Report on the First Year of Administration
The monetary and exchange rate policy pursued by the BCRA enabled to reduce inflation, to maintain financial and exchange rate stability, and to provide extraordinary financing to the public and private sectors affected by the slump in activity stemming from the health crisis caused by the Covid-19 pandemic. In turn, progress was made in financial inclusion, covering broad sectors of society, and the 3.0 Transfers project was developed with the aim of modernizing the payments system in Argentina.
During 2020, while addressing the emergencies arising from the pandemic, the BCRA achieved the following objectives set at the beginning of the year:
- To reduce the inflation rate.
- To maintain the floating exchange rate system for the domestic currency.
- To boost credit supply for the private sector.
- To see to financial stability by developing micro- and macroprudential regulations.
- To promote financial inclusion.
The pandemic translated into a drastic worsening of the scenario faced by this administration, and a major adjustment had to be made to the original plans that intended to deal with a legacy of two years of social, economic, and exchange rate crisis. During the emergency, a scheme of extraordinary financial assistance to the National State and the private sector had to be implemented. It required unprecedented monetary base expansion and credit-boosting measures.
At the same time, a large sterilization effort was made to absorb excess liquidity, and foreign exchange regulations were enforced to mitigate any side effects of the extraordinary policies adopted, thus supporting the managed floating exchange rate system. All these instruments combined helped to lessen the economic effects of the pandemic and to reduce inflation by about 20 points compared to 2019.
The managed floating exchange rate system has been consolidated after inheriting a really complex situation in terms of foreign exchange and international reserves, coupled with a virtual public debt default in pesos and in foreign currency. Therefore, forex market access mechanisms were designed to provide for an efficient allocation of the foreign currency needed for economic reactivation. As a result, the real exchange rate remained stable, at levels that the BCRA considers appropriate to maintain the competitiveness of the economy, mainly taking into account the positive trade balance, the level of international commodity prices, the global value of the dollar, and prospects of future public and private external debt payments. In addition, the use of foreign currency in the local market was expanded, and a round of yuan transactions was created, with a futures market and clearing processing taking place in Argentina.
Rate Harmonization
Within the framework of the strategy implemented to achieve its objectives, the BCRA adopted a policy to regulate lending and deposit rates taking into account the different stages of the emergency, bringing them down at the most acute stage of the pandemic and normalizing them afterwards. This included the use of various instruments such as maximum or minimum rates, quantitative regulations and intervention in the securities and futures market.
The management of interest rates made it possible to maintain positive remuneration for savings in pesos, setting minimum interest rates for retail time deposits, and establishing a time deposit known as “UVA + 1%”, which offers a return above inflation. Dollar-linked time deposits for agricultural producers were also implemented.
Over the year, and especially since the start of the preventive and compulsory social lockdown (ASPO, in Spanish) set by the National Government, total credit to the private sector grew 40%, reaching a record of ARS2.679 trillion. This increase in loans was observed both in companies (+66%), reaching ARS1.077 trillion, and consumers (+33%), reaching ARS1.386 trillon.
Credit Expansion
This credit expansion was mainly recorded in credit lines for companies at a 24% subsidized interest rate and credit lines for self-employed workers whether or not under a simplified tax scheme at a 0% interest rate, comfortably exceeding the expected targets in both credit lines. The fall of the financing cost was widespread: the average rates for corporate borrowing, between 60% and 68.8% a year ago, have dropped to an average of 32% to 38%. The interest rate on personal loans has also declined, from 72.3% a year ago to an average 53% at present.
During the ASPO and the preventive and compulsory social distancing (DISPO, in Spanish) stages, the following credit lines stood out:
- MiPyME (micro-, small-, and medium-sized enterprises), MiPyME Salud, and MiPyME Plus: ARS676,700 million at an interest rate of 24%.
- Self-employed workers whether or not under a simplified tax scheme, 0% interest rate credit line: 561,689 loans for ARS66,500 million.
- Culture, 0% interest rate credit line: 2,662 loans for ARS281.7 million.
- Emergency Assistance for Work and Production Program (Asistencia de Emergencia al Trabajo y la Producción, ATP) for wages: 10,902 loans for ARS6,655.4 million at an average of ARS20,276 per employee’s wage.
- The "Ahora 12" program was boosted, financing purchases in twelve and eighteen installments, with a three-month grace period.
- New Productive Investment Line for investment and working capital at an interest rate of 30% and 35%, respectively. In order to respond to the financial needs of households, credit card bills due between April 13 and April 30, and between September 1 and September 30 could be refinanced along twelve months, with a three-month grace period and in nine fixed installments. The installments of loans denominated in units of purchasing power (unidad de valor adquisitivo, UVA) (pledge and mortgage loans) were frozen and overdue installments could be deferred to the months following the loan termination date, without any penalty.
In addition, fines, fees and disqualifications for bounced checks for insufficient funds were suspended. The period for the presentation of checks was extended by thirty (30) days; and, exceptionally and during that period, a second presentation of checks returned for “insufficient funds" was allowed.
Financial Inclusion
The measures to encourage financial inclusion comprised the opening of accounts for the payment of the emergency family bonus (ingreso familiar de emergencia, IFE), the issuance of credit cards for the Zero Interest Rate Program, and encouragement to use electronic money by launching Payment By Transfer. In this sense, the following figures stand out:
- Opening of 4.8 million new deposit accounts in pesos during the second quarter.
- Issuance of 249,180 credit cards for the Zero Interest Rate Program.
- Issuance of 1,069 credit cards for the Culture Program.
- Boosting of ECHEQs and electronic invoices.
As mentioned above, the BCRA, on an exceptional basis, had to provide aid to the Treasury to face the economic and social emergency exacerbated by the pandemic. Therefore, the BCRA has transferred ARS1.352 trillion to the National Treasury associated with profits for fiscal year 2019 and has granted ARS407,720 million worth of net temporary advances so far in 2020. Moreover, within the framework of the sovereign debt restructuring process, the BCRA has transferred USD4,300 million worth of freely available international reserves to the Treasury.
The management of international reserves included the signing of currency swap agreements with the People´s Bank of China, effective for a three-year period. Regarding the development of digital means of payment, this year the BCRA launched the 3.0 Transfers program for Payment By Transfer, an innovative measure aimed at boosting digital payments and financial inclusion. The program seeks to expand the reach of instant transfers, to create a digital, open and universal ecosystem of payments.
Users can pay by reading any QR code with any electronic wallet or bank app on their phones. Payment By Transfer is like paying in cash but on the phone. For people, transactions are simple, safe, swift and free of charge. For merchants, transactions are instant and irrevocable, and cost less.
Academic Activities
At the same time, the BCRA has recovered its academic profile by relaunching the Ensayos Económicos journal, the Seminars on Economics, the Money and Banking Conference, the “Dr. Raúl Prebisch” Economic Research Award, and presenting a new blog called Central de Ideas. In addition, the BCRA released the Report on Private External Debt once again.
Finally, the BCRA reaffirms its commitment to keep on working in order to fulfill the objectives set out in its Charter, that is, to promote monetary and financial stability, employment and economic development with social equality.
December 30, 2020.
