Non Transferable Letters compounds the insolvency of the Central Bank

The brand new Law of Social Solidarity and Productive Reactivation, popularly known as the Economic Emergency Law, establishes, in Article 61, the authorization by the Treasury to issue Transferable Letters for a value of US 4,571 million, the which were already issued in full.

Ámbito Financiero – In December, not only did Kirchnerism return in its albertist version, but also the famous Non-Transferable Letters that the Mauricio Macri government had left in disuse.

In Argentina things happen that do not happen in any country in the world, however, it does not stop surprising us. One of our inventions of the 21st century is the Transferable Letters, which the new government has no shame in using them again.

But what are nontransferable letters? They were born in January 2006 when Argentina began an “external debt reduction process” by paying the International Monetary Fund (IMF) all the Argentine debt to the international organization (US 9.530 million) and in this way we “emancipated” the organism international. It should be clarified that the credit canceled in advance did not imply meeting conditions imposed by the Fund; since it was just a payment agreement and not a financing one. That is, a very cheap loan was canceled at the expense of the reserves and solvency of the Central Bank of the Argentine Republic (BCRA)

The operation was thus, the BCRA, commanded at that time by Martín Redrado, gave the government of Néstor Kirchner international reserves in exchange for a letter in which the Treasury undertakes to return said amount in a given period (10 years) with A very low interest. But these papers, as its name says, are not transferable, that is, the BCRA cannot negotiate them in the secondary market in the case where it needs dollars.

Thus, the balance sheet of the BCRA went from having liquid assets (reserves) to having illiquid assets (Transferable Letters) whose value is almost non-existent, which generated a deterioration in it.

Although at the beginning, the reserves obtained against the Transferable Letters could only be used to cancel obligations with international organizations, in 2010 the government of Cristina Fernández de Kirchner established by decree that the reserves can be used for the payment of public debt with private holders. This was an overflow of the BCRA Organic Charter Law that prevented that use and a confrontation with its President. This outrage to the reservations of the BCRA caused the resignation of Martín Redrado after the sanction by law of the text of the decree of the President. By the end of 2015, the letters totaled a total of US 68.045 million, far exceeding the total international reserves.

With the assumption of Mauricio Macri at the end of 2015, there was a better predisposition not to reissue these types of letters and a commitment to comply with these obligations with the objective of improving the BCRA balance sheet providing greater liquidity.

However, after the request by the Government to enter into a program with the IMF in 2018, one of the conditions of the latter was to clean up the balance sheet of the BCRA before canceling the Transferable Letters to guarantee the financial autonomy of the entity . In this way, the Treasury had to cancel in advance the Transferable Letters held by the BCRA and the monetary authority used this money to reduce the famous “snowball” of the LEBACS. In spite of this, this operation was abandoned before starting as a result of the financing needs of the Treasury that this operation entailed and as compensation temporary advances were canceled.

At present, the new Law of Social Solidarity and Productive Reactivation, popularly known as the Economic Emergency Law, establishes, among other things, in Article 61 the authorization by the Treasury to issue Transferable Letters for a value of US 4.571 million, which were already issued in full. Thus, the Government gave a clear signal to the market that it is committed to using BCRA reserves to pay public debt that expires in the following months, that is, while Guzmán and his team negotiates the debt restructuring they leave to pay the due dates within that negotiation period.

Unfortunately, the insolvency and illiquidity situation of the BCRA was already serious and this measure will aggravate it much more, when the entity is the guarantor of the value of the pesos in which the Argentines treasure and collect our salaries. This is not the best way to regain confidence in our currency and, thus, lower inflation.

By Diego Piccardo

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