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
caused 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 of 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 commodity prices
— 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% in 2015, or 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 price of oil was equally affected by the progress of negotiations on Iran’s nuclear disarmament, which would lead to the elimination
of the trade sanctions in force on this country. 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 driven 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 register 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. to reach 44.5% of the population.
Meanwhile, salaried workers began to receive increases in their salaries after the conclusion 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 – which includes the Universal
Child Allowance, among others – came into force, also including the updating 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 catastrophes 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 to the dynamism of loans, which accelerated their growth rate

year-on-year 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 the

longer-term deposits, incorporated as a reference rate for deposits longer than 90 days the rate 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 aimed at 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.