In an extensive document published by the consulting firm Suramericana Visión, the former Minister of Economy Martin Guzman He assured that phase 2 of the “new monetary regime” announced by Javier Milei and Luis Caputo, are a “step towards dollarization.” There, he spoke about the role that the US elections, the IMF and the accumulation of reserves will play.
The former minister detailed the steps to dollarize, according to Javier Milei:
– The question was raised need to convert the monetary base and remunerated liabilities in pesos from the BCRA (at that time, Leliq plus Pases) to dollars at a “free” exchange rate. The amount needed for such a conversion at that time amounted to US$40.8 billion.
-It was necessary orput the fiscal accounts in order (This was actually necessary for the implementation of any program that would help stabilize the economy).
– The dollars needed to dollarize could come from new external market financingfrom the sale of shares in the ANSES Sustainability Guarantee Fund and a loan from the IMF.
Currently, according to the latest report from Suramericana, the amount of dollars needed to convert the remunerated liabilities in pesos of the BCRA equivalent to US$28,134 million.
What role do the new LEFIs play?
Within the framework of the “second stage” of the economic stabilization plan announced by the Government, the Board of Directors of the Central Bank (BCRA) on Thursday ordered the suspension of the operation of passive repurchase agreements as of Monday, July 22, and, through Communication “A” 8060, defined the technical and operational aspects of the Fiscal Liquidity Letter (LEFI), which, as announced, “will serve, from that date, as the main instrument for liquidity management of the banking system.”
For Guzmán, “the transfer of remunerated liabilities will be carried out through the LEFI, issued by the National Treasury, and this letter will be capitalized at the monetary policy rate reported by the BCRA. What was announced was that the BCRA would stop paying interest on its debt and that it would be the National Treasury that would take charge of them. These interests would no longer be paid with monetary issuance, but would be paid with resources from the treasury, which was forced to make a greater fiscal adjustment. The market response was again negative, and the exchange rate gaps continued to increase.”
In summary, he states that “what this announcement implies is a faster decline in the amount of dollars needed to dollarizesince the rate of variation of the monetary base is reduced and the BCRA’s debt is, from the perspective of the BCRA itself, capitalized at a zero rate, which accelerates the liquidation of its liabilities. Therefore, we see it as another step towards dollarization.”
Intervention in CCL
For the economist, dollar bonds “should suffer the impact” of a lower accumulation of reserves. “Our reading is that the axis of the measure is again dollarization, under the very confused view that the value of the real exchange rate is determined only by monetary factors. The measure implies an even smaller variation of the monetary base, and therefore a faster convergence to a value “the need for dollars to dollarize in a way that is feasible for the Government.”
What role does the US take according to Martín Guzmán?
Going forward, the document argues that the government’s plan will be to “hold on to the current exchange rate regime,” that is, not devalue, with the expectation that once the US presidential election is over, the IMF will approve a new loan to the government, with new financing. The best scenario for the government would be for Donald Trump to win.
“To obtain additional financing from the IMF, the Government needs the approval of the National Congress, in accordance with the provisions of the “Law of Strengthening the Sustainability of Public Debt”.
Source: Ambito
