Memoria Anual

From 1935 to 1989, the BCRA presented a summary of what had been done in its Annual Report.

Overview

The salient feature of the economic situation in 1989 was the hyperinflationary process that characterized the first half of the year. year, and that resurfaced towards the end of! itself. In the genesis of! process, in short, the product of the imbalances of! money market, several factors can be stated.

In the first place, a chronic situation of inflationary financing of! deficit of! public sector, a fact that is revealed in the average inflation rate since 1980 (750% per year).

In addition, the endogeneity of the money supply should be highlighted as a result of the remuneration of high reserve requirements and unavailable deposits present in the assets of financial institutions. The magnitude of such reserves, which has grown in recent years, meant that in the face of increases in the number of

nominal prices and interest rates would have an expansive impact on the money supply of! following period. Elio clearly affected the monetary imbalance, generating more inflation and higher nominal interest rates, enhancing imbalances.

Finally, given the abrupt real demonetization that characterized the first half of the year! year and that carried the levels of monetary resources of! public□ to its historical minimums, it seems appropriate to assume that the link between inflation and monetization is substantially sharpened.

At the beginning of February, the shortage of international reserves forced the BCRA to interrupt intervention in the currency market, a fact that more or less formally marked the end of the pandemic. stabilization program initiated in
August 1988. As a result of the factors mentioned in the previous paragraph, the money market has since observed acute imbalances. The inflation rate accelerated rapidly, from an average of 8.5% in January and February to 18% in March.

The pressure in the foreign exchange market as a result of the dollarization of private assets forced successive modifications in the exchange rate regime, which ended up forcing the BCRA to abandon any attempt at regulation, thus losing the only anchoring variable

existing nominal.
On July 8, the new national authorities took office. The announcement of a global program of refonnas, which undermined the initial credibility of the new economic leadership, made it possible to interrupt the previous process. A large number of measures were taken to

to reduce the fiscal deficit, a fixed and controlled exchange rate regime was established, after devaluation, and some price agreements were reached. The road towards the reorganization of the ! public sector□ with the enactment of the Administrative Reform Laws of! State and Emergency

Economic. From the monetary point of view, the program was accompanied by regulatory operations to sterilize the heavy purchases of foreign currency made by the BCRA, as a result of a greater real demand for money in the face of the prospect of lower inflation. An important aspect was

the consolidation of short-market instrumented debt, whose maturities would have generated a high monetary expansion.

From then on, the inflation rate fell drastically – although it never fell below that! 5.5% measured by ! CP-, a strong trend of remonetization was observed and the level of economic activity was recovered. However, by October, the beneficial effects of stabilization

began to run out.

The persistence of financial assistance to the National Government, added to the remuneration of financial liabilities issued to sterilize capital inflows, once again generated high rates of monetary expansion. The marginal exchange rate, which was initially equal to that set by the

authorities began to rise, the inflation rate increased, and the economy once again experienced the monetary indexation that characterized the first half of the year. An attempt was made to control the situation through a devaluation and the announcement of fiscal measures, facts that did not materialize.

Stop the new demonetisation process underway.

Towards mid-December there is a change in the economic cabinet. The deregulation process was accentuated, the exchange rate was completely freed and a new consolidation of domestic debt securities was put in place. In addition, an exchange of deposits was implemented to

fixed-term bonds (Bonex 89), with the aim of eliminating the quasi-fiscal deficit, but whose effects will materialize in the following year.