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Informe Mensual Económico Financiero N° 343 – Septiembre de 2018

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EXECUTIVE SUMMARY

The international tensions arising from trade conflicts and tariff wars constitute an

adverse context for the emerging world, at the end of the expansive trend shown by

the world economy. During August, the Turkish crisis caused great tensions, which

spread to other developing economies and left exposed banks in France, Italy and

Spain.

Three significant factors in the concern of economic agents with respect of the global

economy are: i) the consequences of the disarmament of the monetary facilitation

program in the US; ii) the increase in the US fiscal deficit and the revaluation of the

dollar; iii) the generalized increase in risk aversion. The greater volatility in Brazil

(increased by the Supreme Court order that restrain Lula´s presidential candidacy

and the attack suffered by Jair Bolsonaro) and the fall of the real are additional stress

factors for Argentina.

For Argentina, August was another month of great volatility and deep depreciation of

its currency against the US$ dollar. One of the reasons was the lack of credibility

between international investors about his fiscal policy and the outflow of capitals that

difficult the roll over of the public debt with private international funds (in spite of IMF

support).

The oscillations in the risk premium, that reaches 700 points to conclude

the month in 771 are a clear indicator (in spite of an small reduction at the beginning

of September).

The underlying causes are: i) a small size of the financial and capital markets; ii) an

institutional instability that promotes the concentration of debt maturities in the short

term; iii) a structural shortage of savings, in a context in which a part of the private

savings ends up financing the fiscal deficit; iv) a history of non-compliance with the

external debt.

The intensity of the exchange market crisis cause a peso´s devaluation of 35.7% in

august. To recover credibility, Argentine government, asked the IMF for a change in

the agreement terms to allow an acceleration of the disbursements originally

scheduled. The purpose was a reduction of financing needs that should be covered

in the market. The commitment of Argentina is to get a balanced primary result in

2019 using to instruments: export duties (around 10%) and a reduction of public

capital expenditure (around 50% in real terms).

Pesos´s devaluation implies a weaker peso in real terms and reduces the need of

capital inflows helping to close/reduce external savings needs. If the current real

exchange rate peso/dollar is kept (1.55, for 2001=1), the deficit in the current account