Although President-elect Javier Milei appears to have abandoned his plan to dollarize the economy, at least for now, certain sectors are preparing for a sharp devaluation of the peso. Argentina’s central bank on Thursday suspended financial insurance designed to protect certain companies from the effects of devaluation after their total holdings rose to an estimated value of $6 billion in pesos last week.
The tools, known as LEDIV, could be used by certain importers, mass consumption companies that have signed up to the Fair Prices price control program and financial institutions that finance energy imports. LEDIVs paid in pesos were pegged to the official US dollar exchange rate (AR$360.53 at the time of writing), and the return is independent of the exchange rate at the time of bill collection.
“In recent days there has been an avalanche of subscriptions for this instrument because of expectations that the official exchange rate would be significantly adjusted,” Gustavo Quintana, analyst and broker at PR Corredores de Cambio, told the Herald. “It’s free exchange rate insurance – you don’t pay any interest rate.”
According to Quintana, the fact that LEDIV shares rose so much “certainly caused a stir,” forcing the central bank to cancel them. The move was announced via an official communiqué “A” 7898 issued on Thursday, although the financial firm had already published a regulation restricting access to LEDIVs on Monday.
A central bank source told the Herald that the LEDIVs were a temporary measure that had allowed the government to keep economic activity stable after a historic drought that slashed exports by almost $21 billion.
“Since the national government will end the current programs, the central bank considers it unnecessary to maintain this program,” the source said.
Pablo Repetto, head of research at brokerage Aurum Valores, told the Herald that LEDIV would be “a problem” for the next government. Most analysts believe a dramatic devaluation is on the way – one that could close the country’s wide exchange rate gap, known as the brecha. While the official rate is at AR$360.5, the informal “blue” dollar is at AR$905, while the financial MEP and blue chip swap rates on Thursday are at AR$858.8 and AR$836.8, respectively $ closed.
“We have to see how they deal with it – starting with default [LEDIV] Contracts are not a good sign and their implementation would be excessive [monetary] Emissions when they depreciate to improve the exchange rate,” Repetto said.
In a report on Wednesday, consulting firm 1816 calculated that if the official exchange rate rose to AR$800, President-elect Javier Milei’s government would have to print AR$4.1 trillion to repay LEDIV’s current shares – as future contracts in the December show.
The new dollar damper?
“Lediv” was even trending on X (formerly Twitter), with some analysts attributing this week’s relative stabilization and lower parallel exchange rates to these notes. The theory was that investors had used their MEP or blue-chip swap dollars, traditionally used as protection against the depreciation of the peso, to purchase LEDIV.
However, 1816 took a different view, saying that if they had any influence it was “minor”.
“Add [the] Last week and this Monday (latest available data), LEDIV shares rose by $327 million,” the 1816 report said. In comparison, exporters are liquidating $150 million a day on the blue-chip swap Market.
“If there is any government action that has the recent impact [financial dollar] Movement, it is the one that allows the settlement of 50% of exports in the blue chip swap rate, not in the LEDIV offer,” the report says, referring to the so-called “50/50 dollar”, which was introduced on November 20th. This allows exporters to divide their dollar sales between the official market and the financial market. The new system offers exporters a dollar exchange rate of nearly AR$650 and increases the greenback supply in financial markets, driving down the price.
1816 said there was another crucial factor in the “recent strengthening of the peso” – the market’s expectation that Milei would not dollarize the economy for the time being.
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