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The snowball of the Leliq dilutes the savings that the Economy seeks with the cut in tariff subsidies

One of the strong cards of the plan of the new economic team to adjust public accounts and comply with the 2.5% fiscal deficit agreed with the IMF is the redesign of the subsidy plan (Getty Images)

One of the strong points of the new economic team’s plan to adjust public accounts and comply with the 2.5% fiscal deficit agreed with the IMF is the redesign of the subsidy plan, which will not only make those who do not signed up to receive them but will put limits on the consumption of gas and electricity for those who do receive them. With this decision, the Government plans to save $500,000 million in the remainder of the year, equivalent to 1% of GDP. But that shocking figure seems to be diluted within the complex monetary and fiscal panorama that has in the center the debt of the Central Bank.

To meet the interest of the enormous stock of 7 trillion pesos between both debt instruments (the Leliq and the Repos), the BCRA had to issue $447,000 million during June and July. And with the last increase in the monetary policy rate that the BCRA decided days ago and that took it from 52% to 60%, as of August the Leliq will generate interest for $355,000 million, well above the $226,000 he had to pay in July.

The relationship between the fiscal, the monetary and the external is a component of the serious situation. The external sector is a counterpart of internal imbalances (Vasconcelos)

That electoral promise of Alberto Fernandez of increasing pensions by reducing the interests of the Leliq remained an anecdote. Today figures appear so large that they relativize the announcement of the Ministry of Economy of close until the end of the year the window for “temporary advances”, one of the most common ways to finance the deficit. Even without that monetary emission channel, the interests of the Leliq will ask for more little machine.

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“There has been a colossal issuance of pesos. The Central Bank was absorbing part of the liquidity, but that also generated an increase in the Leliq and its financial cost”, he explained Jorge VasconcelosEconomist of the Ieral de Fundación Mediterránea.

“The relationship between the fiscal, the monetary and the external is a component of the serious situation. The external sector is a counterpart of internal imbalances that in turn are explained by inconsistencies in fiscal and monetary policy. This deterioration of the external front has led to this situation in which the Central Bank cannot accumulate reserves”, explained the economist, connecting the internal imbalance with the much talked about lack of dollars that the Government alleges.

A report from Ieral puts in numbers the dimension of the challenge that the new economic team has ahead. “In the accumulated of June and July, by far the main source of monetary issue has been the intervention of the Central Bank in the secondary market of internal debt, repurchasing Treasury bonds from which private operators came off. In the last 60 days, these interventions cost $1.26 billionin a move that should have been accompanied by a much more active policy of sterilization of pesos (placing Leliqs and raising interest rates), a phenomenon that is not free either: the interest cost of the Central’s Remunerated Liabilities explains the issuance of $447,000 million in the accumulated of June and July”.

“The convergence of those two turbines has resulted in an emission of $1.7 trillion in the last 60 days, at a rate that It is equivalent to 45% of the stock of the Monetary Base accounted for in May of this year!!!”, concludes the report.

If the BCRA repeats a mega-issuance to support the demand for public securities, the quasi-fiscal dynamic could worsen (Albornoz)

These huge figures, moreover, are not definitive either. In the consulting firm Ecolatina they estimate that the BCRA will have to disburse $355,000 million in interest this month (compared to $226,000 million in July), depending, among other things, on whether it has to raise the rate again, pushed by the inflation data for July that, according to the REM, will reach 7.5 percent.

In the consulting firm Ecolatina they estimate that the BCRA will have to disburse $355,000 million in interest this month (compared to $226,000 million in July), depending, among other things, on whether it has to raise the rate again (Reuters)
In the consulting firm Ecolatina they estimate that the BCRA will have to disburse $355,000 million in interest this month (compared to $226,000 million in July), depending, among other things, on whether it has to raise the rate again (Reuters)

The $355,000 million “are a floor, because the calculation does not contemplate a projection of a rate hike that, if it happens, would increase that amount,” the analyst explained. John Paul Albornoz, from Ecolatina. That figure, he affirmed, will expand the monetary base but does not necessarily imply issuance, since that will depend on how much he can sterilize… with more Leliq.

The Leliq are paid with more Leliq, inflation validates them. They made a big jump because all the ‘Covid spending’ that was done with a lot of broadcasting during the pandemic, ended there (Marull)

Albornoz explained that if the Government manages to comply with the suspension of the Transitory Advances (tomorrow it will begin to repay $10,000 million, as he anticipated) the pressure should be “relaxed” on this debt: “Inflation runs well above the rate accrued by liabilities remunerated from the Central, which in real terms liquefies the stock. But and this It is crucial, that depends on a mega-issuance not being repeated again to sustain the demand for public titles. If repeated, the quasi-fiscal dynamic could worsen”.

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The “mega issue” that Albornoz refers to is that 1.26 trillion pesos that the BCRA issued in just 60 days to redeem Treasury bonds when private holders went out to sell them at any price.

In the same vein, the economist Fernando Marull explained that “the Leliq are paid with more Leliq, inflation validates them. They made a big jump because all the ‘Covid spending’ that was made with a lot of broadcasting during the pandemic, ended up in Leliq”. In that debt of the BCRA ended the spending in the IFE, in the ATP program to pay salaries of private companies, in refinancing debts and in other subsidies implemented during the total quarantine.

“The monetary plan depends on the deficit, which is going to be 1.5 trillion pesos. Covering that deficit without issuing, without advances, without transferring profits will increase the Treasury’s debtMarul added. In his view, “many things have to happen” so that the Ministry of Economy does not need to use the temporary advances from the Central Bank, one of the main fiscal messages of the new economic team.

KEEP READING:

The Government expects to save $500,000 million in subsidies due to the new consumption cap and rules out changes in the savings dollar
The BCRA sold another USD 95 million in the market and ended the first week of August with a negative balance of USD 700 million
The economic team launched the voluntary debt swap in pesos to decompress maturities

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