaluation of the official dollar, the unification of the exchange rate and the removal of exchange controls. “Naturally, this is an option that presents short-term greater inflationary and social risks, difficult to digest after the very recessionary and regressive year 2024 and with regard to the parliamentary elections in 2025,” CP said. And he added that without international reserves to guarantee the “new convertibility” means taking on many risks in terms of external vulnerability.

Economist Pablo Moldovadirector of CP, said: “Without additional funding or reorganization of the exchange rate system, we should expect the BCRA to take a sell position in the market that will gradually increase devaluation expectations. This generally manifests itself in greater demand for imports, lower liquidation of exports and greater tension in the exchange gap.

The basic problem is that “the government wants disinflation through greater fiscal and monetary orthodoxywith foreign exchange anchoring, maintaining the current real exchange rate,” he said Carlos Perezmanaging director of Fundación Capital.

Pérez further noted that the current regime means lower growth until economic deregulation improves competitiveness. Funding is necessary for the transition, and if it is obtained, two decisions must be made to be more competitive: deregulate the international market and the labor market, and reduce the tax burden.

However, he clarified that the tax cut “requires reduce public spending and that is not in the budget for 2025 because spending as a percentage of GDP is the same as that projected for 2024. The government has taken note that there will be an election next year.”

However, the current exchange rate scheme introduces several additional complications. In this regard, the economist Nicolas Gadanoof Empiria Consultores, mentioned: “The big problem a climbing peg 2% per month means that since its introduction, after the big initial devaluation in December 2023, the inflation rate, while falling, has accumulated an increase above the exchange rate rate. And there is the problem of a very strong real appreciation in a very short period. Therefore, the level of the real exchange rate associated with official market operations such as imports and exports is far from the level that balances Argentina’s foreign accounts.

It seems implicit in the draft 2025 budget that there will be no changes to this policy. “Rate appreciation is likely to worsen in a year when external financing will be needed to cover very large debt maturities. It is hard to see how the central bank will accumulate reserves,” added the former central bank manager.

On the other hand, the economist noted: “Not leaving stocks affects investment more than anything else, because in the context of so many restrictions, if you can’t get money out, no one will put it in.” It seems difficult that Argentina, in addition to recovering a little from recession, can, without abandoning stocks, start a process of strong growth based on investment.”