The war in Europe, the inflationary crisis and the consequent political upheavals within the Frente de Todos raised the alerts of small savers, who fearing an economic collapse deepen the bleeding of dollars suffered by the reserves of the Central Bank (BCRA). The purchase of foreign currency for hoarding could skyrocket compared to 2021, which directly affects the accumulation objectives that the Government agreed with the IMF. So far this year, the purchase of this type of dollar is already similar to the entire 2021 period, so the annual increase is almost certain.
According to a report by the Public Policy Observatory of the National University of Avellaneda (Undav), the purchase of dollars by small savers could increase sharply compared to last year’s records. This rise responds to the rise in food prices as a result of the war between Russia and Ukraine, the deepening of the inflationary spiral and the worsening of market expectations in the face of the political crisis in the Government. With prices rising more and more repeatedly, savers do without the peso and flee to the dollar as a historic protection mechanism.
After a 2020 with purchases for US$ 3,053 million by savers, the BCRA measures had managed to lower this demand to US$ 518 million during 2021. However, according to the report, it is estimated that during this year dollar purchases for this purpose will grow again, reaching US$ 1,500 million.
Furthermore, the output of Martin Guzman of the Ministry of Economy represented a tremor that had direct repercussions: the blue dollar shot up to almost $300 and the exchange rate gap widened to levels that are close to those marked in October 2020 (150%). Therefore, a strong change in expectations that could reverse the trend is not in sight. The widening of the gap denotes greater tension in the foreign exchange market, and generates devaluation pressures for the official exchange rate.
In parallel, purchases abroad with credit cards and external tourism are another relevant source of foreign exchange demand. In the first five months of 2022, these purchases already accumulate a total of US$2.46 billion, the highest value in four years. This was the reason that led the Government to tighten the restrictions on the tourist segment in relation to the use of the currency.
The accumulation goals of the Central Bank are complicated
From the beginning of 2022 and until July 15, international reserves grew by only US$800 million, a value that is below what is desirable in perspective towards the end of the year. In this sense, the document expanded: “In terms of liquid international reserves, the holding of the BCRA is also very low, and this contributes greater weakness to economic management. The challenge for Minister Batakis will be to find ways to accumulate reserves , so that the lack of dollars does not stop production”.
So far this year, the authority that commands Miguel Pesce registers net purchases for US$ 1,100 million. The goal set with the IMF for this year involves buying US$5.8 billion netand the second part of the year is challenging in that sense. The extensive energy demand that drives the war produces constant losses of reserves to meet this need.
“The entry and exit of dollars through the formal exchange market is explained by the movements in the Current Account, the Capital Account and the Financial Account. In the accumulated between January and May 2022, the net movement was an outflow of US $876 million, a very negative result when compared to the income of $4,703 million in the same period of the previous year,” the report explained.
Lastly, regarding the purchase and sale of goods, the Current Account registers a surplus in 48 of the last 49 months, due to greater exports than imports. However, movements related to the purchase and sale of services show a systematic deficit that has greatly accelerated this year.