Public debt debate: chronicle of an announced default (Part CIII)

Public debt debate: chronicle of an announced default (Part CIII)

On April 25, 2018, currency runs began. In a single day, the BCRA sold 1,500 million dollars, the Wall Street banks ordered the exit because the economy was going through a very complicated situation. The Macri government suffered a shock with multiple traumas, as a result of the interruption of external financing that had been communicated to the Messi of finances (Caputo) in January 2018, which led to begging for IMF assistance, and caused a sharp drop in the level of economic activity in the midst of a process of acceleration of inflation due to the 100% devaluation of 2018. The disarmament of the financial bicycle that had 28 months of extravagant profits in dollars, stressed the balance of payments. In the US, the exit was decided due to the possibility that the country would enter a new default.

Citizens and businessmen also realized that the country was going down the drain. Mistrust grew, no one knew what the trap with the IMF would bring us, with the entry of a Peronist government. With Macri, a phenomenal flight of Argentine assets was triggered, In just 4 years, 86 billion dollars of capital fled, there were permanent devaluations in 2018 and 2019, a collapse of international reserves, deposit withdrawals and a brutal collapse of credit. Domestic economic activity was destroyed and inflation continued to accelerate (stagflation).

Argentina was a financial and exchange quagmire, and the uncertainty was enormous. The economists from Together for Change had put the economy into a recessive cycle from which they could not get out. A drop in GDP was projected for the fourth quarter of 2019 of (-3.5%) against 2018 and, (-2.5%) quarter against the previous quarter. The year 2019 would finish off a setback of 2.6%, leaving a negative drag for 2020 of 2.5 points.

Inflation, as a result of the strong devaluation, accelerated again to 2.7% in June and 2.2% in July, rose around 4% in August and 6% in September. Wholesale prices jumped 11.2% in August and 4.2% in September. The year 2019 aimed to close with an inflation of the order of 59% -December 2018/December 2019-.

In just four years, Macri went home with an accumulated inflation of 300%. Cristina Kirchner had less cumulative inflation than Macri in 8 years. Macri, more than doubled inflation, also did so with a destruction of GDP per capita of almost 11%.

These were Macri’s numbers in the third quarter of 2019:

  • Collapse of the Merval in dollars: (-41%)
  • BONAR Price Crash 2024: (-53%)
  • Increase in country risk: to +1,274 basis points (+146%)
  • Gigantic increase in (Credit Default Swap) CDS- 5 years: +7,194 points (+697%)
  • Inconceivable loss of reserves: u$s 22,757 million (-34.3%)
  • Treacherous flight of deposits in dollars: u$s 12,635 million (-39%)
  • Sale of BCRA dollars in the MULC: u$s 7,456 million
  • Official exchange rate: (+32.6%)
  • Dollar stock market shot up: (+68%)
  • Cash with wild liquidation (CCL): (+75.5%)
  • Flight of fixed-term deposits: $162,000 million (-12.6%)

The Macri trap was useless to curb the purchase of dollars from individuals and the increase in hoarding, deepening the loss of reserves. For this reason, the “super stocks Macri” was applied where the treasury in dollars was US$ 200. The goal was to reach December 10 with a minimally decent stock of reserves.

The exchange market continued to expose the excess demand for foreign currency and the BCRA continued to give away dollars left and right in the exchange market to save friends…of the dollar. In September US$1.350 million were sold and in October US$4.000 million.

The number of individuals who bought dollar bills in September increased by 30% compared to August, while sales plummeted (-52%). In this way, net purchases of tickets by individuals shot up 70% in September to US$2.6 billion. With these numbers and the increase in the loss of reserves, the BCRA decided to reinforce “the stocks”. Thus, the dollar purchase limit for individuals was reduced from US$10,000 to US$200 per month. A joke, coming from Together for Change, which had criticized Cristina Kirchner ad nauseam for installing exchange control.

With the “super stocks Macri”, gross reserves of about US$38 billion were projected by the end of 2019, and available reserves of less than US$9 billion. The available reserves would not be enough to pay the US$ 12.8 billion of debt in dollars that matured in the first five months of 2020. There was no margin for delays, if the intention was to avoid falling into default, it was necessary to advance in a debt restructuring . The reasonable thing to do was to repeat the selective default (or reprofiling) of the already defaulted Treasury Bills, which accounted for 45% of the debt maturities in dollars that had to be paid between January and May 2020. The excess (55%) corresponded to u$s 2,900 million maturities of bonds with the private sector and debt with multilateral credit organizations.

The BCRA maintained the total reserve requirement at 45%, but eliminated the 10 points that could be integrated with Leliqs. From that moment, they began to be integrated with non-remunerated reserve requirements – call it bank deposits in the BCRA that are part of the monetary base.

With the new regime, the exceptional profits that the banks had had due to the interests of the remunerated reserve requirements of Leliqs, which they would stop receiving, were reduced. The measure increased the demand for monetary base for November by $154,000 million, almost 10% of the sight deposits in October, which led the BCRA to raise the monetary base target for November, which implied growth of 2.5% for November, with respect to the goal of October 2019, adjusted by the change in the new sketch of the reserve requirements. The goal for November was $1.6 billion, net of the month’s exchange operations.

Given the increase in base demand and the need to integrate reserve requirements in bank deposits with the BCRA; the supply of the monetary base, which equals the demand, could now be higher due to a lower demand for Leliqs from the banks with respect to maturities, with the disarmament of the Leliq stock; or due to a greater expansion of the supply of pesos, to finance the Treasury, without a drop in the stock of Leliqs. The BCRA loosened the monetary base target, adapting it to fiscal needs. Absolute fiscal dominance was established in the last two months of 2019.

The government compulsively expanded the budget through a DNU. With this new transgression to the Legislative Power, Macri would end the year with an increase in public spending where more than half had been decided discretionally in the Executive, without going through Congress..

They had lost control and shame, with the discretionary expansion, public spending for 2019 would be 10% above that included in the budget project, blowing it up. With the DNU, the government also increased the primary deficit of the National Administration 2019 to $355 billion (+1.6% of GDP). 80% of the increase in the deficit was explained by lower collection, affected by the recession, evasion and official measures to reduce taxes, while the remaining 21% of the increase in the deficit was explained by more public spending.

That DNU authorized financial assistance via transitory advances from the BCRA for $400 billion to finance the Treasury hole. In the last two months of the year, the Treasury lacked US$3.6 billion to cover its debt in dollars, although it had US$1.95 billion from the deposit for the Strengthening of Reserves. In any case, the Treasury would need pesos to buy the missing US$1.65 billion from the BCRA. Of the total monetary financing authorized for the Treasury for $400 billion, there would be a remainder of approximately $293 billion, to be used by the Treasury to meet its obligations in pesos.

The truth is the Macrista government was dejected due to lack of resources. In addition to the financing from the BCRA, the government required other public entities to allocate their financial surpluses to the purchase of Treasury bills, and the BCRA increased the exposure to the treasury that banks could have, in order for officials to increase loans to the government for the payment of salaries. It could be said that there was a budget expansion bathed in reality, the DNU “saved the clothes” discovering the BCRA financing to the Treasury, with an increase in credit from official banks to the Government. At that time, the State was not the usual bad administrator, but the junk dealers who came from the private sector, and took advantage of it, with total impunity and consent of those who installed and covered them up.

Director of the Hope Foundation. https://fundacionesperanza.com.ar/ Graduate Professor UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books

Source: Ambito

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