Analysts weigh in after the announcement that the Central Bank of Argentina (BCRA) will stop issuing money to finance its remunerated liabilities, as part of the second stage of the stabilization plan carried out by Javier Milei.
Government officials are meeting with banks on Monday to agree on how to transfer liabilities to the Treasury with a new monetary regulation letter.
The Minister of Economy, Luis Caputosaid on Friday that the government hopes to be able to reduce the PAIS taxbetween August and September next year. The announcements were made after the Chamber of Deputies approved the so-called “Ley Bases” and a fiscal package promoted to initiate profound changes in the economy.
Stabilisation plan: what the market thinks after the announcements
“Clearly, the plan currently has a positive part, beyond what has been seen in this first part and the approval of the Bases Law and the tax law, but it has a part of high uncertainty which is how you continue with the exchange policy, basically because you are not accumulating reserves and If you don’t accumulate reserves, Argentina has no way out of the currency trap”Juan Luis Bour, from the FIEL Foundation, told a local radio station.
“Perhaps what the president is saying is exactly that: that the second phase has a change that will modify things up to this point, because you are at a time when you should be accumulating reserves and you are not accumulating them, you should have a different situation in terms of the evolution of deposits in pesos and you are not having it. Well, you have to change some things,” he said.
Following the announcements, the consulting firm EcoGo estimated that “of the 63 billion pesos of debt in the hands of the market, there are 52 billion that are on the balance sheets of the banks, which in turn have 26 billion in puts (right to sell bonds to the BCRA)”.
“The approval of the Bases Law and the fiscal package in Congress opens the door for the government to be able to accelerate the unification of the exchange rate and the dismantling of exchange controls“which at this time are the main obstacle to the entry of capital and investments,” said Eugenio Marí, from the Fundación Libertad y Progreso.
“These reforms will help to ensure that the economy recovers more clearly in the second half of the year,” he added.
“After this process, the only source of monetary emission will be the purchase of dollars by the BCRA. In return, The Treasury will increase its floating rate market debt and will pay more interest, which will require a larger primary surplus to maintain the financial surplus,” Delphos Investment summarized.
“Additionally, the market is beginning to see that changes are necessary in the government’s exchange rate policy, derived from the need to converge towards a unification of exchange rates and the opening of the exchange controls, which will consolidate the process of accumulating reserves,” he said.
Foreign exchange restrictions: an end in 2025?
Analyst Salvador Vitelli estimated that “at the beginning of 2023, remunerated liabilities (leliqs and pases) of the BCRA were 40% of the debt and today it is 8%.” “From a technical point of view, Inflation is not a problem that has been overcome. From the point of view of public opinion, it would seem so, because since 2021 we have had inflation as the main problem and in the last measurement in May it has already become the third problem, surpassed by wages and poverty, which clearly worry the half of those who do not approve of the government,” said Diego Reynoso, political analyst and researcher at the University of San Andrés, in radio statements.
“It’s not that the entire population is concerned about wages and poverty, but when you add up all the information and generate that result, wages and poverty appear and that may be the result of a government success,” he added.
“What should be avoided is to accumulate tensions that lead to a possible a large-scale devaluation jump, which can cause economic and social problems, therefore We were expecting the announcement of changes in the official scheme, through various types of measures“, VatNet Financial Research noted.
“There were no announcements on new developments in the foreign exchange market, except for a possible reduction in the PAIS tax, which will benefit imports more directly than exports,” he added.
“The economic program has as its objective emission target 0. “Eliminate any need to issue for fiscal or quasi-fiscal reasons. Likewise, they are not going to issue zero as the president said; he was not going to allow monetary policy to be so restrictive that it impedes economic activity,” said economist Fausto Spotorno in radio statements.
“What the president implied is that when we reach the point where the BCRA no longer needs to issue more pesos to be able to function, we will be in a position to get out of the currency controls,” he said, adding that “the end of the cepo has to be before 2025, “The transfer of the debt from the BCRA to the Treasury could not last more than 4 months.”
* “The market knows that the pace of foreign currency acquisition by the BCRA has decreased significantly at a time of year when the opposite should happen”Wise Capital noted.
Source: Ambito
