Through his official account on the X platform (formerly Twitter), the La Libertad Avanza (LLA) official responded to criticism within the framework of the Start of phase two of Javier Milei’s Governmentwhich, in the words of the President himself, consists of zero emissions.
It is in this context that Luis Caputo explained the difference between the issuance and expansion of the monetary base: “The increase in the monetary base IS precisely what we want to happen. This is NOT a monetary issue, but rather a change in the composition of the BCRA’s liabilities, which go from remunerated (pases) to non-remunerated (BM), as a result of the decrease in inflation.”
Criticism of the Government’s economic plan
One of the first to point to the Minister of Economy was Carlos Melconian, who highlighted the “tax pact” but questioned the sustainability of the program promoted by Caputo.
“What happened in the first half of the year was an ingenious financial plan to attack a difficult inheritance. What is perceived is that it was not sustainable over time, it was a financial plan with an expiration date, the financial plan that has been exhausted up to now,” he said.
Gabriel Rubinstein, a former official in Alberto Fernández’s government, also praised the fiscal intentions of the Executive Branch, although he made clear the problems with the expansion of the monetary base. “That undermines the fiscal adjustment and that puts pressure on the dollar,” he warned.
The former vice minister questioned the idea that the current recession was inevitablearguing that the fiscal adjustment should not have been recessionary because it replaced the inflationary tax. In addition, the devaluation was intended to reduce the exchange rate gap without seriously affecting wages. “The ‘non-agricultural’ GDP should have fallen approximately 1%, not around 6%, in these six months,” according to his calculations, he explained.
The Government set a record for peso issuance in the first quarter: reasons and consequences
In May, the monetary authority reduced the reference rate on two occasions, with a decrease of 10 percentage points each time and set it at 40% per year. This action aimed to limit the endogenous growth of the supply of pesos.
However, according to data from the Monthly Monetary Report of the Central Bank (BCRA), the The monetary base experienced a nominal expansion of $2.2 trillion in the month and increased approximately 100% in the first six months of the year compared to the same period last year.
During the first half of 2023, the monetary base increased by just 13%, which implied a real contraction of 25% given that the accumulated inflation in that period was 51%.
Source: Ambito
