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

Economic activity and international trade volumes continued to slow their pace
of growth in the third quarter of 2015. Various episodes increased the volatility of global financial markets
and increased uncertainty regarding the macroeconomic evolution of
countries of relevance in the global economy.
In the euro area, events linked to the Greek crisis once again stood out. After a period
of intense negotiations, the third assistance programme was agreed between the Greek and European authorities, with the participation of the
International Monetary Fund (IMF). This time, the financing
provided through the European Stability Mechanism amounts to €86 billion (including €25
billion to recapitalize banks); it requires a series of fiscal measures, reforms in
goods and labor markets, recapitalization of banks and privatizations. However, doubts prevail
about the ability of the Greek economy to find a path of sustainable growth,
when the problem of its debt sustainability has not yet been adequately addressed.
The collapse of China’s stock market — after a period of very strong growth —
and the depreciation of the yuan were other sources of tension in the international capital market. On
August 11, the People’s Bank of China established a new mechanism by which the exchange rate
is set taking into account market conditions and the movements of the exchange rates
of the main currencies. Since then, the yuan has accumulated a loss of value of
2.9% against the U.S. dollar (4.5% if the reference exchange rate is considered).
China’s new exchange rate regime was decided in a context of falling exports and strong
capital outflows, which had led to a decrease in international reserves – with a
decrease of almost US$200,000 million, equivalent to 2 percentage points (p.p.) of GDP in the accumulated
2015 until July and US$314,000 million (3.1% of GDP) in year-on-year terms. In turn,
the weakness in China’s external demand failed to be offset by the performance of private consumption
and investment, leading to a greater slowdown in GDP growth than expected at
the beginning of the year. The new exchange rate mechanism is adopted when the IMF is revising the Special Drawing Rights (SDR) basket of
currencies.
In this regard, the agency clarified that this mechanism is positive regarding this process.
Among advanced economies, heterogeneity persisted both in economic performance—
particularly for the United States and the United Kingdom, on the one hand, and the euro area and Japan, on the
other—as well as in the policies adopted. Although it is estimated that the upward cycle of the reference interest rates for monetary policy will begin
before the end of the year, this forecast
has been delayed over time.
Emerging economies, with the notable exception of India, continued to slow their rate of expansion.
The most affected developing countries were again commodity exporters – given the fall
in the prices of these products – and those most dependent on external savings – given the deterioration of
external financing conditions.
Global growth estimates for 2015 were revised downwards again based on corrections
made for the United States and the BRIC group (Brazil, Russia, India, and China). The
first case was due to transitory factors during the first quarter of the year and a lower-than-expected
performance between April and June that mitigated the expectation of expansion for the year, despite the fact that a solid performance of activity is still expected for the remainder of
the year. For their part, the rest
of the BRIC countries, with the exception of India, continue to register a less
favourable economic performance than initially expected. Thus, world GDP is expected to expand by 2.9% for 2015,
0.3 p.p., lower than expected at the beginning of the year.
Advanced economies would show an increase in activity of 2%, while that of emerging
economies would be 5.1%.
Market growth forecasts have not yet captured, for example, the impact that recent exchange rate decisions in China would have
on global growth. In addition to generating uncertainty
about how much the monetary authority would allow the yuan to depreciate, the modification of the exchange rate regime
encouraged expectations of a further slowdown in China; with them, there are doubts about the impact
on commodity prices. The debate on the possible “currency war
“, an expression used to describe the exchange rate policy actions adopted by the
authorities of a given country in response to decisions that considerably alter the parities
of their currencies, also regained strength. Finally, although specialized analysts continue to predict the beginning of the
upward cycle of the benchmark interest rates in the United States for 2015, based on
recent developments, expectations could shift to a postponement of the change in monetary policy
.
International commodity prices continued to fall throughout the third quarter,
adding additional pressure to already low global inflation. The behavior of the price of primary products
was influenced by the generalized appreciation of the U.S. dollar and the abundant
supply of these goods. Weak global demand
also pressured down on industrial products, particularly from China, which could weaken further depending on the recent episodes.
The progress of negotiations on Iran’s nuclear
disarmament, which would lead to the elimination of the trade sanctions in force on this country, affected the price of oil in the same way. This
would imply, according to the U.S. Energy Information Office (EIA),
an increase in crude oil supply of close to 0.3 million barrels per day by the second
half of 2016 (equivalent to 0.3% of global demand for oil and other liquid fuels).
The international scenario that Argentina will face in the coming quarters will be less favorable than
the one predicted months ago and than that evidenced in previous years. On the one hand, the country’s main trading
partners would register growth of 1.5%, almost half of the forecast for the world. On the other hand
, an abundant global agricultural, energy and mining supply would persist, which would maintain the
downward trend on the prices of the main primary export products – which in
July were 17% below their values of a year ago. In the same sense, a new
appreciation of the dollar would have an influence.
In this context, it is expected that the boost to the production of goods and services will come again
from domestic demand. During the first quarter of 2015, GDP growth of 1.1% YoY was
mainly determined by private consumption (0.8% YoY), and to a lesser extent, investment
(0.5% YoY): leading indicators indicated that the positive performance of both components
of expenditure continued in the second quarter of the year.
On the supply side, it was precisely the sectors linked to the domestic market that showed
the greatest dynamism between April and June. Construction increased 10% YoY, with growth
in both private and public works. Services, on the other hand, rose 2% YoY, highlighting the recovery
of trade. In the case of industry, although it remained down, excluding products
mostly related to exports, activity went from growing 0.6% YoY in the first quarter
to registering an increase of 3.3% YoY in the second.
Household consumption would once again find support in the relative stability of working conditions,
in actions aimed at facilitating credit and in income policies. In fact, the unemployment rate stood at 6.6% of
the economically active population in the second quarter of
2015, indicating a decrease in relation to a year ago (-0.9 p.p.). The employment rate showed a
slight increase of 0.1 p.p. in the same period, reaching 41.5% of the population, while the labor
force reduced its participation in the market by 0.3 p.p.
until reaching 44.5% of the population. Meanwhile, salaried workers began to receive increases in
their salaries after the closing of the parity negotiations, reflected in a rise in the wage index
of 29% y.o.y. last June, in a context of deceleration of prices.
On the other hand, after the BCRA established maximum interest rates in mid-2014 for
certain lines of loans for households, personal loans exhibited greater dynamism,
increasing 31.6% YoY in July 2015, 12.6 p.p. above what was observed last December.
Likewise, card financing rose 52% YoY in the seventh month of the year, favored
by the “Ahora 12” program.
Family incomes will continue to be complemented by various public actions aimed at
strengthening resources for the most vulnerable sectors.
Among the most outstanding policies, it is worth mentioning the regular updating of pensions within the framework
of the pension mobility law (18.26% as of March and 12.49% in September); to this was added the
incorporation of more than 500 thousand beneficiaries in the last year, from the second stage of
the inclusion plan. In addition, since April 2015, the amount has been increased by 50% and the target
population of the Argentine Student Support Program (PROGRESAR) has been expanded. In June of this year, the 30% increase for family allowances began to
take effect – which includes the Universal Child Allowance,
among others – also including the update of the income ranges that allow
salaried workers to access this benefit. It is worth mentioning that the law approved the automatic
six-monthly update of family allowances – with the exception of the maternity allowance –
effective as of March 2016; its adjustment coefficient will be calculated in the same way as
that corresponding to pension benefits.
Productive capital spending will also continue to rely on the various stimulus policies in place.
In this regard, the BCRA continued with its actions aimed at stimulating productive credit, especially
that aimed at financing Micro, Small and Medium-sized Enterprises (MSMEs). It extended
the Credit Line for Productive Investment (LCIP) during the second half of 2015, and at this
stage: it expanded its financing volume to 7.5% of the deposits in pesos of the private sector of the participating financial institutions
(in the first years of this line this coefficient was 5% and in the
first tranche of this year it had been raised to 6.5%); it decreased interest rates from 19% to 18%
nominal annual; and maintained the minimum financing term at 36 months. Among the new destinations allowed
are: financing for the purchase of agricultural, road and industrial machinery; credit to
micro-entrepreneurs and also to individuals for the acquisition of housing through the assignment as
a guarantee of the rights to trusts for the construction of these properties. In addition, credit measures were
taken to alleviate the effects of the victims of the storm that affected various
areas of the country last August, making it possible to include in the LCIP the financing granted to people
affected by disasters caused by climatic factors, in areas declared as an emergency due
to natural disasters, such as floods, earthquakes or droughts.
Initiatives aimed at promoting credit to the productive sector, together with those aimed at promoting
credit on more favourable terms for households, contributed dynamism to loans,
which accelerated their year-on-year growth rate in the first part of the year. Thus, credit in pesos to
the private sector rose 30.1% y.o.y. in July, accumulating an increase of 9.8 p.p. so far this year.
The financial system funded this expansion of credit mainly from the increase
in deposits in pesos from the private sector; fixed-term placements stood out, accelerating their year-on-year expansion
rate to 42% in July. This performance was influenced by the BCRA’s setting of minimum rates
for certain time deposits, seeking to stimulate savings in pesos. At the end of July 2015, the
BCRA expanded the coverage of this scheme, increasing the amounts contemplated to $999,999 and
covering both those made by individuals and legal entities. In addition,
it ordered an increase in minimum interest rates and, in order to benefit longer-term
deposits, incorporated as a reference rate for deposits over 90 days the one corresponding
to the LEBAC closest to 120 days.
The BCRA continued with its managed floating exchange rate regime that seeks to consolidate
the financial stability necessary to guarantee the rest of its objectives. In this context, international reserves
totaled US$33,943 million at the end of July, accumulating an increase of US$2,500
million so far this year. Throughout this period, the Central Bank was a net buyer in the
foreign exchange market as a result of the foreign exchange trade surplus. The placement of national and provincial public debt, and the use of part of the
currency swap agreement with the Central Bank of the People’s Republic of China, also contributed to the increase
in international reserves. The effect of these
factors was partially offset by foreign currency payments on public debt,
including payments to official creditors, multilaterals, and private holders.
The public financing strategy adopted during the year keeps future payments that may
affect the level of reserves limited. On the one hand, in addition to relying on financing granted by public agencies
, the National Treasury has covered its needs from funds obtained with debt issuances
in the capital market. So far, instruments have been placed for an original nominal value
of close to $64,000 million, of which 65% correspond to bonds in pesos at variable rates
, 15.6% to bonds denominated in dollars but traded in local currency and the rest in dollars.
Regarding international regulation on sovereign debt, the United Nations Ad Hoc Committee on Sovereign Debt Restructuring
approved a series of principles
that will be discussed by the General Assembly in early September. In addition, the Belgian
parliament passed a law with the aim of limiting the rights of creditors seeking illegitimate
gains (determining that the maximum amount to be demanded from a state is the price paid at the time of acquiring
the debt instruments).
From a broader perspective, the low exposure of the public sector to domestic and external
debt is complemented by reduced household and corporate leverage. In fact, with internationally comparable data
, Argentina’s global leverage is close to 50% of GDP, of
which external debt – public plus private – accounted for around 26% of GDP
at the end of the first quarter of 2015. This is a very important strength in the short
term to withstand external financial turbulence, as well as a platform to finance
sustainable growth in the medium and long term.