Another move by Caputo: A blow to the future dollar to attract capital

A comment circulating among economists these days is that "with a fiscal surplus, we shouldn't underestimate Caputo's ability to raise dollars."

The Minister of Economy once again demonstrated his willingness to strictly comply with the presidential order to achieve the lowest possible dollar rate in order to reduce inflation until the legislative elections in October.

With the dollar falling after the launch of the new floating band scheme for the currency ($1,000-$1,400), the government maintained its decision not to buy dollars in the market until the exchange rate hits the bottom of the band or even lower.

The Central Bank's failure to purchase dollars raises concerns about the government's ability to meet the target agreed upon with the IMF, which requires it to accumulate approximately US$5.5 billion by mid-June.

Until now, the Central Bank has not purchased sufficient amounts of dollars, and the Ministry of the Treasury has announced that the National Treasury will not buy them either unless the currency falls to $1,000 (the wholesale price on Friday was $1,118).

Without any action on the spot market on Wednesday , the futures market saw a real blow to supply, which collapsed the prices agreed for the end of the year.

The specter of surreptitious official intervention was palpably evident, as noted by the consulting firm 1816 in its latest report.

He says: "The government appears to have intervened very aggressively in dollar futures: open interest rose by US$869 million in one session, something unprecedented during the entire Milei era (the previous record was US$164 million) and rarely seen since 2015."

The blow to the dollar futures came almost simultaneously with Federico Furiase, director of the Central Bank of Argentina (BCRA), announcing that the government plans to issue US$10 billion in dollar-linked bonds between now and September and US$17 billion by the end of the year.

With the sale of these bonds, it is presumed, as Felipe Nuñez (Caputo's advisor and host of Tres Anclas, the economic program in which Furiase and Martín Vauthier participate) had previously predicted, that the government is aiming to obtain the dollars to meet the reserves target it committed to with the IMF.

Thus, the Ministry of Economy plans to close the financing cycle that began when Caputo authorized the entry of capital to purchase local financial assets on the condition that they remain in the country for six months.

It opened the door for them, and the collapse of the dollar's future presents them with a way out with chances of stability and profit for the dollars they can bring in.

A sort of bridge with a significant dose of security for incoming capital for six months (on the eve of the elections) tends to consolidate the official dollar wall to bolster exchange stability in this 2025 partial exit from the exchange rate controls.

The blow to the future dollar is also complemented by what would be a new whitewash for the mattress bills, a measure that comes with considerable anticipation from Caputo and some legal objection from financial operators.

Dollars from the IMF, the World Bank, from mattresses, from capital that comes for six months now with some exchange rate insurance, from a possible Repo with international banks— all to increase the supply of foreign currency.

Financial operators, for their part, are now betting on converting their dollar holdings into pesos to create short-term fixed-term deposits or purchasing CER-adjusted bonds in an attempt to take advantage of the exchange rate fluctuation.

The cheap dollar is on its way to consolidating an overvalued peso, with the resulting "wealth effect" on Argentines' incomes.

With the dollar's decline, income in pesos (the government aims for a 1% monthly increase in salaries) will improve when measured in foreign currency, a key objective for the government to achieve by 2025.

A new experience that, as Caputo predicted, is headed toward ending the cheap Argentina measured in dollars and prolonging, in the short term, thanks to the influx of financial dollars.