Complicated outlook: the rest of the year, the deficit would exceed 10% of GDP, which would already leave an inflationary legacy by 2022

After a first semester during which the Ministry of the Economy and the BCRA succeeded in reducing the public deficit and partially “demonetizing” the economy, the fiscal, monetary, reserve and inflation outlook looks complicated for the rest of the year and for 2022.

Last year, between the primary deficit and interest on Liquidity Letters (Leliq, the BCRA’s “absorption” instrument, to withdraw the pesos from circulation, at the cost of getting more and more into debt with banks) the deficit amounted to 2,500 billion (millions of millions) pesos, equivalent to 9.1% of GDP, said in this regard a study by Jorge Vasconcelos, economist of the Ieral de la Méditerranée Foundation.

In the first months of this year The economy and the central have sought to defuse this bomb. Some of the excess pesos have liquefied with inflation and the deficit has narrowed, but the level of monetization remains high: people don’t want pesos in their pockets or unemployed people in checking or savings accounts. In this context, Vasconcelos calculated, between August and December, the budget deficit plus interest that the BCRA pays to banks to “absorb” part of the monetary excess, will be $ 1,900 billion, or the equivalent of 10.7% of GDP for the period. , a proportion which, although it corresponds only to part of the year, has no annual precedent so far this century.

“A fraction of the peso issued by the Central by the end of the year will remain in the street, consistent with inflation of around 3% per month cumulatively. Corn There would be a shortfall of $ 1.44 billion to sterilize so as not to leave too heavy an inflationary legacy for 2022 ”. And this assuming that the Treasury refinances at 100% its maturities local debt (capital and interest) by the end of the year, without earning “fresh money”, clarifies the book.

This situation poses a dilemma for official economic policy (in particular for the BCRA): lowering reserves to levels that could trigger the withdrawal of deposits from banks or increase debt with them, already to levels that that candidate he criticized Alberto Fernandez, who promised to reduce it by paying less interest and thus fund a (real) 20% increase to retirees.

Reserves and quasi-fiscal “pump”

Today’s paid liability is equivalent to $ 40,000 million, more than double the $ 19,500 million of December 2019 and its proportion to monetary base describes the blank that has been cooked since: it was 63% when the current government took office, 115% at the end of 2020 and 140% last month.

According to Vasconcelos’ calculations, even when calculating the 4.3 billion dollars in IMF SDRs which will soon enter the BCRA, in order not to end 2021 with negative liquid reserves, “the Centrale may have to set a limit not exceeding 3.5 dollars. billions applied to the sterilization of pesos between August and December, beyond the respect of the commitments made with the multilateral organizations. So some $ 470,000 million could be sterilized in this way. ”The calculation, which averages between $ 1 and $ 135, results from a mixture of dollar savings, official dollars and sales through the CCL window, the economist told Infobae.

But the plant needs more sterilization than that, and the option is no less tricky. “The other mechanism available to absorb the excess pesos is the expansion of Pases and Leliq’s stock at the head of the BCRA, but this instrument cannot be abused either, since its expansion has been dizzying”, explains Vasconcelos , which specifies at a rapid rate of 3.85% per month, higher than the inflationary rate of the last 20 months.

Therefore, the researcher wrote, “In these almost five months to the end of the year, fiscal, monetary and exchange rate variables will have to explore unprecedented limits and, for strong turbulence not to occur, it will be increasingly important to ‘broaden the horizon of economic agents “, today affected by electoral uncertainty, the absence of a refinancing agreement with the IMF and an economic course in the medium and long term.

According to Vasconcelos, the ideal would be to negotiate with the IMF before the end of the year, given the fact that already in the first quarter of 2022 the maturities of the external debt, between capital and interest, represent 7.5 billion dollars between payments to the IMF and deferred payments to the Paris Club.

Maintaining a threshold of just over $ 3,600 million (the amount of gold reserves) places a limit on the use of reserves, so as not to fall into “negative liquid reserves”

The economist takes into account the 4,300 million dollars that the IMF will transfer, with which the “liquid” reserves of the BCRA will reach 6,400 million dollars, which will decline rapidly thereafter. This is why he calculates that maintaining a threshold of just over $ 3,600 million (the amount of gold reserves) puts a limit on the use of reserves, so as not to fall into “Negative liquid reserves”, a prospect that frightens both politicians and politicians to savers.

It’s not free

But nothing is free. If the Centrale rechecks the sale of dollars in the official market, it will affect the level of activity, due to possible shortages of parts and supplies, with a direct impact on prices. And if it keeps foreign trade well supplied, it will give up its firepower on the free market, with the risk of widening the exchange rate differential, a phenomenon which also has a negative impact on expectations. “For one reason or another, one can assume that some $ 470 billion could be sterilized by this mechanism by the end of the year.” Estimated Vasconcelos

Getting the job done will not be easy. It consists in absorbing the excess pesos, further increasing the stock of Pases and Leliq, that is to say the “quasi-budgetary” deficit of the BCRA, on the basis of the current already risky relationship. “By calculating the demand for monetary base and the sterilization due to the sale of dollars, there would still be 960,000 million dollars to be absorbed, which would be added to the stock of Leliq and July passes, of the order of 3, $ 92 million. Thus, the BCRA’s remunerated debt would reach a level of $ 4.88 trillion by the end of the year, or the equivalent of $ 47,000 million at the official exchange rate, or 151% of the base. monetary, calculated the researcher. A proportion that more than doubles that of 67%, which in 2019 horrified the current president.

At the end of the day, the question is whether monetary expansion is racing or somehow absorbed in early 2022. “We already have the quasi-fiscal problem, the problem is. what will happen to the primary deficit “Vasconcelos told Infobae. The new restrictions that the BCRA has placed on the functioning of the CCL dollar reveal that the option to sell reserves is being ruled out. “It was already proven in 2020 that when they fell very quickly, there was a withdrawal of argendollars; the drilling of certain limits in terms of reserves can trigger negative effects on expectations and bank deposits, ”recalled the economist.

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