What are the keys to REPO loans to increase reserves that are scaring the market


Economy Minister Sergio Massa is running out of options to prevent a resumption of the fiscal dollar race against central bank reserves. The last thing he announced was a Bond repurchase loans (REPO) from foreign banks, but the market thinks it will be expensive and have no practical benefit,

And The central bank official said off the record that the last hope for the government to secure large amounts of dollars for reserves to enter the entity’s balance sheet would be REPO loans. The Massa team speaks.

Indeed, the lag did not react with the expected force, and from October 2020, the effective rate increased sharply to 96% per year, because, BCRA officials say agriculture unlikely to receive major dollar sell-off,

A REPO (according to its abbreviation in English is a loan where an asset is sold, usually with a fixed income (bonds, bonds or letters) In the short term, in exchange for an amount, with a commitment to buy it back later by contract.

Is it the REPO that the wart negotiates safe reserves?

Massa reveals to the American Council that they are in talks Three modes of financing with the REPO loan with an Asian, European and American bank,

,All three made offers. We propose to them to consolidate the proposals for the purchase of debt and the strengthening of reserves,” the minister announced.,

Dollars from a REPRO will only increase gross reserves in the short term

In this regard, the BCRA official indicated that the dollars that would enter the Central Bank REPO will increase the unit’s gross reserves, but not the net reserves,

Economist Miguel Kiguel of consultancy Iconviews said in this regard that “there is an issue that deserves attention. If the REPO is less than a year old (which it certainly is) it is not counted in the net reservesIt is therefore important to know its terms.

On the market, they wonder, even before this panorama is officially recognized, So what are REPO dollars good for?

Operators closely watching Massa’s next steps also point out that REPO “is going to be expensive and will not reassure the market.”,

A BCRA official also advised vehemently denied that the exchange with China was active at any timeExactly because of the high cost.

“There was only a very short trial with Yuan, but Swap not activated because too expensive“, he admitted.

The swap with China was no longer active because it was too expensive, which is repeated with the REPO

What is known about the characteristics of the repo

Among the banks, little is known about the REPOs that Massa negotiates with foreign banks, but some of the limitations that would be unavoidable are discussed.The following, among others:

  1. it will be short term It will not be possible to include it in a pure repositoryWhich can be used in case of currency movement to avoid devaluation.
  2. With the current price of the bond, Argentina may have to provide guarantees And apart from embassies, it has nothing abroad that can be used for these purposes, pointed out Mariano Sardon of FDI Asset Manager.
  3. this guarantee gold reserves can be central bank
  4. If there is no warranty agreement, Another possibility is that the potential of the bond is 50%. For example, market value.
  5. By For each bond with a market value of $22, the bank charges $11. will grant a loan of,
A huge amount of bonds would have to be raised just to get $1 billion.

A huge amount of bonds would have to be raised just to get $1 billion.

Therefore, To get just US$1 billion for reserves, Massa would have to raise about US$10 billion in bonds at face value, which in turn would be unavailable.,

“At this bond price, the operation would be suicidal for any creditor,” Sardon said, adding that “the country already has a lender of last resort, which is the IMF.”

As for Sardan, at the moment it cannot be assumed that there is anything serious and firm in the REPO. He commented, “You can’t assume this will materialize until something is signed.”

What is the BCRA’s parallel strategy for reserves

Due to the characteristics of REPO, it is Critical to reduce exchange rate differentials by lower spot price with liquidationsTo continue to increase agricultural exports and imports, the official said.

Asked about the possibility of freeing up certain imports whose closure is crippling the industry, he said that The government will be able to respect the commitments made to the various sectors to speed up the process of importing supplies in order to replenish stocks.,

Massa pointed out to the Council of America that economics studies a Non-automatic import authorization modification mechanism called SIMI,

The government considers it important to reduce the exchange rate differential.

The government considers it important to reduce the exchange rate differential to increase reserves.

The change, analyzed by Commerce Secretary Mattias Tombolini with heads of other sectors of government, will include the fact that once SIMI approved, dollars are automatically issued at the official exchange rateAnd that they cannot be delayed, explained the minister.

Meanwhile, the consultant acknowledged, the fact that cash reserves are still negative while the central bank can buy a few dollars every day, that Optimism that these dollar purchases by the BCRA will continue over time is premature.,

However, he denied that bank reserves were used to buy dollars in Fury’s final days, before Massa took office, noting that “there are state deposits and other mechanisms that are used for very short periods of time”. can be done”.

Why financial dollars are winning the race

Martin Kalos from EPyCA Consultora said that “The exchange gap creates a perspective that there is no other way for the government in the short term than to devalue the exchange rate in the short term.,

“And if the real positive rate is 96% butA devaluation that outweighs the benefits of this rate is expected, with no incentive to give up taxpayers’ money. To put money in pesos at this rate,” he admitted.

Claudio Caparulo of consultancy Analytica said that “ They must accumulate reserves to reduce the fiscal dollar and eliminate the potential for devaluation shocks. In a very short period of time. »

For there to be no impact on the financial dollar, the hope of a devaluation should disappear.

For there to be no impact on the financial dollar, the expectation of devaluation should be low

With the increase in interest rates, they have reduced the spread from 150% to 100%, but to break this limit they would have to show results in the forex market and then issue imports,” he said. he explains.

Santiago Manoukian of the consultancy firm EcoLatina explained that “the sharp rate hike implemented by the BCRA last week, above market expectations, but nevertheless negative in the short term, is a necessary condition, not sufficient, to calm the dynamics of the exchange rate differential. and stimulate the demand for the peso”.

“To increase peace over time, Rapid progress must be made with concrete measures to address key imbalances: Monetary fiscal front and accumulation of reserves, this is the most pressing in the short term,” he said.

“TeaThe energy “portfolio” (increasing the stock of reserves) is the key to reducing devaluation expectations and avoiding a disorderly correction of the exchange rate in the short term“, he warned.

Gabriel Camano of Consulting Ledesma commented that “the rate hike is having an effect because, before Massa took office, it helped push the parallel dollar down somewhat and is now in line with supply and demand. private”. The official helps the market.

“But only the magic rate is not going to do the magic, it comes down to correcting one of the economic policy inconsistencies, which they had at the margin, becauseThe rate is still not positive and will not fix everything on its own, a stabilization plan is needed“, he concluded


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