- Credibility can come along with reservations
The end of the year will be economically hectic for the national government. This is what the latest report indicated Capital Corporationwhich three tests determined it Javier Miley And his team should perform in the coming weeks.
Although the consulting company almost assumes that each of these tests will be approved, it warns that they are of the utmost importance Evaluate each result in detail.
First of all, specialists point out that we will have to see How does offshore asset formation end in November?the first month after the elections.
“Let us remember that according to the latest official data for September, the private sector’s net purchases of banknotes and currencies Exceeded 6.5 billion US dollars They indicated that they are in a state of complete tension before the elections.
Moreover, they focused on Exchange groundOn the one hand, with the tender last Wednesday, the 26th of this month, with the expiration of a dollar peg worth 2.7 billion US dollars, and on the other hand, with Forward maturities at the end of November are approximately US$2,000 millionWhich appears on the horizon.
“It is important to note How much is renewed in both cases?In this regard, they added, within the framework of the wholesale exchange rate, which rose in the last three rounds, but is still below the ceiling (about 6%).
Finally it displays Financial test for next Wednesday’s tenderwhich is worth about $14.5 billion, and offers different types of instruments (CER, dollar link, fixed rate and TAMAR).
“The amount of replenishment of banks and “non-banks” will be the variable to watch Publish the latest communication from the Central Bank. Contact A 8355 reduces bank reserves by about two billion pesos. This decrease results in an increase in the loanable capacity of entities. They pointed to the easing of monetary policy, adding that the minimum daily integration of reserve requirements becomes 75%, which is another monetary easing that has a major impact on intraday and daily fluctuations of interest rates.
“On the other hand, Temporary extension of additional minimum cash requirements (5 points) that will be combined with public securities seeks to roll over the $14.5 trillion public debt maturities, as close to 100% as possible. In this way, a clear gradual process emerges, leading to an increase in loanable capacity, although banks are still relevant for public sector financing.
According to Fundación Capital’s analysis, Govt She has the conditions to emerge well from these challenges. The political strength derived from the election results and explicit support from the United States plays into the hands of the fiscal position, which so far remains strong.
The problem, they say, is that The greater demand for the peso that we saw in December is not structural: It is related to the seasonality of the reward, the beginning of summer, and the increase in consumption at the end of the year. That’s whyThe real exam will not arrive until the second half of January and FebruaryWhen this temporary demand fades and we see if confidence in the peso is sustainable or not.
Strong enterprise diagnosis: The Argentine economy is deeply demonized. Today, the monetary base represents only 5% of GDP, while its average before the pandemic was 8.5%.
If we take the broader monetary aggregate – notes, coins, demand deposits – The current figure is 7.9% of the product, while in previous decades it was about 11.4%.. They stressed that this lack of liquidity not only reflects the accumulated lack of confidence, but also limits the normal functioning of the economy.
The main challenge going forward is then Achieving structured re-monetizationBut with a clear monetary policy framework that gives the market predictability.
Along these lines, the IMF was frank in its recent review of the agreement: in the absence of greater clarity on the monetary and exchange regime in the medium term, it will be difficult to consolidate disinflation..
The organization proposes moving towards a Cash pooling scheme with accumulation of reservesIt is similar to that applied by countries such as Peru and Uruguay, both of which have a high rate of financial dollarization. In those cases, central banks set growth targets for the monetary base in line with inflation targets, bought dollars to expand liquidity, and used open market operations—with eventual price increases—only when it was necessary to buffer certain shocks.
The report also highlights a key fact: This year Argentina went from “crowded” to “congested”. In other words, the financial system stopped lending to the private sector to finance the state. This role reversal has left the real economy short of credit, which has deepened demonetisation. So the next step will be Create conditions for banks to channel resources back towards businesses and families, This is something that will not happen unless there are stable monetary rules and a clear horizon.
Credibility can come along with reservations
For Fundación Capital, the success of any monetary scheme depends on a central factor: credibility. From this standpoint, the accumulation of international reserves constitutes an essential element in giving the system predictability. Today, the ratio of Argentina’s total reserves to GDP is only 6% – including the swap with China that has not even been activated – while the ratio in other countries in the region exceeds 13%.
The good news is that the way to improve this metric exists.The total recent issuance of debt in dollars, whether by governorates or private companies, amounts to about $3.7 billion, and if we add the possibility of dollars returning from the financial market, the accumulation of reserves seems possible.
The report confirms that increasing the amount of pesos in the economy through purchasing dollars should not lead to inflation, As long as there is real demand for money.
International experience – and even Argentina’s transferability experience – bears this out. If relevant liquidity shocks arise, they can be sterilized by open market operations, without getting caught in a snowball of cash liabilities. The problem is that the demand for money is difficult to estimate, and the matter becomes even more difficult when the commitment to liquidating currencies remains under certain conditions, which distorts the reading of whether this demand is real or forced.
Another alternative that specialists suggest for remonetization is… Institutionalizing dualist critical theory: Allowing Argentines to use the dollar in daily transactions, with specific incentives and under international supervision. If only 10% of the cash dollars in the hands of Argentines entered circulation, it would be the monetary mass of the economy It can be doubled without inflationary effect.
The final caveat in the report is clear: Inflation must be monitored without falling into the temptation to use the exchange rate or salariesWhich ultimately leads to generating tensions in the medium term.
What is required then is a Comprehensive programme Where fiscal policy – whose balance already constitutes important progress – monetary policy, exchange policy and fiscal policy converge. A cash pool plan with reserve purchases and open market operations to absorb shocks is, according to Fundación Capital, the way forward.
They conclude that political and external circumstances are a given, even though they make it clear They are necessary but not sufficient to solve the challenges that remain.: grow again and accumulate real reserves.