Broadband, narrow reserves and eternal debt

• The Government of Javier Milei ends the financial year in a complicated situation that contrasts with the triumphant spirit with which it emerged from the October elections.

• There are several problems it faces: the change of exchange bands and its consequences; debt maturities and negative net reserves of the Central Bank and the impact of the defeat in chapter XI of the budget.

At the request of the “markets”

• The economic team, led by Luis Caputo, announced this week that as of January 1, the floor and ceiling of the floating exchange band will no longer adjust to a fixed rate of 1% monthly and will be updated to a variable rate according to the inflation reported by the INDEC with a two-month lag.

• In this month of December, the lower band is at $921.20, while the ceiling is located at $1,518.52. In January, considering November inflation (that is, with the aforementioned two months of lag), the floor and ceiling will be adjusted by 2.5%. Therefore, they will be $944.23 and $1,556.48.

• The economic team also announced that the Central Bank seeks to buy between US$10 billion and US$17 billion to strengthen reserves that, currently, considering net reserves, are in negative territory for around US$10 billion.

• These changes respond, at least partially, to what the IMF and the wolves of Wall Street demanded. Why do they demand this? To ensure that the government will have the necessary dollars to be able to collect the debt with which they dominate in these pampas.

The bands: a Pandora’s box?

• The new exchange rate scheme aims to gather reserves, pay the debt and, at the same time, keep inflation under control. Under current conditions, to meet these objectives simultaneously, the cost will be paid by economic activity that is already in a slow decline in general and in a more pronounced one in the industrial sphere.

• But the new exchange rate scheme could also turn out to be a Pandora’s box if inflation continues the upward course it has shown since May: it can lock the government in a vicious circle of inflation and increase in the dollar that systematically feed each other.

Impact of Chapter XI

• The defeat that the government had with the negative vote on Chapter

• The defeat in Chapter XI does not matter only for its counterpart, that is, for the disability group and the university community that mobilized in defense of their rights. Nor does it matter just because of its budgetary implication when the government orders all the adjustment to raise dollars to pay off the fraudulent debt.

• The defeat in Chapter XI calls into question another claim that comes from the centers of imperialist power: they demand that the government seek greater political support by expanding the coalition on which the adjustment is supported. The ruling party broke several bridges in the early hours of Thursday and it remains to be seen what effect it has on the reading of the “markets.”

The eternal debt

• In January, the government faces debt maturities in dollars for almost US$5 billion. So far, he has only gotten US$910 with the false return to the markets that took place last week.

• Now, with the changes announced, they will seek to obtain the dollars they are missing through JP Morgan and other international banks. Let us remember that weeks ago it was said that the government was looking for US$20 billion to cover all the maturities of 2026. Now the objective is more moderate: it only seeks to obtain dollars for January payments.

• If these dollars are not obtained, the government will have to make payments using reserves, taking net reserves to a negative level that could exceed US$15 billion, which would reveal extreme fragility.

• A race against the clock begins to get the January dollars. Caputo and Milei sacrifice themselves for the “market” gods who promise heaven, but always lead to hell.