Two major car paint manufacturers announced in the last hours that they would stop producing in the country as a result of the crisis caused by the pandemic both locally and globally. They are the German company Basf and the American company Axalta. The German company will move production to the state of Sao Paulo but will continue to operate commercially in the country through imports. On the other hand, the American company announced that it is withdrawing from the local market definitively.
The departure of Latam from Argentina means that it stops flying to 12 domestic destinations, three regional ones (Sao Paulo, Santiago de Chile and Lima) and one international one (Miami). Yesterday, the date was set to begin negotiations on the future of the 1,715 employees who will be fired when Latam Airlines completes its exit from Argentina.
The stock of debt indexed to the dollar already amounts to u$s557 million so far this year, of which $472 million were closed in the last 40 days. This reflects the interest of issuers and investors. At the moment, there is idle liquidity and particularly voracious appetite of investors, but the problem is that when it devalues, that indexed debt is not going to be worth what it is now. It starts to be worthless because the exchange rate adjustment is over, the price goes up because of the devaluation and the next day the holders go out and sell it. This ends up complicating the BCRA, which today would already have sold positions for more than $4 billion.
Arcor will go out today to the capital market to seek funding through the issuance of negotiable bonds indexed to the official dollar, for which it expects to get at least 500 million pesos ($7.09 mn). They will earn interest equivalent to the Badlar rate for private banks, currently at 29.63% per year, plus a cut margin to be established on the day of the auction and will have a term of 15 months.
The stock of total gross external debt with debt securities at nominal residual value as of March 31, 2020, was estimated at $274.247 billion, according to the INDEC. It is a decrease of $4.24 billion from the previous quarter. 94% of the external debt at nominal value is in foreign currency, 59% is in dollars. The current account registered a deficit of $444 million.
The wage index increased by 0.2% in April, it includes a decline of 0.2% in the income of private workers, a rise of 0.7% of unregistered employees, and an increase of 0.6% in salaries of public employees. The wage index in April was below inflation, which was 1.5%. If real wages do not recover after the isolation measures, 2020 will become the third consecutive year of loss of purchasing power. In 2018, wages fell by 6.3% and in 2019, by 9.5%.
Sixty-one thousand companies are on the verge of closing down, and some 260,000 workers are on the brink of being fired. The most vulnerable segment is that of micro-enterprises, where 12% are on the verge of bankruptcy. Companies linked to commerce are the most affected with a 10% chance of closure, followed by service companies (9%), manufacturing industry (7%), construction (7%) and those related to the countryside and mining (4%).
INDEC estimated April’s drop at 26.4% compared to a year earlier and 17.5% from the March level. After 29 months in continuous recession, economic activity is suffering exceptionally badly from the effect of preventive and obligatory social isolation to avoid the contagion of Covid-19. The industry showed a fall of 34.4%; trade contracted 27%; construction plummeted 86.4%, according to the estimate of the official statistics agency.
As of June 23, the BCRA had issued 200 billion pesos ($2.84 bn) to finance the Treasury through the transfer of accounting profits. For the time being, the financing of expenses by issuance would be equivalent to 64% of the estimated tax revenues in June. In the absence of an economic plan, the government is only attempting a forward flight with more quarantine, monetary issuance and BCRA debt, generating a substantial increase in quasi-fiscal spending. The economy is becoming more complicated, as we can see from the drop in the level of activity, the rise in unemployment, poverty and repressed inflation.
For every day of unemployment, the economy loses $715 million in terms of activity. For the entire confinement, the estimated cost would exceed $70 billion. The measure includes the income not generated by the cessation of operations, and the levels at which the deficit and monetary emission rise.