Martín Guzmán reappeared and revealed his recipe for the ball of leliqs “without a Bonex plan”

Martin Guzmanformer Minister of Economy, reappeared on the public scene presenting his recipe embodied in a document in which he rejects the need to implement a Bonex plan either a new reprofiling of the public debt in pesos to reduce “the leliqs problem.”

In his analysis, he affirms that it is viable reduce the volume of remunerated liabilities of the Central Bank (BCRA) when executing a comprehensive stabilization plan. This program, according to Guzmán, should include fiscal consolidation measures and the elimination of monetary financing of the deficitall supported by rates that will encourage savings in national currency.

The report is signed by Fernando Morra and Ramiro Tosias well as the economist from FundarGuido Zack and of course, by the former official. In it, Guzmán argues that any solution that will avoid coercive measures with considerable reputational consequences would require time, possibly beyond a single government terml. Consequently, it emphasizes the importance of continuity in economic policies and advocates establishing unchangeable “minimum” axes to support said continuity. Long-term stability, for Guzmán, will be crucial and deserves the full and constant attention of the political sphere.

To establish a set of basic conditions that allow the national financial system to recover its function channeling the savings generated by Argentine society towards financing for the productive development of the country, “It is essential to design a comprehensive roadmap“, says the think thank you from Suramericana Vision.

Leliqs: Guzmán’s proposal

This roadmap must focus on policies under the jurisdiction of the Central, especially monetary policy, involving various economic actors, including the financial system. However, the authors recognize that any action plan must be framed in a comprehensive macroeconomic plan for the stabilization of the economy.

The economic history of Argentina shows a correlation between macroeconomic instability and the behavior of financial assets. Collective memory includes the immobilization and compulsive exchange of deposits or public securities in national currency, “which penalizes the channeling of savings towards local assets”. This perception of risk is reflected in “dollarization of the investment portfolio“.

In recent decades, this process has deepened, generating a large stock of liquidity in dollars that has not been channeled towards investment in the local economy. The existence of remunerated liabilities (Leliqs) on a large scale implies that the financial system acts mainly as an intermediary between depositors and the BCRA, reducing the liquidity available for private financing.

Extensive regulation by the BCRA on passive and active rates, as well as other incentive measures for the allocation of credit, “the relationship between the intermediation margin and the funding and placement effort of financial entities decreases.” According to the document, this leads them to search for the rates defined by the BCRA generate sufficient income to compensate even the least efficient entities in the system.

The approach of think thank you

To address this problem, we propose a “transition policy that organizes the macroeconomy to rebuild confidence in the national currency“. Replace sterilization through BCRA titles for Treasury securities is a key measure.

Likewise, it must be designed “and implemented monetary policy without conditions coming from the organizational model of the financial system”. It is essential to avoid measures that impose reputational costs long-term that affect the development and “the depth of the local capital market“.

The diagnosis highlights that in Argentina cothere is excess liquidity with unmet financing needs. The current configuration of the financial system does not encourage the channeling of savings towards productive investment, “feeding a vicious circle of exchange rate instability and weakness of the national currency”.

With which, Guzmán, together with the former officials of his economic team and Zack, propose that to break this vicious circle and promote a process of stabilization and growth, “It is necessary to carry out a macro-financial reconfiguration that recovers the value of the national currency and promotes the development of the local capital market“.

In this context, it is crucial to avoid proposals that dismantle fixed terms and weaken the national currencyseeking to promote an approach that promotes stability and sustainable economic development.

Short-term policies

• Design and implementation of a transition policy: In the short term, it is necessary to design a transition policy that allows progress in the implementation of the measures necessary for the reconfiguration of the financial system. This policy must be gradual and agreed upon with the different actors in the system..
• Arrangement of the macroeconomy: It is necessary to advance in the organization of the macroeconomy, by reducing the fiscal deficit, inflation and exchange rate volatility. This will help create a more favorable environment for productive investment.

Medium-term policies

• Replacing sterilization through BCRA securities with Treasury securities: It is necessary to replace the sterilization of the BCRA’s liquidity through the issuance of its own securities with the issuance of Treasury securities. This will help reduce the BCRA’s dependence on private sector financing.
• Design and implementation of monetary policy without conditions coming from the financial system organization model: It is necessary to design and implement a monetary policy that is independent of the liquidity needs of the financial system. This will help ensure the stability of the national currency.
• Avoid measures that impose long-term reputational costs that affect the development and depth of the local capital market: It is necessary to avoid measures that could generate distrust in the local capital market. This will help promote the development of productive investment.

In conclusion, the report by Guzmán and his team strongly rejects “extreme measures, such as the BONEX plan or debt restructuring in local currency“, arguing that “carry negative implications for reputation, reducing the ability to obtain financing in the medium and long term, resulting in structural costs considerably higher than the presumed short-term benefits“.