The President of the BCRA, Miguel Angel Pesce, said today that the Argentine economy faces two challenges. On the one hand, export capacity should be increased to overcome foreign exchange restrictions which has historically held back economic growth processes. On the other hand, capital markets should be channeled to savings towards productive activity and consumption, thus avoiding dollarization processes that exert pressure on exchange rates and increase inflation expectations.
“Argentina needs to improve exports, and this is a constant reminder when we discuss with businessmen. Argentina will continue to reduce foreign exchange restrictions as exports increase and international reserves accumulate,” claimed Pesce during his presentation at the 2021 Latin American Cities Conferences organized by the Council of the Americas.
The President of the BCRA explained that increasing exports is a must for development with social equality. “This year Argentina will export USD70 billion. We are expecting an increase ranging from 5% to 7% for next year and a similar rise for 2023. Important as it is for Argentina’s economy, exports show some promising signs,” he said and added that one of the potential possibilities is to supply the world with food. “Today, Argentina is exporting more than 120 million tons of grains and we believe that we can reach 200 million,” explained Pesce and underlined the enormous potential in mining, hydrocarbons and knowledge industries.
He mentioned that the Central Bank is working on improving the foreign exchange regulations that are aimed at taking a leap in exports. “In a normal year of growth, we need more than USD60 billion just from imports of goods. We need to have some regulatory mechanism to manage the foreign exchange market. As exports have started to increase, we have improved our regulation, particularly those concerning the companies which increase their exports.” Pesce listed the measures taken in this regard, and announced beforehand that new loans would be channeled to goods that today are restricted.
The President pointed out that foreign investment brings about innovation and technology, and that Argentina has a strong saving capacity and should build a robust capital market. “The BCRA has sterilized ARS4 trillion so far, that is, more than USD40 billion. We expect that the capital market and the financial system direct those resources to investment. Argentine residents have USD400 billion in assets abroad. We estimate that there are USD100 billion in banknotes in our country—a greater level of liquidity than that managed by some branches of the Federal Reserve of the United States—and that our net investment position abroad amounts to USD130 billion. We need our capital market to absorb domestic savings and turn them into investment,” he said and added:
“The BCRA is changing its monetary regulation mechanism drawing on its own instruments such as repo transactions and bills to open market transactions, as all central banks in the world do for achieving capital market development.”
As regards inflation, Pesce admitted that it is caused by multiple factors. “We have observed a price margin increase in industrial companies, which stood for around 80% or 90% over the last year. We have also suffered the inflationary effects and the increase in the price of food and oil, as the entire world did, in the aftermath of the pandemic. We expect that this phenomenon will be mitigated in the future and that inflation will be moderated in the following months,” he held.
Pesce stated that the decision to continue slowing down the adjustment of the exchange rate to avoid inflationary expectations will not, in his words, “affect the competitiveness of the exchange rate”.
Regarding the International Monetary Fund, he added: "The BCRA is working 'hard' to look for a new plan making allowances for the significant debt that will fall due in the next two years.”
Finally, he was confident about reaching ‘a positive agreement’ in the face of the ‘institutional limitations set out in the International Monetary Fund's Charter’ and ‘our internal limitations, in particular those of a macroeconomic nature‘, which are expected to be overcome by increasing Argentina's exports.
August 26, 2021..