20181227-法国巴黎银行-Argentina__Financial_outflows_continue__New_RR_rules_and_end_of_Lebacs_13页_503kb

Argentina: Financial Outflows Continue; New RR Rules and End of Lebacs

Core Content Overview

This document provides an analysis of Argentina's financial situation in late 2018, focusing on capital flight, foreign asset formation, and the implications of the end of the Lebac reduction program. It also discusses the changes in reserve requirements (RR) and the potential impact of the IMF review on the country's financial stability.

Key Messages

• High Foreign Asset Purchases: Despite the slowdown in October, foreign asset purchases by the non-financial sector remained high in November, totaling USD1.2bn.
• Capital Flight: Capital flight reached USD18.7bn year-to-date and USD21bn on a 12-month rolling basis, indicating continued outflows.
• Non-resident Portfolio Flows: Net portfolio flows remained negative in November, with outflows of USD0.770bn and inflows of USD0.464bn.
• USD Demand: USD demand remained high, with non-residents' net demand for US dollars notes at USD-0.1bn, while the demand for FX currency increased.
• Leliqs and Trade-off: The demand for Leliqs (local currency deposits) remained strong, and Argentineans are still trading off between USD and local currency (ARS) returns.
• Structural Bearish View: The report reiterates a structurally bearish outlook on Argentina, supported by a long protection strategy through 5y CDS.

Capital Flight and Foreign Asset Formation

• Capital flight continued at a high level, with USD18.7bn YTD and USD21bn on a 12-month basis.
• Foreign asset formation from the non-financial private sector reached USD30.3bn in November, showing no reversal in the trend.
• The financial account gap, after netting out IMF loans, was USD-46.2bn compared to 2017, indicating a significant imbalance.
• Commercial flows have stabilized, but Argentina still needs a positive trade balance to offset financial outflows.

International Reserves

• Gross international reserves totaled USD58.7bn, including the swap with China and private sector USD deposits.
• Net liquid international reserves are now approximately USD-2.3bn, highlighting concerns about reserve sustainability.

End of Lebacs

• The maturity of USD69bn in Lebacs marked the end of the government's reduction program.
• Lebac funds were mainly converted into time deposits (TDs), which were then invested in Leliqs rather than lent to the private sector.
• The shift from Lebacs to TDs and Leliqs has not generated genuine demand for ARS, as the money remains in the financial system without reaching the real economy.

Reserve Requirements Changes and IMF Review

• The BCRA announced new RR rules to simplify the system and reduce reserve requirements for longer-term deposits.
• The changes are expected to take effect on 1 January 2019 for "Group B" institutions and 1 February for "Group A".
• The report suggests that the changes are not timely and may not lead to the desired increase in loan demand due to low economic confidence.
• The IMF is preparing for a return to inflation targeting, which is viewed as potentially unsuitable for Argentina's dollarized economy.
• The move to transfer the Treasury Single Account (TSA) from Banco Nación to BCRA is seen as an attempt to reduce credit risk but may not address underlying issues.

Strategy

• A tactical short ARS position was opened on 4 December due to the gap with the lower non-intervention band.
• The report reiterates a long protection strategy through 5y CDS, reflecting a structurally bearish view on Argentina's financial outlook.
• Forward points indicate a continued depreciation of the USDARS exchange rate, with the non-intervention area expected to see nominal depreciation.

Conclusion

The analysis concludes that Argentina's financial situation remains volatile and unsustainable, with continued capital flight and high USD demand. The structural issues in the economy, including low confidence and the lack of genuine demand for ARS, suggest a continued bearish outlook. The changes in RR and the end of the Lebac program are not expected to significantly alter this trajectory without broader economic reforms and improved fiscal discipline.