How Argentina’s Drought Could Impact the Central Bank’s Reserves

As a result of the drought that is impacting Argentina’s agricultural output, the country’s central bank is set to receive $9.4 billion less during this year’s harvest compared to last year’s season

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By Belén Escobar (EN)
March 13, 2023 | 01:00 PM

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Buenos Aires — As a result of the drought that is impacting Argentina’s agricultural output, the country’s central bank is set to receive $9.4 billion less during this year’s harvest (to July) compared to last year’s season if the so-called ‘soybean dollar exchange rate were not applied, and some $7.42 billion less if it were implemented, according to private sector estimates.

The ‘soybean dollar’ is an exchange rate that was implemented purely for the country’s soybean trade. The Argentine government reintroduced the soybean dollar in late November in a bid to secure $30 billion in foreign currency reserves. The mechanism allows soybeans to trade at a rate of 230 pesos to the US dollar, higher than the official exchange rate but below the unofficial or ‘blue dollar’ rate.

Consulting firm Analytica has identified “the drastic projections” of a fall in soybean and corn production and its impact on foreign currency reserves in the coming months, and proposes two scenarios: another implementation of the ‘soybean dollar’ exchange rate, which would put the currency at 300 pesos per dollar in May, and a second, more adverse scenario, without that exchange-rate stimulus.

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“In 2023, the drought will likely cause a reduction in US dollar revenues of up to $16.4 billion, if a third implementation of the stimulus program for soybean exporters were not carried out,” the firm said, while, “with the ‘soybean dollar’ exchange rate in place, revenues would amount to $13.9 billion.”


However, “when comparing this year’s projections with the drought of the 2017/2018 season, the central bank would receive around $4.27 billion more to July, assuming the ‘soybean dollar’ mechanism is used, and $2.29 billion more without the incentive program”, according to Analytica’s analysis.

The consultancy states that it is possible to project a higher dollar income in 2023 than in 2017, even with a smaller harvest than in that year, due to current prices.

“The soybean harvest would be even lower than the one observed in the previous drought, but prices today are 57% higher,” the consultancy stated.


“For corn, the differences in production are similar (36.6 million tons are expected this season, compared to 43.5 million tons during the 2017/18 season), but prices are 75% higher,” it stated.

The difficulties of accumulating reserves

Earlier this month, Argentina’s Economy Minister Sergio Massa and his team came to an agreement with the International Monetary Fund (IMF) on a new international reserves accumulation target for 2023.

In addition to the new target for the Central Bank of Argentina (BCRA), Bloomberg Línea was able to confirm with sources from the economy ministry that the government will implement a series of monetary and fiscal measures in the coming weeks.

Due to the lower inflow of dollars into the country caused by the worst drought in decades and the energy consequences of the war in Ukraine, the IMF agreed to reduce Argentina’s reserve accumulation requirements, both at annual and quarterly levels. These were part of the binding targets of the extended fund facility program, a mechanism that allowed the refinancing of the debt for more than $40 billion taken by the Argentine government with the multilateral organization in 2018.


Originally, the Argentine government was supposed to seek to strengthen the Central Bank’s coffers to $9.8 billion by the end of the year. As of February 24, the BCRA’s net international reserves totaled $3.42 billion, according to Aurum Valores estimates.

However, “the difficulties in accumulating reserves are not just down to a poor harvest”, Analytica stated, as “increased debt payment commitments and greater incentives to retain grains also play a role.”

“The strong exchange rate difference - the multilateral real exchange rate has appreciated 30% since December 2019 -, the large gap in parallel quotations (over 80% at present) and speculation on a possible reduction of export duties, in the event of the opposition winning the October presidential elections, could lead to a lower liquidity for the agricultural exports sector,” the consultancy stated.

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