Alice in Weimarland
Argentina is closing in on hyperinflation 3.0
Welcome Avatar! As we close in on record inflation not seen since WWII even in so called “first world” countries, now is a good time to give an update on the current inflation and debasement landscape in Argentina. Let’s dive in.
After my last update on the Argentine economy in The WeimArgentina Rollercoaster, a lot has changed in the local economic landscape.
We’ve seen an assassination attempt against the Vice President (real or not, no one really knows), and inflation is at a record 30-year high. As stated, Argentina is never boring.
Supermassa: did anything change?
The Argentine economy suffered a sharp slowdown at the end of July, the same month in which we saw the most important inflationary outbreak of the last 30 years.
Right after that update for BTB, the Minister of Economy got sacked again, and in came the next fall guy: Sergio Massa.
Massa did seem to inspire some more confidence than his predecessor Batakis (who was only in office for 3 weeks lol). He quickly introduced a more competitive dollar rate for agricultural export (at $200 pesos per US token, versus the official rate which was at $130 at the time).
As a reference, this is still far below the real dollar value of $280-300 pesos at the blue rate.
This turned out to be a good call by Supermassa that bought him some time: many producers and exporters started to liquidate their harvests at the $200 soy dollar rate. Although the original expectation was that agro exports at the soy rate would reach about US$5 billion, the unprecedented amount of US$7.6 billion was achieved. 53% more than expected.
It was important for the BCRA to accumulate reserves and thanks to this policy, Argentina was able to meet the currency reserve goal required by the IMF in its loan restructuring deal with the country.
After letting those dollars roll into the country for a while, Supermassa struck again by taking away the possibility for producers who sold at that $200 soy rate to buy MEP and CCL dollars (the MEP and CCL are free floating US token rates much inline with the blue rate, accessible through stock brokers).
What this means for producers and exporters is that they will have to stomach another official “fixed” rate at $200, which will like creep up just as slowly as other official rates. It is a continuous cat and mouse game with new dollar rates to get more US tokens in versus dollars leaving the country.
All Supermassa bought with these measures is time, because the local peso debt keeps piling up, which seems to be the only way to fund the government deficit.
Grim outlook - October started with a bang
The government is on high alert due to the absurd increase in prices at the start of October. Pretty ironic given the fact that it’s the main entity to blame when it comes to currency debasement and inflation.
The latest Central Bank records confirm this worrying reality. According to "high frequency" monitoring, September ended with a rise in food prices above 8%. A record level for the year.
Large supermarket chains and also wholesalers received a veritable wave of raises at the beginning of October. There is no item that is left out of the increases. The increases are greater than those of recent months, which confirms the process of inflationary acceleration in the food sector.
The increases are widespread and range between 5% and 16% MoM in food items, up to 20% for non-alcoholic beverages and wine with an average increases of 10%.
Central Bank: forced ctrl+p
In September alone, national debt in pesos increased with 17%. This is all future peso emissions, so we can be pretty sure that a big devaluation is around the corner once those repayments are due. They’ll just print them.
Besides local peso debt emissions climbing higher, we also have a big batch of repayments due soon, and the current outstanding debt divided by the monetary base is a staggering 200%+:
In other words, the debt issued by the BCRA -and indexed at an effective annual rate of 107%- is equivalent to 206% of the Monetary Base. It is also equivalent to 153% of the BCRA's gross international reserves, around 37 Billion US Token.
The stock of interest-bearing debt of the Argentine Central Bank represents 2 Monetary Bases and is equivalent to 150% of gross international reserves
— this is fine.
With this dynamic, the remunerated liabilities of the Argentina Central Bank will double after a year. Due to the interest payments from Leliq, Passes and Nobac instruments, it will climb to the astronomical figure of 17 billion pesos.
For context, this represents close to 10% of GDP, and will be five times more than the fiscal deficit proposed in the Budget 2023 bill, of 1.9% of GDP lmao.
This will put more fuel on the hyperinflationary fire, and perhaps that will give Argentina the chance to dethrone Turkey in the race for the highest inflation levels in 2023.
Let’s see how this all plays out and in the meanwhile, keep stacking US tokens until President Powell decides to pivot.
See you in the jungle, frens!
Thanks for the update.
Can’t just organised crime smuggle some soybeans and beef out of the country to cash in the FX market rate?
Appreciate the update. This has to be demoralizing watching the disaster unfold in real time day by day.