International banks worry that Argentina's exports will no longer grow

Despite the sharp devaluation of the past year and due to the non-allocated inflation, The world's main banks believe that the Peso "is still a bit expensive" and worries that exports will no longer grow, which prevents the country from receiving funds from abroad, according to a report by the Institute of International Economics (IIF, with its acronym in English), the global union of the largest financial institutions in the world.

Last year, the country's current account deficit (5% of GDP in 2017), or the way investors noticed that the country was spending more than what it could produce, led to a strong run against the peso .

This current account (or currency requirement) is adjusted to the half of the current year following the devaluation of the previous year, but the IIF considers it to be a reduction in imports rather than an increase in exports. And this adjustment was "at the expense of the level of activity".

"The bulk of the current account adjustment was based on the economic contraction suffered and the depression of imports. This rebalancing of the current account was not a genuine balance restoration, but an import squeeze. We believe that a real balancing of exports will take some time"he said Jonathan Fortun, economist at IIF, a Infobae.

"LThe rapid depreciation in 2018 has compressed imports In the country, which has led to a significant slowdown in the economy (affecting consumption and economic activity), the trade balancing of the country was more on the import side than exports, "added Fortun, who understands that the level of inflation makes exports less competitive.

Given this potential, banks consider it for Argentina, "the arrival of new capital in the country will be slower and hence the intervention of the Central Bank should be maintainedthis"In a context in which the US Federal Reserve has lowered the rate of interest rates to the emerging countries," explained Fortun.

This difficulty in attracting capital from abroad is reflected in the high level of country risk. "The most important variable is country risk. The basic problem is that it is too high. As long as it does not decrease, the activity level can not be started because if the imports start, the current account deficit widen, you need more dollars and the market does not lend them, "he said. Martin Vauthier, EcoGo.

The economist understands that there are two mechanisms for adjusting the current account: the interest rate and the exchange rate, two variables re-arranged in the last week.

"What kept the current account deficit was the interest rate, which contained the credit, activity level and, therefore, imports. But When the market saw that the Central Bank cut interest rates, the exchange rate reacted. And with the new interest rate hike, the exchange rate has returned, "he added.

For your colleague Federico Furias, eThe multilateral real exchange rate is now 15% higher than on 17 December 2015 with the exit of shares and devaluation. "We had five months of goods surplus and the tourism deficit dropped by half," he said, as he expects a current account deficit of around 2.3% of GDP, according to a trade surplus of about $ 7 billion.

He understands that is reasonable the very stabilization process is forcing the dollar to move behind inflation and losing some of the exchange rates that it won with devaluation in line with the real wage recovery. But he does not expect a new one the rise of the dollar to improve the real exchange rate in the medium term, because it will quickly filter inflation.

"The challenge is to maintain competitiveness, change to boost investment in the sectors that generate dollars through exports, reducing inflation in a consistent manner that requires aligned relative prices and a reduction in public spending to reduce the budget deficit, a prerequisite for reducing country risk and financing costs, "Furiase explains.

In the meantime, the highest real interest rate, monetary tightening through the high interest rate and 30% real working capital decline, export fuel from the foreign currency flight of the private sector.