The problem of all our ills lies in the fact that the Treasury has a fiscal deficit of 4.4% of GDP and, permanently, resorts to accounting tricks so that the Central Bank finances it.
The market does not want to have pesos, which is why the monetary base adds up to $4.1 trillion as of September 30, and indebtedness in leliq, passes and other instruments, measured in pesos, adds up to $8.3 trillion. All this mass of money adds up to $12.4 trillion, a year ago it totaled $7.0 trillion, this implies an annual increase of 77.1%.
debt in the hands of The Central Bank is remunerated at a rate of 75% per year, since no interest is paid on this debt, the effective rate is 107% per year. The ideal would be for the reserves to be equal to or similar to the stock of debt, for this to happen the exchange rate would have to rise from $147.3which was at levels of $221.6 on September 30, this would imply a 50.4% rise in the wholesale exchange rate.
To carry out a devaluation of this magnitude would require the Treasury to have a fiscal surplus, Otherwise, the devaluation could generate an inflationary spiral that is difficult to stop. On the other hand, it would be convenient for the reserves to be higher, if this were to happen, perhaps the devaluation would not be as important as the one mentioned in the preceding paragraph. To increase reserves someone should sacrifice and lend us an interesting sum, with the presidential duo we do not spend the truth of the world.
This implies that, in order to carry out a successful fiscal, monetary, and exchange rate policy, the government needs to have a (minimum) fiscal balance, high confidence, and a greater amount of reserves. Everything suggests that the government will not be able to achieve this task, therefore, it should go through this situation with the same imbalances that Martín Guzmán had as minister, aggravated by a smaller amount of reserves and a large increase in monetary liabilities.
What’s coming for the next few months
In a week the inflation rate will be known, the government will be forced to raise the interest rate, therefore, it should increase the rate of devaluation of the peso, if it does not, the gap between reserves and Central Bank debt could continue to increase , forcing the monetary entity to work with a high level of stress, since, sooner rather than later, it will have to adjust both items.
It is impossible to coexist with a monetary base and a BCRA indebtedness with a relation that for each peso of the monetary base there are 2 pesos of debt that pays astronomical rates. On the other hand, the stock of reserves is equivalent to 66.5% of the total existing debt in the Central Bank. This at some point is adjusted, by the good, guided by the monetary entity, or by the bad because the market will pressure the Central Bank to make decisions.
The The month of October does not seem like a good month to make decisions, politics places more and more restrictions on Sergio Massa and the ruling trio differs from the minister, neither Alberto Fernandez nor Cristina Fernandez are convinced of the policy applied.
The World Cup begins in November, a good time to wait, public attention will be elsewhere, and perhaps few will notice that the US Federal Reserve raises the rate on November 2, or that the Treasury on November 22 announces that it has a fiscal deficit. To schedule, Argentina plays on Tuesday, November 22 at 7 in the morning against Saudi Arabia, on Wednesday, November 30 at 4:00 p.m. against Poland, and Saturday, November 26 at 4:00 p.m. against Mexico. It would be a tragedy if we do not classify, because in December we will be informed again and the economic deterioration will be noticeable.
If we win group C we play on December 3 at 4:00 p.m., it would be necessary to pass this phase, if we do, we play on Friday, December 9 at 4:00 p.m., if we pass the phase, we play on Tuesday, December 13 (the date already I don’t like it) at 4:00 p.m. If we win, we’ll play the final on Sunday, December 18 at 12:00 p.m.
If we come out champions, who is going to set the fiscal result for November that is reported on Tuesday, December 20, December 24 is Christmas Eve and December 31 is the end of the year. This year the holidays fall on Saturday and Sunday, this does not harm because it exposes the government 5 days a week.
If we get through December without adjusting the exchange rate, we still have to get through the summer and, given the deterioration in the terms of trade, it seems to me that it will be the most appropriate time to adjust the exchange rate.January and February are the most propitious months for an adjustment, many people on vacation and the country starts in March.
Conclusions
The World Cup can hide the problems, but with the fiscal deterioration and the monetary and exchange disorder, there is no other choice but to adjust variables, devaluation is a necessary but not sufficient condition, the important thing is to achieve fiscal balance as soon as possible. Without fiscal accounts in balance, and with a lack of confidence due to the actions of the executive power, everything is headed towards an adjustment in the summer, just in case, spend the summer near your work, company or business. Clarification, if the drought worsens, the times do not speed up, but the adjustment in the summer will be more important.
Source: Ambito
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