Informe Macroeconómico y de Política Monetaria

This report, published between July 2012 and December 2015, provided a periodic analysis of the recent evolution of the international context and the Argentine economy, the evolution of economic activity, socioeconomic conditions, the external sector, public finances, the money market and prices. It also gave an account of the main characteristics of the BCRA’s monetary policy and issues of particular international and national relevance.

Executive Summary

In 2014, global growth was slightly below 3% and below the outlook at
the beginning of that year. The lower expansion compared to initial projections was due to the
performance of both advanced and emerging countries. For the latter, the moderation was
broad-based; those countries with greater dependence on external financing and net
commodity exporters were the most affected given the volatile financial context and the fall in commodity prices
.
A number of factors led to greater international financial volatility, which increased towards
the end of 2014 and the beginning of 2015. These include: the differentiated bias that the policies applied by the main central banks began
to show in response to divergent economic trajectories
– with changing expectations regarding the timing and intensity of the measures to be taken
– doubts about the growth of larger countries, such as China, and the uncertainty generated by
different geopolitical conflicts – in the Middle East and tensions between Russia and Ukraine – among other factors.
Throughout 2014, there was evidence of a generalized appreciation of the dollar, which was maintained at the beginning
of this year, associated, among other causes, with the bias of the monetary policy of the United States.
The value of the dollar against a basket of currencies of developed economies closed 2014 with an
advance of close to 10%. Meanwhile, in relation to the simple average value of the currencies of emerging countries,
the dollar appreciated by about 16% in the same period.
From the second half of 2014 there was a fall in the price of oil and, to a greater or
lesser extent, in the rest of the commodities.
This remarkable correlation shows the existence of certain global factors common to the dynamics of
commodity prices. They include: the appreciation of the U.S. dollar and the “financialization”
of primary products, which turns these goods into investment assets subject to greater influence
by interest rates. In the case of industrial products, there was lower demand
as a result of the weak global economic performance. Meanwhile, the record supply for the main grains
added greater downward pressure on agricultural prices, with an average value
for 2015 expected to be lower than that observed the previous year.
The almost 50% decrease in the international price of oil since the second half of 2014
has been a new factor of uncertainty about the evolution of the world economy.
The global oversupply would be a very important element to explain an even greater fall than that of
the rest of the commodities. Different analyses tend to differ as to what the expected final
effect may be. On the one hand, there is a stimulus to consumption due to the fall in prices related to
commodities that would boost the economic activity of the countries that are net importers of these products.
But the incipient deflationary phenomena observed in several advanced nations
could also be exacerbated. Thus, the expectation of rising real interest rates would be a factor that would
discourage growth in these economies.
On the other hand, the generalized contraction in commodity prices would affect the economic activity
of the producing countries.
Although the global growth outlook for 2015 was revised downwards, the estimates
still assume some recovery from the previous year, as world GDP went from growing 2.7% in
2014 to 3.2%. Beyond the fact that the fall in oil prices may marginally stimulate expansion,
several factors suggest an environment of caution in consumption and investment decisions at
the global level.
In addition to the asynchrony of monetary policy and the heterogeneous incidence of
commodity prices between countries, the events conditioning global economic
development include the evolution of the peripheral countries of the euro area and their impact on financial
markets. With respect to emerging countries, the focus will be on economic
performance in large countries such as China, Russia and Brazil, sovereign and corporate
debt markets and geopolitical tensions. In this context, the materialization of episodes of high volatility
with abrupt changes in the sovereign and corporate bond markets is not ruled out; this in a context
in which the high and growing level of indebtedness of some advanced and emerging nations constitutes
a risk to global financial stability.
For all of Argentina’s main trading partners, an expansion of 2.1% is expected: although
it means a growth similar to that of 2014, it would continue to be lower than that observed during the other
years after the deepening of the international financial crisis of 2008 and 2009.
In Argentina, economic activity decreased slightly in the third quarter (-0.8% year-on-year –
y.o.y.-). This performance was a consequence of the deterioration of external demand, mainly from
Brazil, and lower domestic spending, both for consumption and investment. The production of goods
decreased 1.3% y.o.y. in that period in a context of growth in the agricultural sector, stabilization
of construction and fall in industry – particularly in the automotive sector. Services slowed
down, affected by the reduction in commercial activity and transport. Sectoral
statistics for the fourth quarter show an increase in activity in construction of 1.8% y.o.y. and in the agricultural sector –
mainly based on the results of the wheat harvest corresponding to the 2014/15 cycle.
Industry continued to decline (-2.1% YoY), while the supply of services remained on the rise, growing
3% YoY between October and December. As a result, the production of goods and services remained at levels
similar to those of the previous year in 2014.
The lower dynamism of economic activity affected the labor market. In the fourth quarter of 2014
, the unemployment rate in the 31 urban agglomerations stood at 6.9% of the Economically
Active Population. Thus, it rose 0.5 percentage points (p.p.) in relation to the rate observed in
the same period of the previous year, in a framework in which there was also a contraction in activity
and employment rates.
As a result of wage agreements that implied higher percentages of increases than those of the previous year,
wages rose 34% at the end of 2014, 8 p.p. above the increase recorded in the same period
of 2013. Household incomes were also favored by the continuity of policies
aimed at the lowest-income sectors and the implementation of measures to provide more favorable credit conditions
for families.
Prices moderated their rate of increase throughout the second half of 2014. This dynamic
was influenced, among other causes, by monetary policy, lower exchange rate volatility and the credit stimulus
promoted by the Central Bank aimed at expanding the supply of goods and services.
Among other factors, the Care Prices Plan and the decrease in commodity values
also played a role, in a context of moderate performance of economic activity. The Implicit Price Index
of GDP rose 28.9% y.o.y. during the third quarter of 2014, 1.3 p.p. less than what was
observed between April and June. Wholesale and retail prices and construction costs reduced
their monthly rate of increase throughout the second half of the year. In particular, the urban National Consumer
Price Index (CPI) continued to decelerate, reaching an annualized monthly growth rate for the fourth quarter average
of 14.3%. The indicator registered a year-on-year increase of 23.9% at the end of 2014, largely explained
by the evolution of the prices of Food and beverages given their high participation
in the basket, and of the Transport and communications category.
Argentina’s foreign trade flows continued to show a downward trend in the
second half of 2014. Exports ended 2014 at around US$72,000 million (-11.9%
YoY); reflecting to a greater extent a decrease in quantities; affected in part by lower demand
from Brazil. Imports totaled around US$65,200 million (-11.4% YoY), a behavior
partially linked to the trajectory of economic activity. The trade surplus — according to
INDEC’s Argentine Trade Exchange Communiqué — was US$6.686 billion in 2014.
National Tax Collection grew 36% YoY in 2014, mainly due to taxes linked
to the domestic market and the exchange rate. Primary expenditure of the National Non-Financial
Public Sector (NFPS) increased by around 43% YoY, a rate similar to that of the increase in total revenues. Expenditures
were mainly driven by current transfers to the private sector (which include
family allowances and subsidies) and pension benefits. The primary
and financial results of NFPS are estimated at -0.9% and -2.6% of GDP in 2014, respectively.
During 2014, the National Treasury (TN) continued to meet its financing needs mainly
with sources from the rest of the public sector; however, it should be noted that, unlike
other years, placements were made in the local market for about $36,000 million. The TN continued
to normalize its debts: compensation was implemented to the company REPSOL for the liabilities arising
from the expropriation of 51% of YPF’s shares and the eligible debt was restructured within the framework
of the Paris Club. With regard to the situation of the debt not entered into the 2005 and 2010 Swaps, Law 26,984 on Local Sovereign Payment of the Foreign Debt and Restructuring of the
National Public Debt was enacted,
which authorized the adoption of measures to have a new fiduciary
agent for the distribution of funds from the restructured bonds and opened the possibility of them being carried out
new exchanges. More recently, in February 2015, a British court (the English High Court of
Justice) in a case brought against the Bank of New York Mellon (BONY) by holders of Argentine
euro bonds corresponding to restructured Argentine debt declared the applicability of English law
to such euro bonds, as stipulated in the contract. In addition, two exchange operations were implemented
(of the BONAR $ 2014 at the beginning of 2014 and the BODEN US$ 2015 in December)
and the option of early cancellation of the BODEN US$ 2015.
The National Public Debt totaled US$198,863 million as of June 2014 – the latest information available –
rising 7.5 p.p. of GDP to 42.0%, mainly due to the fall in GDP measured
in current dollars. From a medium-term perspective, public sector debt maintains
solid financial characteristics: considering the proportion in the hands of private creditors – at
greater risk of refinancing – debt went from 105% of GDP at the end of 2003 to only 11.5% today
(of which 9.7 p.p. of GDP correspond to obligations denominated in foreign currency
).
Throughout the second half of 2014, the Central Bank of the Argentine Republic (BCRA) continued:
1) to regulate liquidity to stabilize the money and exchange markets; 2) stimulating credit
aimed at the productive sector and families – under more favorable conditions for them; and 3) promoting
savings in pesos and banking, with emphasis on small savers.
Within the framework of its managed floating exchange rate policy, the Central Bank went from being a seller
to being a net buyer in the foreign exchange market, reversing the dynamics of the previous year. It acquired foreign currency
in the market for US$1,350 million in the second half of 2014 and US$5,860 million in the whole
year, these purchases being the main factor of variation of international reserves, which amounted
to US$31,443 million at the end of last December (+US$843 million y.o.y.). The BCRA ordered
a new modification of the Net Global Foreign Currency Position of financial institutions: as
of last September, it cannot exceed 20% of the Computable
Equity Liability or liquid equity, whichever is lower.
The monetary expansion generated in 2014 by the Central Bank’s purchases of foreign currency and by public sector operations
was mostly sterilized through the placement of Central Bank securities
. Through its sterilization policy, the BCRA substantially reduced pressures
in the money market, leading to a growth in aggregates consistent with the needs of the
economy. The coordinated management of financial policy instruments made it possible to dispel
negative expectations and reach the end of the year with a stabilized financial outlook. This was contributed,
in part, by the implementation of comprehensive supervision, coordinated with other public bodies
, which gave greater transparency to the foreign exchange market and, together with the measures already mentioned,
limited volatility and generated a significant drop in the exchange rate in marginal markets.
On the other hand, as of October 2014, the local currency swap agreement with the Central Bank
of the People’s Republic of China was activated. This agreement allows the BCRA to request exchanges for
up to a maximum of close to US$11,000 million, which represents support to implement its
financial, exchange rate and monetary policy.
Also in the second tranche of last year, the Central Bank increased its interest
rates to reduce the volatility of short-term rates. Interest rates on passive
passes increased between 4 p.p. and 4.5 p.p., to 13% and 14% for terms of 1 and 7 days, respectively.
In turn, those of active passes rose between 5 p.p. and 6 p.p., to 16%, 17% and 20%, for terms of 1.7 and 60
days, respectively. On the other hand, the curve of the interest rates of the Bills placed
by the BCRA in the primary market was steepened: while the interest rates placed at the predetermined rate – with
terms of 100 days and 120 days – remained at 26.9% and 27.7%, respectively; the interest
rate of the most maturely awarded species, with a 360-day term, it stood at 29.3%. The levels of
interest rates in the interfinancial markets were in line with the values established by the BCRA.
The Central Bank, in compliance with its mandate to stimulate development with social equity, promoted
the increase of the productive capacity of the economy through credit and more advantageous financial
conditions for loans to families.
Within the framework of the Credit Line for Productive Investment (LCIP), from the time of its launch
and until November 2014, loans for approximately $106,000 million were agreed. Given that the funds
corresponding to this line were mostly allocated to Micro, Small and Medium-sized Enterprises (MSMEs),
they gained participation in the total loans to companies: SMEs received 45% of the funds
in 2014, compared to 28% in 2011.
In addition, in the second half of last year, two tenders were held within the framework of the
Bicentennial Productive Financing Program (PFPB), through which $311 million were awarded
. Thus, the total resources awarded since the beginning of this line, in mid-2010
, amounted to $8,191 million, with about 80% of the funds having been disbursed.
Another initiative aimed at stimulating financing for the productive sector and especially for
MSMEs, was the reduction of reserve requirements, as of March 2014, for an amount equivalent to
16% of the financing that has been granted to MSMEs as of January 1, 2014 and with a
term of more than five years. This reduction also included those financial institutions not included
in the LCIP but that grant financing to MSMEs under the same conditions established
under this line. The measure is in addition to the reduction of the requirement for reserve requirements in pesos based
on the share of credit to these smaller companies in the total loans to the private sector
of each entity, which came into force in December 2012.
In June 2014, the BCRA established a regime of maximum interest rates for loans to individuals
, essentially individuals and automotive pledges, in order to limit the cost
of credit. Thus, the interest rates paid by families for loans were reduced by 7 p.p. between May and
July 2014 and then stabilized, while since the measure was implemented, personal loans
accelerated their monthly rate of increase, going from a monthly average of 1.4% in the first
half of 2014 to 2.3% in the second half of 2014.
Credit stimulus policies helped total loans to the private sector – considering
the segment in pesos and foreign currency – to continue growing in 2014 (around 20%), reaching
a ratio to GDP of close to 12%. In order to encourage smaller investors to save in pesos
, in the second half of the year the BCRA established minimum values for the
interest rates that families receive for their time deposits, as long as the total of such
placements per individual in the entity does not exceed the deposit guarantee insurance. which rose
from $120,000 to $350,000 per holder. Since the entry into force of this measure, interest
rates on these deposits have risen and their balances have strengthened, accounting for 70% of the increase in private term placements in the last
two months. Thus, these deposits of less than $1 million grew 32%
YoY at the end of 2014, above the increase in placements of more than $1 million (+24% YoY).
This performance of private sector time deposits, together with the evidence of
payment methods, led to monetary aggregates in pesos gaining dynamism towards the end of
2014 – after maintaining a stable rate of increase for most of that year.
Thus, the broadest aggregate in pesos of the private sector (M3 Private) ended 2014 with an increase of
26.3% YoY, representing about 19% of GDP. This increase in M3 is higher than that recorded by the
CPCNu and lower than that of other nominal variables such as wages.
The BCRA also ordered measures to encourage a greater banking offer and the expansion of the service
to less developed areas.
In compliance with the provisions of Article 42 of the Organic Charter, at the end of 2014 the BCRA
presented its objectives and plans for the development of monetary, financial, credit and
exchange policies for 2015. The published document makes it explicit that during the year that has just
begun, the policy of the Central Bank: i) will manage liquidity in accordance with the needs of the
economy; ii) maintain the managed floating exchange rate regime by intervening in the
market to reduce excessive volatility and avoid its adverse effects in monetary terms; iii
) it will contribute to invigorating investment, strengthening the domestic market and
stimulating foreign trade; iv) it will continue to guide regulations with the aim of maintaining financial stability
, among others; and v) it will continue to promote savings, greater banking penetration, the expansion
of financial services throughout the country and the responsible consumption of these services. Among its first
actions for the year, the Central Bank extended the LCIP to the first half of 2015, increasing its amount to
6.5% of the deposits of the main banks (equivalent to almost $37,400 million), completely
allocating the quota to MSMEs (privileging credit to companies with lower turnover within that universe), contemplating
lower interest rates and encouraging their channeling to the least banked regions of the country.