The Argentine economy is facing a critical macroeconomic reality characterized by the coexistence of very high inflation records, and a deep and lingering recessive process, which turned into noticeable levels of unemployment, precarity and poverty. In turn, the shortage of foreign currency has generated a marked weakness in the foreign sector, which severely conditions the economy’s aggregate performance.
These limitations on foreign currency flows for trade purposes added to the loss of access to voluntary lending and new domestic capital flight amid a foreign indebtedness process which was, without a doubt, unsustainable.
The inflation rate followed the same path. This rate accelerated notably in the last two years due to diagnosis and policy mistakes, which tended to underestimate the difficulties to lead to a sustainable drop of an inflationary process based on structural factors and inertial components. This misconception led the former administration to address the issue exclusively through monetary policy tools. Meanwhile, the hypothesis of a sine die continuity of a reality characterized by plenty foreign financing led to the mistake of inducing a full deregulation of the foreign exchange market and an unrestrictive financial opening.
Towards the end of its administration, the former National Government decided upon a series of restrictive measures to access the foreign exchange market—essential to mitigate the crisis and the worsening of the balance of payments—, compulsively rescheduled domestic debt maturities, while fiscal deficit, with no possibilities of being financed with foreign debt, started to be financed with money issuance.
In this scenario, the new National Government adopted some social, productive, regulatory and fiscal consolidation measures with the aim of facing the most visible signs of the crisis and stabilizing the macroeconomy and, from then onwards, redefining policy priorities to lay the foundations for a sustainable economic development process and provide the conditions for fiscal and public debt sustainability.
In this context of economic and social emergency, and of a critical situation regarding access to voluntary foreign debt, the BCRA considers it necessary to exceptionally assist the Treasury, both in the cases of foreign debt payments—if strictly necessary and within prudent limits in line with monetary market equilibrium—and financing in domestic currency.
As a result, until progress can be made on those issues, it is not possible to devise a monetary policy strategy with specific objectives about the expansion of monetary aggregates or inflation.
