The long way to go to recover local credit

It is true that lack of funding negatively affects many sectors, especially SMEs. However, it would be absurd to think that the solution is for the BCRA to publish an increase and a reduction in interest rates again. The Argentineans no longer trust the peso and we have learned in past decades to value its value from our politicians and our economists. Unfortunately, we must include this government, which has been fortunate enough to recover its credibility and has decided to use it as a priority to mitigate the problems of non-reduction in public spending. The BCRA could lower its rates by canceling its paid debt by issuing more foreign currency than people do not want and, therefore, causing a new crisis that, in my opinion, would be terminal this time. It does not seem to be a better alternative for any productive sector that depends mainly on the internal market or the most vulnerable population, is not it?

Therefore, it was a good idea that the central handshakes with respect to the possibility of issuing. This is the only way in which one can claim to have minimal monetary stability that rebadures people, who are no longer aware of the dollar and who get into the business, increasing their consumption and investments. Even taking some of the dollars he bought and placed in the bottom of the closet or in a foreign currency account to spend them by changing them into pesos; which increases the internal financing. It is no coincidence that the BCRA was able to pay lower and lower interest rates to refinance its paid debts.

This last point is very relevant. As the monetary authority is limited to issue, it must refinance all debt maturities plus interest and pay what is required, in competition with the rest of the borrowers. That is, it does not set the interest rate, which is determined on the credit market.

"The Argentineans no longer trust the peso and we have learned it over the course of decades to value the value of our politicians and our economists" "The Argentineans no longer trust the peso and we have learned it over the course of decades to value the value of our politicians and our economists"

On the other hand, the BCRA (like most politicians, businessmen and economists) considers it good to have a floating exchange rate with a lot of volatility. Something remarkable when we see that when the local value of the dollar tends to increase, people immediately badociate it with the fact that the peso loses value and becomes scared. It is logical that the currency in which he receives his salary and his treasures diminishes his purchasing power; which means that it will be poorer. It is absurd to claim that with this volatility, the Argentineans are learning not to be afraid of our currency. It is a country in which, since 1970, we have 13 zeros, that is to say that a weight of 1970 is equivalent to 10 billion pesos today. After experiencing such a scam and the recent monetary crisis, it is only miraculously that the Argentineans have regained their confidence in the BCRA. It will take several years for this to happen; but that will only happen if they are stable on a monetary level. Otherwise, sooner or later, the weight will eventually disappear.

For that, It is very important that the BCRA be careful when managing intra-monthly monetary policy. It is not the same thing to keep a low bid for one half of the month and then respect the ceiling of the average monetary base emitting a lot in the other half; since the credit is unnecessarily contracted in the first part and leaves unwanted weights in the second. It is therefore not surprising that pressure on exchange rates is creating fear in people.

Soon, decisions will have to be made. First, take out the absurd floor of the charges; since maintaining it, it may mean contracting the internal financing at the price of increasing the remunerated debt of the BCRA and its cost, which is a suicide. The other defines the evolution of the exchange rate band. The first thing to keep in mind is that almost 30% of the gap between the roof and the floor is excessive. One can imagine a jump in currency of this magnitude and the panic that it will generate in people. It is not credible to think that at this stage they will be able to put an end to the currency crisis with daily sales of 150 million US dollars. The decline in demand for pesos will be much larger than this amount, so that the expected monetary tightening will not occur and will continue to depreciate by increasing the local value of the dollar.

If the increase in the exchange rate is to be maintained, it should be accompanied by a decreasing rate and lower than the expected inflation, so as not to encourage a further depreciation of the currency. In addition, you only have to lift the floor and leave the ceiling motionless; even if the difference is reduced by half or, preferably, by a third. The other thing is that the BCRA's commitment not only to buy all the money offered on the ground, but to sell all that is asked for on the roof, guaranteeing that it will not be possible. it will not go beyond it. It is a way to show the Argentineans that they are ready to defend the value of the currency and help them regain confidence, by increasing credit and lowering the interest rate. If instead of putting a "wall of dollars", they keep their promise to sell 150 million US dollars every day, they will not manage to sell many reserves without being able to stop the decline in the value of the peso.

If we want to reduce the cost of financing, it is necessary to ensure monetary stability and I believe that the recommendations made above will make it credible and sustainable. This in itself will create more confidence in the peso and hence in credit, consumption and investment. However, that is not enough. It is essential that political leaders commit themselves to solving the underlying problem, to reforming a gigantic state that we can not afford.

Unfortunately, congressional discussions have clearly shown that opponents, but also some members of the government, have little interest in seeking substantive solutions involving a political cost. In fact, the adjustment that was made to close 2019 with pay managed to transfer it to the productive sector and to the population at over 80%, with more taxes and subsidies. It should be noted that the latter is doing well; however, an increase in spending of more than 1.6 percentage points of GDP should have been avoided.

Recall that in 2017, all of our political leaders were committed to reducing taxes and approved it by pbading two laws. Now they go up to avoid the adjustment itself and transfer it to individuals and businesses. This does not seem to be the best way to encourage investments to rain. As long as we, the Argentines, continue to allow this to happen, we will have to forget that a country that is growing, generating wealth and offering us well paying jobs.

(*) Economist and director of the Libertad y Progreso Foundation