April 26 (Reuters) - Argentina's government could find it increasingly difficult to play it day-by-day until the presidential elections in October with depleted central bank reserves and political turmoil heaping pressure on its currency.
Inflation surpasses 100%, while the worst drought in six decades adds pressure to already scarce dollar reserves amid mounting capital controls imposed in 2019.
Market anxiety is growing as the ruling coalition has little room to maneuver, with plans to build up reserves looking challenging.
"Undoubtedly, the central bank will have a rough time bolstering its coffers," Buenos-Aires based brokerage Portfolio Personal Inversiones wrote in a note.
Argentina's key parallel exchange rate, known as the dollar blue, extended its slump in informal markets with a 6.7% decline to 490 per dollar on Wednesday, teetering precariously on the brink of the 500 watermark. The gap between the black and official rates is above 120% - the widest it has been since July 2022.
"With no political space to deploy a stabilization program, the muddle-through strategy is poised to exacerbate the existing imbalances, with the stagflation entering a new phase of diverging inflation and growth trends: inflation higher and real growth lower," JPMorgan analysts Diego Pereira and Lucila Barbeito wrote in a note.
The bank's base case is for "two back-to-back quarters of contraction" in the first two quarters of 2023, with a 12% slump in the second quarter when the full impact of the drought is felt.
Argentina is no stranger to economic strife. It has defaulted on its international sovereign debt nine times, including three times over the past two decades.
Consecutive International Monetary Fund programs have failed to anchor credibility with the lender agreeing to change targets without any reforms in exchange.
The current $44 billion program agreed in 2022 replaced a failed $57 billion loan from 2018, the largest in the Fund's history, for which Argentina still owes over $40 billion.
Economy Ministry officials will travel to Washington this week to start talks with IMF staff to recalibrate the program, but the specific details were not yet available.
