NON-DISRUPTIVE MONETARY REGIME CHANGE
The recovery of credibility will not be complete until the correction of the inherited monetary imbalances has made it possible to eliminate the exchange and capital controls still in force. This will allow for the definitive unification of the exchange market.
Preserving the credibility of the monetary institution requires honoring all its commitments. Particularly in a context of regime change, this is essential to allow the full use of all monetary policy instruments.
FISCAL ANCHOR AND CORRECTION OF RELATIVE PRICES
The Ministry of Economy presented the economic program of the new administration. The initial announcements of the program emphasize the structural modifications to the economic regime that are necessary to reverse the spiral of instability and stagnation that affects the Argentine economy.
To this end, the announced program aims at immediate fiscal consolidation as the cornerstone for that change. The stated objective is to achieve a financial fiscal balance in 2024.
One of the priorities established by the announcements is to be honest about the prices in the economy. The inherited structure with marked distortions in relative prices was implemented with the aim of repressing and delaying, not eradicating, the inflationary consequences of the State’s deficit policies. The economic framework that was announced today proposes the objective of eliminating the inflationary problem facing our economy at its root.
One of the main distortions is observed in the exchange rate. Within the framework of the transition towards a regime that ensures macroeconomic stability, the Ministry of Economy announced a new peso-dollar exchange rate of $800 in the Single Free Exchange Market.
The beginning of the price liberalization process is an indispensable requirement to advance in the reversal of fiscal and external imbalances. Achieving basic balances on the fiscal and external fronts will constitute the anchor of future macroeconomic stability.
EXCHANGE POLICY: ACCUMULATION OF RESERVES
The sincerity in the value of the exchange rate introduces a new and important factor: the incentive to production and export and a disincentive to continue artificially increasing imports. A genuine improvement in the trade balance will be an essential engine in the process of recovering the level of liquid international reserves of the BCRA.
Given the seriousness of the inherited situation, a process of evaluating financing options with international financial entities has been initiated. The improvement in reserve liquidity obtained in the short term through these sources will be used to normalize the payment of commercial debts and reduce uncertainty regarding the attention of financial services. These tools seek to reduce the seasonal impact of foreign trade on the liquidity of the BCRA’s international reserves.
Formal dialogue has been initiated and progressed rapidly with international organizations, including the International Monetary Fund. The central objective is to clear up the uncertainty surrounding the disbursements agreed upon with a view to meeting future capital maturities. This uncertainty responds to Argentina’s obligation to initiate the formal process of requesting a waiver for non-compliance with the targets agreed upon in August of this year. The government will make the necessary efforts to restore the validity of the agreement signed with the IMF and will carry out additional negotiations that it considers will contribute to improving the current financing conditions.
EXCHANGE POLICY: FOREIGN TRADE PAYMENTS
The set of immediate efforts in exchange matters is aimed at preserving public credit and unlocking foreign trade flows in order to restore the full functioning of the production chain
The BCRA will work to simplify the system of payments for imports of goods and services, eliminating any requirement linked to obtaining authorizations through the SIRA or SIRASE, and will also eliminate the requirement of the Single Foreign Trade Account Certificate of AFIP. Imports that are made in the future may be paid respecting the terms of international trade determined by the BCRA, defined according to the tariff positions.
Faced with the historical record of inherited commercial debt, the BCRA is working, in coordination with the Secretariat of Commerce and Industry, to resolve the uncertainty associated with the payments and cancellation of this debt with the exterior in order to restore predictability in access to the Single Free Exchange Market (MULC). In due course, one or more financial instruments issued by the BCRA and payable in dollars that may be voluntarily subscribed in pesos to meet their commercial commitments will be made available to importers. These instruments will contribute, at the same time, to reducing the amount of remunerated liabilities in domestic currency issued by the BCRA.
EXCHANGE POLICY: NOMINAL ANCHOR IN REINFORCEMENT OF THE FISCAL ANCHOR
Reinforcing the anchor provided by the firm commitment to fiscal balance, the adjustment announced for the exchange rate will fulfill the role of a complementary anchor in inflation expectations. The BCRA will continue to attack the lagging effects of the direct and indirect monetization of the fiscal deficits of recent years.
The reinforcement to the fiscal anchor that constitutes this nominal anchor is considered a temporary necessity that will diminish as the commitment and visibility of the fiscal effort are appreciated in their total dimension. Based on current circumstances, a displacement path of 2% per month is immediately established for the exchange rate.
MONETARY POLICY: OBJECTIVES AND OPERATING INSTRUMENTS
All monetary policy tools will be oriented towards achieving monetary stability and reducing inflation.
In the short term, as a consequence of the inherited imbalances and while the economy goes through a period of “stagflation”, it is expected that the demand for money will take time to recover.
In this context, monetary equilibrium requires simultaneously addressing the two main sources of monetary issuance: the direct and indirect financing of the fiscal deficit and the quasi-fiscal deficit of the BCRA itself.
In the context described, guided by prudence and flexibility, the BCRA considers it appropriate to keep the monetary policy rate unchanged. In this way, the rate of the Liquidity Bills (Leliq) at 28 days will remain at 133%. In turn, it decided to reduce the passive pass rate, which will be 100%. The BCRA will continue to monitor the evolution of the general price level, the dynamics of the exchange market and monetary aggregates in order to calibrate its interest rate and liquidity management policy.
