A few hours after the “Bases Law” and the “fiscal package” were approved in the Chamber of Deputies, the Minister of Economy Luis Caputo and the president of the Central Bank, Santiago Bausili, gave a press conference. In it they announced the “second stage of the stabilization plan”, which would consist of closing one of the three “money emission channels”.
The first, in fact, would have already been closed with the fiscal balance achieved during the last months, which leads the Central Bank not to print pesos to finance the public sector. An objective achieved, as already mentioned in other columns, from the strong reduction of the purchasing power of retirement pensions, the dismissal of public employees, the paralysis of public works and the cut in transfers to the provinces, among other items.
The second “tap” to be closed will be the protagonist in this second stage. The Government hopes to achieve this by eliminating passive repurchase agreements. This is the debt that the BCRA has with the financial system, which generates issuance when paying the interest on it. These instruments will be replaced by a bill issued by the National Treasury, called “monetary regulation”. This bill will be managed by the BCRA, establishing its interest rate, which would become the monetary policy rate, and which will tend to be positive in real terms, according to the officials.
These modifications will be applied gradually, according to Bausili, and will be implemented through different circulars that the BCRA will issue and that it will coordinate with the financial institutions. In this regard, the Central Bank called the main executives of the banks on Monday, with the objective of continuing to work together to advance in the implementation of the different measures of the new monetary program. An approach that indicates that this “second stage” would not be disruptive for the financial system.
The third is the net purchase of dollars by the Central Bank, which, according to the minister, is the “only non-harmful effect of the issue, because it is somehow being offset by a greater accumulation of reserves.”
Beyond the more technical issues, there is one aspect to consider: the change from passive repurchase agreements to Treasury bills implies a transfer of the cost of the interest currently paid by the BCRA to the national government. Within the framework of the policy axis of Javier Milei’s government management (fiscal balance), this additional expenditure will lead to the need for a greater adjustment of public spending.
Indeed, Bausili said that if we want to “have a goal of a zero fiscal deficit, it now becomes a measure in which it is important that (the Treasury) be very responsible because it has to take direct charge of this monetary balance.”
Regarding the fiscal issue, it should be noted that the collection is projected to decrease due to a decrease in the PAIS tax rate. A tax that had an important participation in the increase in income for the period January-May 2024 (it represented 6.4% of the accumulated tax collection against 1.6% in the same period of 2023). Continuing with the income, we must not forget the fall that will be brought about by the reduction of rates in the Personal Property Tax approved in the “tax package”. The income from the modification of the Income Tax, which will incorporate a greater number of workers within it, would not compensate for the decrease in the collection of Personal Property, according to data from the Congressional Budget Office.
Regarding the “third stage,” which would involve the elimination of foreign exchange restrictions, commonly known as “cepo,” officials made it clear that there is no stipulated deadline. Luis Caputo, in particular, clarified: “We have set parameters, which essentially imply macroeconomic order, so that when we do this we are as sure as possible that it will not cause any surprise to people.”
Regarding the “blue” dollar, which has returned to the media, it “constitutes a market where barely 5 or 10 million dollars are traded per day, it is not a relevant market.” This statement was made by Minister Caputo and confirms a position that I have been maintaining all these years.
The “zero” emission that the government is pursuing to reduce inflation is not the way forward. The rise in prices in our country has multiple causes and is linked, among other things, to structural aspects related to a strong economic concentration and the power of large companies that set prices and that must be regulated.
Furthermore, although the CPI in recent months has seen a significant slowdown after the peak caused by the devaluation in December, it can be considered to be more impacted by the recession and the fall in demand than by zero emissions or fiscal balance.
National Deputy Union for the Homeland. President of the Solidarity Party
Source: Ambito
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