Hear
Following the approval in Congress of the Ley Bases and the Fiscal Package, the action moved to other areas of the Government. The Minister of Economy, Luis Caputogave a press conference at the microcinema of the Treasury Palace together with the president of the Central Bank (BCRA), Santiago Bausilito present the second stage of the economic plan. “We are going to get out of the trap “when the conditions are met”the minister assured and stressed that “There is no devaluation project nor is it true that the Fund [Monetario Internacional] have asked for that”.
In relation to the promise made by the Executive to reduce the COUNTRY tax If Congress approved the Ley Bases, Caputo said: “We will lower the Country Tax. It will happen as soon as the Ley Bases is regulated and implemented and the Treasury begins to receive the income from the Fiscal Package. It will probably be between August and September”. President Javier Milei He increased the tax from 7.5% to 17.5% when he came to power in December last year. The reduction would imply returning to the 7.5% left by Alberto Fernández’s management.
At the beginning of the conference, the minister said: “We have inherited the worst of the last three crises. The crisis could be avoided, we received a patient in intensive care and today we are in a recovery situation. A consolidated deficit between the treasury and the central bank of 15 points of GDP, five points from the treasury and 10 from the central bank. “Negative net reserves of US$11,000 million.”
He then argued that in “In January, we also received a country that was virtually in default with the Fund and the market. In addition, there was a debt with importers of US$60 billion, which created an additional problem, namely that the supply chain was broken. This creates greater uncertainty when setting prices, which further fuels the possibility of hyperinflation.”
In that sense, he insisted that “in addition, we had inflation above 200%” and that “The fiscal deficit was always the heart of the problem”. He also mentioned that “above all, there was a huge imbalance in the money market between the supply and demand for money.” “That was the situation that was inherited and that required a shock program and that was what we did, a program based on a very strong fiscal anchor, we went to fiscal balance from day one, something unprecedented,” he said.
Caputo stressed that now begins The second stage of this stabilization plan, which essentially consists of issuing, I am not going to say zero because the president of the Central Bank will explain it well, but to close the issuing tap.”
The head of the Treasury Palace mentioned that “We have three money-issuing outlets” and said that “One is the fiscal deficit; The second is the interest that the Central Bank pays for these famous remunerated liabilities; and the third is when the BCRA buys dollars, which is the only emission effect.”
In another part of his speech, the minister analyzed the stages of the Government’s economic program, which he divided into three phases. “In the first stage, the money issue tap was closed due to the fiscal deficit, something that was abused in the previous government and that generated this imbalance and inflation that we have seen and are seeing. In this second stage, we are closing the tap of the second channel of issue, which is the interest that the Central Bank pays on remunerated liabilities.”
In this regard, he maintained that the Government’s intention is to “give greater certainty and solidity even to the economic program so that in some way there will no longer be anxiety regarding when the exit from the exchange rate will be.” And he anticipated criticism: “Some will say that they are falling in love with the stocks, but that is not the case. What we have fallen in love with is the macroeconomic order.”
Then he added: “For us The exit from the cepo is a third stage that will be a stage of growth. We have not set a date but parameters that imply macroeconomic order so that when we do this we are as sure as possible that it will not cause any surprise to people. What does startle mean? Some potential rise in the dollar that generates inflation and higher unemployment“This will allow us to deepen the disinflation process and thus give us the time we consider necessary to get out of the exchange restrictions when the macroeconomic conditions are met.”
After Caputo’s comments, it was Bausili’s turn, who began his presentation with more details about the second stage, which Caputo referred to as “closing the temporary emission tap.” On this point of the economic plan, the head of the BCRA said: “All this is to continue deepening the sanitation of the Central Bank and its balance sheet. In the end, the BCRA is the one that issues the pesos and the more solid the balance is, the more solid the support that those pesos have. Which is a solid balance sheet. It is a balance sheet that has more assets and fewer liabilities.”
The president of the Central explained that a solid balance sheet is “that has more assets and less liabilities”. And he added: “We have been achieving the best assets with the accumulation of reserves until now. The recovery on the liabilities side is to reduce the amount of liabilities, a reduction in real terms that has been done, and to lower the interest that these liabilities generate on the balance sheet of the BCRA. The liabilities are mainly the remunerated liabilities of the Central Bank, which were previously the Lebacslater they became the Leliqs and today are the passes”.
Bausili went back to the beginning of Javier Milei’s government and detailed that “the remunerated liabilities that were issued were equivalent to 40% of the monetary base every month. What is the monetary base? Let’s use it as a proxy of how many pesos society and people demand in their pockets. Well, every month an additional 40% of that amount was issued only as an interest component.”
Next, the head of the monetary authority explained the route to follow to finish issuing pesos and asserted that they will do this “by being honest to whom these liabilities correspond. These liabilities have their origin in the fiscal deficit” and he pointed to past governments. “In previous years, in times where there was no access to financing when the deficit was incurred, as there was no access to borrowing to pay, the deficit was always paid in some way, financed with debt or monetary issue. If there was no access to financing, it was decided to go for the monetary issue and that issue was more than what society demanded. “That amount of pesos that is issued as a result of the deficit that exceeded the money base.”
He continued: “Every time that deficit was greater than the demand that society had for those pesos, the BCRA had to reabsorb those pesos by placing liabilities that paid interest to make them attractive, and that is how the imbalance was reached. The Treasury was responsible for those deficits in the past, but the debts of those liabilities were lodged in the debt of the Central Bank’s balance sheet. Today we are going to return it to the Treasury’s balance sheet. We are going to replace the remunerated liabilities of the Central Bank with Treasury liabilities that are remunerated by the Treasury. The BCRA will continue to manage monetary policy and operate in a very similar way to the way it operates today, but it will no longer suffer the consequence of interest rate movements resulting in greater monetary issuance.”
Bausilli explained that now “economic agents and the market will be looking at the strength of the peso based on the Treasury’s commitment to comply with the fiscal deficit in a very direct way.” And he maintained that “this autonomy is the tool that the Central Bank has to focus on its main function, which is to eradicate inflation.” On this point, he maintained that all of this will be published in BCRA regulations that will govern the new monetary policy scheme and that “all of this is a very technical process, but for the banks it is a very normal process and it should not cause any surprises in the normal operation of the banking system.”
Caputo then stated that the zero deficit and zero emission scheme “implies less exchange rate problems” for society because “since the amount of pesos is fixed, exchange rate volatility is greatly reduced.” In this regard, he said that “this will result in less risk for people in what will be the third stage, which is this stage of growth and of getting out of the currency controls.”
For his part, Bausilli was consulted about the situation of sovereign bonds and said that they will meet with the banks on Monday morning to propose “a sterilization mechanism similar to the one that exists today with the Central Bank repos but that they will be focused on a monetary regulation bill, which is what the banks will ultimately put in place to place their excess liquidity that will be managed by the BCRA, but which will be constituted in the Treasury balance sheet.”
The Minister of Economy took the floor again to explain the parameters for getting out of the cepo. “The first thing I would say is to ratify what we have already said, that it never hurts to maintain the cepo. crawl of 2% and the 80/20 ratio remains and there is no devaluation project nor is it true that the Fund has asked for that.” And he explained: “We do not set a date without parameters and we wanted to reach that date by giving the market the greatest possible certainty and what greater certainty than saying that zero deficit should be added to zero emissions. That is the most thorough thing that can be done.”
Caputo also stated that “what we want most from the banks is for them to work as banks again, and that is why we have a zero deficit and this desire to lower inflation as soon as possible, because we know that this regenerates credit, which is what the country needs to grow. It is very difficult for a country to grow without credit and for a country to have credit with inflation of 15% or 20% per month. We have been going through 20 years in which the only thing the banks have done is take deposits from people and lend them to the public sector, whether it be the Central Bank or the Treasury. We are so used to this that we no longer imagine that they should lend to the private sector.”
Finally, the head of the Treasury Palace spoke about the COUNTRY Tax and said: “We are going to lower it as we said. From the 1st I said that it was a provisional tax, and at that moment no one believed me. “We are going to comply with it as soon as the law is regulated and the treasury begins to receive income from the tax park, between August and September.”
THE NATION
