The dollars in the current account and those in the capital account are the same. But history condemns us. Capital account volatility linked to the international cycle in a country that does not have reserves Which has not compensated for years of savings in real terms and broken contracts, exacerbated by our political cycle in the midst of intense polarization, recommends caution. Above all, while the expectation now is that the National Treasury will be able to access credit to refinance debts and stop paying in cash, it still sees how it pays the January coupons and needs to manipulate regulations to ensure the peso fiscal programme.
However, the priority is again to reduce inflation at the expense of accumulating reserves. Although the government has stopped short of saying that it is not necessary to accumulate reserves, the explanation is that it will not do so with an artificially high exchange rate, and it will be due to the capital account.
The argument again is that “this time is different.” With a primary fiscal surplus of 1.5% of GDP, excess spending resulting from a current account deficit of about 1.7% of GDP in 2025 arises from consumption and investment decisions made by the private sector rather than the public sector. They argue that, with the support of Becent, debt-financed RIGI and/or private sector capital contributions, and the jump in exports, this means that Argentina could begin to resemble Australia, which for almost fifty years has run a current account deficit and never experienced a balance of payments crisis. Or closer in time and geography, consider Brazil, which has been running a current account deficit since 2006, has accumulated numerous capital account reserves and averted balance-of-payments crises long ago.
There are some big differences worth keeping in mind when extrapolating Brazil’s experience to what follows.
1) The accumulation of reserves in Brazil began strongly at the beginning of 2006 When the level of the real exchange rate, which had been exceeded in the run-up to the 2002 elections that brought Lula to the presidency (it was worth 4 reales, 150% above 1998 levels), rose until it was only 30% above 1998 levels. At these levels, the Brazilian central bank began to buy dollars with a current account surplus, but in 2007 this surplus disappeared and it continued to do so through the capital account. Between 2006 and 2011, it purchased more than $300 billion almost without interruption. This only stopped temporarily with the financial crisis of 2008, when the Brazilian Central Bank decided to raise the exchange rate from R$1.5 to R$2.5 and inflation barely moved.
2) The Brazilian Central Bank’s dollar purchase occurred in a context in which the monetary policy interest rate remained very positive. The accumulation of reserves did not prevent the real exchange rate from continuing to rise. By 2011, the real exchange rate was 20% below 1998 levels. Of course, in those years the dynamics coincided with a global depreciation of the dollar more powerful than the current index, the dollar index, which today equals 100, started in 2002 at 122 and fell below 80 in 2011.
3) The public sector has been financed mostly in local currency with a monetary policy interest rate in the past 25 years It has been on average 6.6 percentage points above the inflation rate and interest rates have never been negative. Today the Selec rate is 15% and the inflation rate is around 5%. In Argentina today, the repo rate is 20% TNA and inflation is 28% TNA (monthly data of 2.3% from October).
4) For over 30 years (I started the real plan in mid-1994 and left the band system in 1999) The independence of the Brazilian Central Bank was strictly maintained and inflation-controlled (Except for 1999) it has never exceeded single digits.
5) Brazil’s public debt in dollars reaches only 53 thousand million dollars, at a rate of 45%. Less than Argentina with Mercado with a GDP three times higher and reserves of US$359,000 million. If we also take into account the debts owed to organizations, Brazil’s dollar debt is 27% less than Argentina’s debt.
6) Between 1999 and 2012, Brazil’s financial anchor included A The primary surplus is close to 3% of GDP (somewhat lower in the midst of the 2008/2009 financial crisis, which allowed for countercyclical fiscal policy) and an interest calculation that was between 5.9 basis points and 9.5 basis points of GDP. Let us remember in Argentina that the interest recorded in the national public sector financial statistics does not exceed 1.2% of GDP, but there is at least 3.3% of GDP (accrued and paid during the period) that is not recorded (4.3% when CER entitlement is calculated).
7) The increase in the current account deficit is mainly explained by earnings (which are largely reinvested voluntarily through the capital account) and through the private sector interest account (owing dollars in an amount similar to central bank reserves). In 2024, 68% of FDI is dividend reinvestment, and on average since 2010 this figure rises to 32%. The trade balance has always been and remains very positive today, even with a very closed economy.
8) Brazil’s reserve accumulation between 2006 and 2011 is almost a carbon copy of the portfolio flows entered through the capital account.
9) The other side of the dollar purchase was rRe-monetization of the Brazilian economy and expanding credit to the private sector, which rose from 28% of GDP in 2005 to 55% of GDP today.
10) The increase in credit was partly explained by direct credit, which today represents 42% of the total. Credit channeled through the BNDES which came to account for more than half of credit to businesses in 2011. Mortgage credit financed by deposits in savings banks, in contrast to Argentina where they have not been paid since the 1990s despite the jump in inflation in the 2000s. In Brazil, savings banks were systematically receiving bonuses above inflation, and today mortgage credit represents 20% of total credit and half of the credit extended to households.