April starts without the Leliqs, but is the problem over?

He Central Bank (BCRA) April will start without the heavy burden inherited from the controversial stock of Liquidity Lettersknown in the market as the Leliqs. Thus, on March 13, the last $3,000 million in the BCRA’s balance sheet were cancelled.

The libertarian government, which like its predecessor promised to eliminate this disastrous BCRA debt, had received from the management Fernandez a stock of almost $4.86 billion of Leliqas in the BCRA, which at current interest rates (133% annually) implied an interest expense of more than $6.4 billion annually.

These letters, successors of the remembered ones Lebac (BCRA Letters), whose purpose was none other than to be an instrument of monetary regulation, that is, of the liquidity of the financial system, reached their maximum peak in mid-September 2023 when they totaled more than $15 trillion in nominal terms, which represented more than three quarters of the Monetary Base.

By doing a little history both Lebac like the Leliq They fulfilled the role of vacuuming up all the excess issuance that the market did not demand. Therefore, the BCRA was sterilizing part of the money issue via the placement of these bills on the market in exchange for an interest rate, and thus they constituted part of the BCRA’s remunerated debt.

But here a caveat is in order. There was a big difference between the Lebac and the Leliq, which perhaps explains how the end of each of them was. It happens that the Lebacduring management Let’s change, could be purchased by any type of investor, a bank, a mutual fund, an insurance company, a company, a person or family. This is what for the board led by Federico Struzenegger was a way to democratize the benefits and costs of sterilization, it ended up being a shot in the foot. Because experience showed that in the universe of LEBAC holders there was everything, including foreign investors who, at the first hint of turbulence, did not hesitate to liquidate their holdings. The rest of the story is known.

Instead, the Leliq They could only be acquired by financial entities, and later they also accepted common funds. So it was much simpler, because all the holders of these bills were in the same corral and on the lookout for BCRA regulations. In good romance, it was easier to negotiate with banks than with thousands of small, medium and large local and foreign investors.

Now, today the Leliqs are no longer an obstacle for the Government. Therefore, the BCRA will start April without any stock of Leliqs. However, this does not mean that the problem has disappeared from the root. It is true that, like deposits, salaries, and pensions, the Leliq suffered the onslaught of the inflationary “blender” and thus the balloon deflated. At the same time, the BCRA was inducing, through regulations, the banks and mutual funds to transform these Leliq into Passive passes. To begin with, the BCRA stopped bidding for new Leliqs and decided to only use the Passes as an instrument of monetary regulation. Thus, on March 13, the last Leliqs finally succumbed.

Passive Passes: the interest meter that the BCRA pays daily runs

What is the problem? Both the Leliq and the Passive Passes are sterilization instruments of the BCRA, it uses them to aspire or inject liquidity into the financial system. But it happens that the Letters were placements with a 28-day term while the Passes are with a one-day term. In other words, this paid debt from the BCRA is renewed daily, and thus the meter of interest paid by the BCRA runs daily.

As far as management goes Milei The stock of Passive Passes grew by more than $15 billion while the $4.86 billion of Leliqs were eliminated. In other words, the BCRA’s paid debt grew by $10.3 billion in this short period.

Today the Stock of Passes exceeds $31.7 billion and the monthly interest payment, at the current nominal annual rate of 80%, implies a monetary issue of more than $2 trillion. So, we have that on the one hand, a short-term debt (monthly) was changed for a very short-term debt (daily) and the new one has not stopped growing, simply because the BCRA must continue issuing at least to continue buying reserves and pay the interest. As usual, the key is how the demand for money will behave. That is, if people regain confidence and rebuild their peso holdings, or if they continue to flee from the few pesos they still have. There is no middle ground, head or tail. The BCRA knows it and so does the Treasury Palace, and it is assumed that the President himself also understands it this way.

It is clear that both in terms of GDP or in real terms the stock of the BCRA’s remunerated debt has collapsed. But even so, we must continue issuing $2 billion per month in interest alone when the monthly inflation rate is still in double digits. It is worth remembering that the private sector has more than $19 billion in fixed-term deposits in pesos alone.