At a recent press conference, the Minister of Economy, Luis Caputotogether with the President of the Central Bank of the Argentine Republic (BCRA) Santiago Bausilidetailed the government’s position Javier Milei Regarding the passes and the management of the BCRA’s liquidity, addressing the proposals for zero monetary emission and elimination of the quasi-fiscal deficitand arguing that this is the The only way to stabilize the economy and lower inflation. However, It is crucial to demystify some aspects of this proposal and consider the potential macroeconomic and financial consequences..
In a nutshell, Caputo insists with the The objective of “cleaning up” the BCRA’s balance sheets in order to eliminate the famous leliqs-pases and thus end the endogenous issuance resulting from the interest rates that these instruments pay. The way to do this now seems to be that the Treasury assume the role of manager of the liquidity of the financial system and issue bills for this purpose.
First of allit should be noted that again The government shows a high degree of improvisation. As of today, the market is not clear on how or when the new Treasury bills that will now count towards the government’s fiscal deficit target but which will be managed by the BCRA will be implemented. That is, The BCRA becomes a consulting branch of the National Treasury.
In second placethat The Treasury issuing monetary regulation bills is a bad macroeconomic decision: it worsens the Treasury balance sheet and the fiscal deficit. The president, his officials and even deputies of Freedom Advances They publicly state that Inflation is only a monetary phenomenona product of financing the deficit. Consequently, in a context of greater expectations of devaluation and a projection of rising inflation in June The answer is to redouble the commitment to improve the balance of the Central Bankis understood from its rational but The direct consequence of this is to worsen the sustainability of the Treasury debt.. With the important difference of increasing the risk of payment since the role of lender of last resort of the monetary authority is eliminated. A characteristic that is maintained in central banks around the world.
In third place, The consequences on inflation may be the opposite of those intended. If public debt starts to be seen as more risky, institutional actors can migrate their liquidity positions towards the dollar or instruments that follow its evolution, thus generating more pressure for a devaluation. A jump in the US currency rate pushes prices up again.
Impact on the Most Vulnerable Sectors
The obsession with fiscal and quasi-fiscal deficits can have devastating consequences for the Argentine economy, especially for the most vulnerable sectors. Historical experience in various countries shows that rigid fiscal adjustment policies tend to deepen inequality and disproportionately affect people with fewer resources.
The Euro crisis in 2010 in Southern European countries followed a similar path: a European Central Bank that did not want to assume losses, which passed them on to national governments, who implemented brutal austerity plans, leaving large pockets of unemployment and inequality.
When governments prioritize deficit reduction at all costs, they often resort to cuts in public spending, rather than a more efficient tax structure. These cuts mainly affect social programs, health and education, critical areas for the well-being of the most disadvantaged population. The reduction in the issuance of money, without a complementary strategy of inclusive economic growth, can result in a decrease in employment and an increase in poverty.
Conclusions: The Need for a Balanced Approach
It is essential to recognize that controlling fiscal and quasi-fiscal deficits is important for economic stability. However, Addressing these deficits requires firstly a programme of economic growth and job creation, and secondly a balanced approach that considers both fiscal sustainability and social impact. And for both, a little more courage when it comes to sharing the costs of the adjustment and the (still to be seen) new macroeconomic configuration, through an efficient and progressive income and expenditure scheme. On the basis of what impact analysis were the boundary conditions for the RIGI drawn up? Why the reduction and potential fiscal stability for a tax like the Personal Property Tax, which is progressive and very little distorting? Patch upon patch, marches and countermarches, going against what both emerging and more developed economies are doing.
The strategy proposed by Minister Caputo and the government of Javier Milei, focused exclusively on spending cuts and zero monetary emission, runs the risk of repeating past mistakes and leading the Argentine economy to a situation of greater instability, inequality and recession. It is crucial that economic policies not only seek fiscal balance, but also growth, job creation, equity and social well-being. Only in this way will it be possible to build a thriving and sustainable economy for all Argentines.
Economist, Director of Banco Ciudad
Source: Ambito
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