After a surprise call from the Ministry of Economy, Luis Caputo spoke this Friday afternoon at a press conference. The official made announcements to give signals to the market, which did not react in the way expected by the Casa Rosada after the approval of Milei’s mega legislative project. He said that there is still no date for the end of the restrictions and announced the entry into a “second stage of the stabilization plan.” However, he anticipated that with the entry of funds from the fiscal package, the PAIS tax will be lowered “in August or September.”
“We are in the second stage of this stabilization plan, which essentially consists of going to issuance, I will not say zero, but rather closing the second issuance tap,” said Caputo, who was accompanied by the president of the Central Bank, Santiago Bausili.
“We have three taps. One is the fiscal deficit. The second is the interest that the Central Bank pays on remunerated liabilities. And the third is when the Central Bank buys dollars, the only issue that is not harmful,” he added.
He stressed that the transition to remunerated liabilities of the Treasury reinforces the goal of zero deficit and “returns autonomy” to the Central Bank.
On exit from the stocksdenied that the Government is “in love” with the restrictions and warned that it will be the third stage of the plan. He maintained that there is no date because we will proceed in that direction when “macroeconomic conditions” are in place. Furthermore, Bausili clarified that this second stage “has no deadlines.”
However, in response to the query of ClarionCaputo stressed that the COUNTRY TAX -which is 30% for purchases of foreign currency and card expenses in foreign currency, but which varies depending on the type of operation carried out- “will be lowered as stated from day 1.” He stipulated that This reduction will take place “in August or September”taking advantage of the inflow of more funds from the fiscal package that the House of Representatives approved early this Friday morning.
He also expressed his disinterest in the increase in the price of the blue dollar, as he said that it is a “market where only 5 to 10 million dollars are traded per day, it is not a relevant market.”
Finally, he referred to the imminent arrival of Federico Sturzenegger in the Government. “With regard to Federico, it is the opposite of what is said. He does a phenomenal job, it is as important or more important than what we do, Argentina is a tangle of obstacles, we look at the long term, I welcome the arrival of Federico, he does something that is fundamental for the country, unraveling,” said Caputo about the alleged tensions between them.
How the “second tap” of issuance will be closed: “The measure returns autonomy to the Central Bank”
The president of the Central Bank was in charge of giving details of the cutting of the “second tap” of issuance, as they called the remunerated liabilities: Lebacs, Lelics and passes. “They pay interest and that interest is paid with monetary emission. When we began management, the remunerated liabilities issued the equivalent of 40% of the monetary base every month,” he described.
“The person responsible for these liabilities was the Treasury,” but they were charged to the Central Bank. For this reason, Bausili announced: “We are going to replace remunerated liabilities of the Central Bank with remunerated liabilities of the Treasury. The Central Bank is going to operate as before, but it will not suffer that interest rate movements result in more monetary issuance.” .
“This remuneration of liabilities will end up in more Treasury indebtedness. The Treasury is doubly committed to fiscal performance. It has to take charge of this monetary balance,” Bausili continued.
“The agents will be seeing the strength of the peso based on the Treasury’s commitment to comply with the zero deficit,” added the president of the BCRA. “This returns autonomy to the Central Bank, because you can set the interest rate without worrying about the damage it may cause to your own balance sheets. The conflict of interest is over,” he deepened his explanation.
He considered it “reasonable” that the interest rate would go, with these measures, “into positive territory in real terms.” But, he added, he can only “speak about the interest rate of monetary policy, the rest of the interest rates are set by normal market mechanisms, so when the fixed-term rate will go into positive territory is something that can be determined.” will be determined according to the dynamics of the market.
Caputo took the floor again to highlight that the measure “strengthens” the economy and helps reduce exchange rate volatility, while deepening “disinflation.”
They announced that talks with banks would begin on Monday and that specific regulations to implement this “second stage” of the economic program would be published in the next two weeks.
Bausili also answered a question about the status of reserves. “It was contemplated that reserves would be lost from June to September. Within the stipulated program, a loss of 3 billion dollars was expected. It is normal. And in the third quarter they recover,” said the president of Central. He added that as “winter came early” with the “colder May,” June’s numbers were either negative or at virtual zero.
In the run-up, the two officials were expected to say that will present a monetary program to the International Monetary Fund (IMF) to “contribute to further reducing uncertainty.” Fifteen days ago, following the IMF Board’s approval of the eighth review of the Extended Facilities Agreement (EFF) negotiated in 2022 to refinance the $45 billion loan taken out in 2018, the Ministry of the Economy and the BCRA announced that they would send that report to Washington.
“The BCRA will continue to conduct monetary policy in a flexible, prudent and pragmatic manner. Based on the progress made in the recovery of monetary policy tools and the control of money creation factors, the Agreement has provided for the presentation to the IMF of a monetary programming framework at the end of June 2024. The purpose of this framework is to contribute to further reducing uncertainty by providing more information on the projected behavior of monetary variables consistent with the continuity of the macroeconomic stabilization process,” said an official statement mid-month.
According to what he was able to find out Clarionthe authorities will carry out exercises money supply and demand projections to assess the risks of imbalances arising and evaluate what measures would be taken in such a case or how monetary policy should consider them. “The strength of the fiscal anchor helps to make it a solid process,” said official sources at the time.
President Javier Milei comes promising “zero monetary emission” so that “the monetary base does not vary further.” Some speculate that it could have something to do with that. However, in the run-up to the conference, there was total secrecy.
Caputo had already spoken earlier on Friday to celebrate the approval of the omnibus law and the fiscal package, both key for Javier Milei. “Congratulations to our leaders who worked so hard these past 6 months to reach an agreement and thanks to all the politicians who care about the people,” the official said.
The IMF also issued a statement after the vote in the lower house. It stressed that the aim of the measures “is to improve the quality of fiscal consolidation, further reduce inflation and support economic recovery.”
