$14 BL to arrive in 2007

Argentina will continue receiving a significant dollar inflow in 2007: up to $14 billions. This is forecasted in the monetary program which Argentine Central Bank head Martín Redrado will submit on Wednesday in the Senate.

For the first time, Central Bank's forecasts to create its foreign-exchange policy have a rank to estimate inflow: a $10-billion floor and a $14-billion ceiling are provided. In fact, this maximum figure is not far away from 2006 events.

2006 broke a true dollar inflow record since 2002 devaluation. Foreign-currency surplus exceeded $13.5 billions and this was reflected in monetary authority purchase increase: $12.5 billions were posted until December 7 and another $1 billion will be added at the end of the year. We are talking about a 40-per cent leap with respect to last year intervention. Official expectations were greatly exceeded, since 2006 monetary program estimated an $11-billion inflow.

Explanation

Strong dollar inflow is explained in the first place by trade surplus (which will come closer once again to $11 billions in 2006). An increasing foreign-currency inflow should be added to that due to bets from those seeking to take financial advantages, particularly in inflation-adjusted bonds in Argentine pesos.

Such inflow will need to absorb part of Argentine pesos issued to buy dollars so as to avoid greater inflationary pressures. As Redrado will disclose, around ARG$20 billions will have to be sterilized.

Some of the main points that 2007 monetary program will include are provided below:

As a consequence of strong dollar inflow and Central Bank's purchases, reserves will comfortably exceed $42 billions. "Preventive accumulation" policy will continue as protection in view of possible foreign crises.

2007 inflation will hover around 7 and 11 per cent, though this piece of information will be defined by the board of directors of the institution. It may repeat the ceiling expected for 2006, though floor decreases one point.

The monetary aggregate that Central Bank will monitor is M2 (monetary base plus demand deposits). A downward trend will be observed, implying that included rise will settle below the one seen this year. Central Bank's members explain that this is the main contribution to avoid greater inflationary pressures.

It has not been decided yet how many new bonds (Argentine Central Bank's Bills of Exchange and Securities) the monetary authority will issue to absorb the surplus ARG$20 billions. In fact, it will depend on different factors, as for example, public sector help with fiscal surplus, rediscount settlement by banks or possible cash minimum rise by the entity.

As regards the expected economy growth for next year, Central Bank is much more optimistic than Economy Ministry. The entity expects GDP to grow 7.2 per cent. Dollar would remain around ARG$3.15 (in fact, in this case, it is only repeating data included in 2007 Budget).

Credit will continue growing in a sustained manner, though it would not keep the same 2006 pace. While this year has increased at more than 40 per cent, 2007 would move to more than 30 per cent. Total loans to private sector, ending this year at ARG$75 billions (considering both Argentine pesos as well as dollars), would come closer to ARG$100 billions.