The minister remembers late to give signs of monetary discipline

Member of the Academic Council of Libertad y Progreso. Degree in Economics from Universidad Católica Argentina. He is an economic consultant and author of the books "Economía para todos" (Themes, 2002) and "El SindromeArgentino" (Ediciones B, 2006). He serves as a columnist in the newspaper La Nación. Previously, he worked the same task for the newspapers La Prensa (1985-1992), El Cronista Comercial (1992-2001) and La Nueva Provincia de Bahía Blanca (1992-1998). He's the host of the cable TV show "The Economic Report." Lecturer in Applied Economics of the Master of Economics and Administration of ESEADE, senior lecturer in Macroeconomic Theory of the Master of Economics and Administration of CEYCE. President of the Center for Economic and Institutional Studies. He was Economic Adviser to the Argentine Chamber of Commerce (1983-2002) and to the Argentine Chamber of Importers (1992-1993).

INFOBAE – Economy resigned to receive Transitory Advances from the Central Bank in November and December, but it will be able to count on some $ 800,000 million of profit transfer balance from the entity from the previous year

At the beginning of the week, before the financial market began to operate, the Ministry of Economy issued a statement announcing that in the last two months of the year the Treasury will not make use of the Transitory Advances from the BCRA.

The BCRA Transitory Advances account is the monetary issue that the BCRA is allowed to make to finance the treasury. According to the Organic Charter of the Central Bank, which is a law, the bank can assist the treasury considering the following limits: 12% of the Monetary Base, 10% of the cash resources that the national government has received in the last 12 months (a very diffuse limit) and, in exceptional cases, up to an additional 10% of the amount mentioned in the previous paragraph. That is, up to 10% of cash resources.

At the time of writing, the stock of temporary advances was $ 1.4 trillion as of October 27. For the monetary base, $ 268,800 million could be transferred to the treasury and doubling 10% of the tax income, the BCRA could issue $ 1.1 trillion, so that the BCRA is already at the limit of what the law allows it to issue in advance transients.

The other option that the BCRA has is to issue for the profits that they invented when valuing the non-transferable bills that the treasury gave it in exchange for taking away reserves. This was done intensively in the previous k period. In the last weekly balance of 2019, the BCRA board changed the way of valuing these bills, generating a profit of $ 2 trillion, profits that could be turned to the treasury. So far this year, the BCRA turned over “profits” to the treasury for $ 1.2 trillion, which means that it still has $ 800,000 million to issue and transfer profits to the treasury. In other words, the fiscal deficit could continue to be financed with monetary issuance, but not through Transitory Advances, but by transfer of profits.

So far this year, the BCRA issued $ 668,720 million for Transitory Advances and $ 1.2 trillion for profit transfers. In total, it issued, until October 27, $ 1.9 billion to finance the treasury. As of December 30, the monetary base was $ 1.9 trillion, which means that so far this year the BCRA has doubled the monetary base. In fact, part of that issuance was transformed into LELIQs, with which part of the fiscal deficit was financed with issuance and part with BCRA debt that it cannot pay because it does not generate genuine profits to pay the principal and interest. As of December 31, the stock of LELIQs and Passes totaled $ 1.2 billion and as of October 27, the stock had grown to $ 2.7 billion. The growth of $ 1.5 trillion in the debt issued by the BCRA shows that the financing of the deficit was, mostly with BCRA debt, which is a time bomb that everyone knows is a very sensitive bomb, and secondly with the remaining monetary issue. In other words, the BCRA issued by transfer of profits and temporary advances and then removed a good part of those pesos issued from circulation by placing LELIQs, instruments that it should never have issued because it has no way to pay them. It is because of this indebtedness of the BCRA to withdraw a good part of the monetary issue that it is achieved that the inflationary stampede has not yet occurred. In fact, the pressure is building for the inflationary stampede towards the future or a BONEX plan if people were to withdraw deposits in pesos from the banks.

But going back for a moment on the issue of profits transferred to the treasury, strictly speaking, if the BCRA has profits, to transfer them to the treasury it should sell part of the assets that generated those profits in the market and turn the funds to the treasury. Issuing coins for profits reflects the fiction of generated profits.

Minister Guzmán says that they will finance the fiscal deficit for the last two months of the year with debt in the domestic market. That means displacing the private sector from the credit market. As of October 27, the BCRA had LELIQs and Pases placed for the equivalent of 47% of total deposits in pesos from the private sector. In other words, the State already keeps almost half of the deposits in the private sector’s financial system, leaving little margin for loans at rates payable to the private sector.

Minister Guzmán is trying to reduce inflationary expectations by saying that now he will not issue currency to finance the fiscal deficit. Strictly speaking, this is not clear because it only talks about temporary advances but says nothing about the issuance by transfer of profits.

But although in the last two months no currency is issued to finance the treasury, the problem that still remains pending and can generate a surge in the exchange rate and prices is the fall in the demand for currency. Although the BCRA does not issue a single peso more to finance the treasury, the issuance already carried out and the BCRA’s debt in LELIQs are so large that this snowball is unstoppable. Everything seems to indicate that a little late was agreed to show signs of less monetary riot.

The minister affirms in the statement published Monday morning: that the gradual and still incipient recovery of economic activity has had a positive impact on tax collection. It is true that October tax revenues exceeded annual inflation, but it is also true that key taxes such as VAT DGI and the tax on Bank Credits and Debts, which reflect the level of economic activity, grew 26.4% the first and 25.8% the second, being between 12 and 13 percentage points below annual inflation. In other words, no economic recovery is yet to be seen, considering these taxes.

It should be emphasized, the minister agreed late to put monetary order and now they have the clock of the LELIQs and a drop in the demand for currency that is running.

Was this monetary overflow the fault of the pandemic? Considering that before the pandemic occurred, the BCRA had already drawn profits for $ 2 billion to be able to issue and transfer it to the treasury with the idea of ​​putting money in people’s pockets, everything seems to indicate that blaming the pandemic, in Reality to quarantine, due to the fiscal and monetary overflow, the economic policy of issuing to finance artificial consumption was already on the mind of the current government. What changed was the reason why this festival of monetary expansion was generated, but the spirit of issuance was already independent of the pandemic. The pandemic gives him the excuse to justify such a monetary and fiscal waste, but the concrete thing is that the monetary damage has already been done.