“He fiscal anchornormalize flow, normalize stock and have a reasonable relationship between reserves and remunerated liabilities“, listed Caputo, the so-called “rockstar” by Javier Milei, before businessmen and finance executives at the IAEF Annual Congress. He anticipated that they will take that step “when let’s be safe that there will be no surprises.” And, on the other hand, he pointed out that, “If we entered into a new program with the IMF that involves new funds, that relationship would be at a more reasonable level”.
1) Sustaining the fiscal anchor
The first point is strongly related to fiscal adjustment, which in the first quarter of the year exhibited a primary surplus of $4 billion and another fiscal surplus of $1.1 billion. In April, the Government recorded a financial fiscal surplus for the fourth consecutive monthsomething that has not happened since 2008.
This is undoubtedly, according to analysts, the firmest step of the libertarian Government, since it seems not to negotiate it, despite the fact that it has been obtained at the cost of a strong reduction in social expensesincluding retirements, education and benefits for vulnerable sectors. In addition, The collection from the PAIS Tax strongly influencedwhich offset the verified falls in taxes linked to economic activity, such as VAT and Profits.
In that sense, the analyst F2 Financial Solutions, Andrés Reschinihighlighted that “There are many doubts about how to maintain fiscal balance without PAIS tax and withholdings”which the Government will necessarily stop collecting if it reverses the exchange controls.
2) Normalization of payment of imports and transfer of profits
Secondly, Caputo highlighted the importance of normalize financial flow, avoiding constant regulatory changes, to give companies predictability. Particularly did emphasis on reducing deadlines to pay for imports and the flexibility for transferring profits abroad. According to the minister, said normalization has already reached 70%/75%.
3) Stabilization of BCRA assets and liabilities
On normalization of the stocks of the Central Bank (BCRA)which implies having a more harmonious relationship between financial assets and liabilities of the monetary authority to prevent public debt from becoming unsustainable, stated that strict control of reserves must be maintained. In addition, The Government’s strategy includes a clear transfer of the BCRA debt to the Treasury.
“Today, paid liabilities are at $22 billion, a little more than 5 points of the Product. A phenomenal job has been done. “We are clearly closer, but we are not 100% ready,” the official outlined.
4) “Reasonable” relationship between reserves and passive repos
In line with the previous objective, Caputo highlighted that the economic program also seeks to improve the relationship between the international reserves and remunerated liabilities of the BCRA. Along these lines, it is worth noting that the reserves grew close to US$8,000 million from December 10, 2023, while the stock of passive repos fell abruptlydespite the fact that their interest payments continue to have weight on the expansion of the monetary base.
“One does not go from populism to liberalism in a straight line, it is a major surgery. If we had taken out the stocks it would have been a calamity, a disaster. Today would be inappropriate. We went from a calamity to something inappropriate,” the official exemplified.
Furthermore, he related this last point to a “new program” with the IMF, which “involves new funds.” “That would be a more reasonable relationship”, assured the minister. And he said that strengthening currencies will be one of the main elements in the next discussion with the multilateral credit organization, although analysts are skeptical, since, as the economist mentioned Federico GlusteinArgentina was left “very exposed for being the main debtor and failure to meet goals”. So, the reinforcement of reserves could not come from new debt.
BCRA: what would be a “reasonable” relationship between reserves and repos?
Analysts emphasize the “reasonable” rating that the minister included in the relationship between reserves and BCRA repos. At this point, they agreed reasonableness as keybut since it is such a subjective assessment, there is no certainty when it comes to when the exchange restrictions can be reversed.
“Caputo says that the point that is furthest away is in the PR/Reserves relationship, which according to him has to be “reasonable”, something on which we all agree. But, what is reasonable for the minister? No We know, except when it would be achieved. In other words, we know that a lot of progress has been made and there are no doubts. We do not know what are the specific milestones that must be achieved so that, according to the government, there are no excessive risks and also the market was showing limits with the escalation that we saw in the last week,” analyzed Reschini.
For its part, Kiguel called on the Government to “take risks” and undo exchange restrictions in order to generate growth. “Before the end of the year we are going to have to do it”, he stated categorically. And, in that sense, he asked himself: “What happens if the end of the year arrives and the reserves are slightly positive? Is the Government going to feel in optimal conditions to lift the stocks? What if that optimal situation does not occur? “What do you do?”
Another high point of the discussion has to do with the structural reforms, especially the Bases law and the fiscal package, which given the existence of the RIGIwhich is highly beneficial for foreign investors (but not for local ones), could help capital inflow.
“Probably a successful outcome for the attenuated Base law may help because it could accelerate capital inflow and advance the rebound in activity“said Reschini. Even so, for the financial analyst, “it is not yet possible to establish when the government will lift the restrictions under these conditions.”
“What you need to know, more than anything, is what are the parameters that the government judges to be reasonable to eliminate exchange restrictions, because if they wanted they could do it now, the issue is what happens next,” he noted.
For Glustein “trust in the Government is not clear if it does not grant laws that enforce their campaign promises”, at this point, the Bases law, as well as the fiscal package, are not a sine qua non condition, but “they would meet expectations, the market recognizes that need.”
In this sense, Kiguel insisted that If people observe that in Argentina there are still exchange restrictions, it is difficult for the economy to grow despite the fact that the famous structural reforms are carried out, which begin with the Bases law and the fiscal package.
Source: Ambito
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