CRONICA: According to the Fundación Libertad y Progreso, the Argentine Central Bank has a debt of $7.7 billion, plus interest for $5.8 billion.
According to official statistics, interests paid by the Central Bank’s remunerated debt have multiplied by eight during the presidency of Alberto Fernández.
According to a study by the Fundación Libertad y Progreso, assuming that the BCRA does not increase the stock of remunerated debt and it renews it at the current rate, only issuing to pay the interest it generates, this process would lead to more than a doubling of the monetary base in the twelve-month period (+128%).
In January 2020, the BCRA had a stock of interest-bearing debt of $1.5 trillion, which accrued annual interest of $0.7 trillion. As of September 19 of this year, the stock of interest-bearing debt rose to $7.7 trillion and interest to $5.8 trillion.
On the other hand, if the current rate were maintained and interest maturities were not paid, the interest-bearing debt would reach $15.6 trillion in one year. It would be 180% higher than the current monetary base, almost tripling it; which gives a measure of the “snowball” of liabilities that the BCRA is developing.
The increase in stocks and interests was due to two factors. The first has to do with the process of monetary financing of the fiscal deficit, which makes the Central Bank issue and then sterilize its own issue by issuing remunerated debt. And, secondly, the increase in the interest rate on interest-bearing debt, something that was especially noticeable since January of this year.
In the last 9 months alone, the effective annual rate of the 28-day Leliqs (monetary policy rate) increased from 37.5% to 70%.
THE CENTRAL BANK PAYS 8 TIMES MORE ON INTEREST THAN ON DEBT
Aldo Abram, director of the Fundación Libertad y Progreso, considered that “in the short term, rate hikes can have a moderating impact on inflation and the exchange rate run; but it accelerates the growth of the BCRA’s remunerated debt and that of the Treasury in pesos. In other words, you buy, very expensive, time”.
The economist warned that “if the loss of credibility is not overcome, allowing an increase in credit to be able to refinance it, it will be necessary to issue and liquefy it with more inflation and with a jump in the exchange rate.”
He argued that “the problem is that both debts arose from maintaining excessive public spending and, now, threaten to plunge Argentina into a crisis or, as they increase, increase the social and economic cost of leaving stocks in an orderly manner. To avoid this, this time gained must be used to launch a program of structural reforms, recover credibility and get out of exchange control as soon as possible”.
Lautaro Moschet, an economist at the Foundation, maintains that “the increase in rates served to contain the exchange rate run and sustain the demand for pesos. However, it is a very short-term measure, whose costs strongly affect the medium and long term.”
“From the point of view of inflation, the Central Bank will be obliged to issue a large amount of money, diluting its purchasing power, and generating price increases. On the other hand, the productive sector will be harmed by the increasing the cost of credit. In that case, investments will be more difficult to finance and will decrease”, he warned.
Eugenio Marí, the foundation’s chief economist, explained that “in the 2023 Budget, the government projects a sharp drop in inflation, but this is very unlikely. If we add the interest-bearing debt of the Central Bank, the consolidated deficit that the federal government must finance is 9% of GDP. With taxes on the ceiling and the local debt market saturated, the government is increasingly dependent on the inflation tax, which makes a sustained recovery in money demand and a moderation of inflation impossible”. (NA)