Giacomini: "You have to prepare for the worst"


When crises erupt, you have to read those who know, that is, those who predicted it and understand better what is happening and, above all, what can happen. One of them is the director of Economy and Regions (E&R), Diego Giacomini, alter ego of the most media Javier Javieri.

Beyond some good days last week, Giacomini says: “It would be a mistake to discount that the economy would have bottomed out and we started dating. Nothing further from reality. According to our vision, there is no basis to get excited, even to discount that everything will remain ‘the same’ as complicated. On the contrary, we continue to discount and warn that we must prepare for the ‘worst’. ” According to E&R, "everything is" given so that both the stocks and the default gain size and strengthen over time. " The "good" fact is that hyperinflation is avoidable. It's something.

In addition to reality, on what does Giacomini's pessimism nourish itself? “The main macroeconomic problem in Argentina is none other than a resounding drop in the demand for money. The origin of the resounding fall in the demand for money is the balance of the Central Bank, which is broken. A broken balance is a sure promise of more devaluation and more inflation. Why? Because more devaluation and more inflation are needed to liquefy the (excessive) liabilities in dollars and bring them in line with the (scarce) assets in dollars. In a nutshell, the devaluation is not the origin of the problem, but its consequence, ”he explains in the E&R report. "The BCRA policy does not attack the origin of the fall in the demand for money, but goes over its consequence, that is, the devaluation", expands and explains that the entity's equity problem is growing. "The current monetary policy of the BCRA reduces the assets and enlarges liabilities, making the net worth increasingly negative and the BCRA is increasingly broken," he argues.

“The BCRA policy reduces the assets of its balance sheet by selling freely available reserves to maintain the exchange rate. In addition, gross reserves (from bank reserve requirements) are lost due to the leakage of dollar deposits. In parallel, gross reserves leased to the IMF are also lost to pay debt in dollars and freely available reserves to meet some exceptional needs (for example, repo to banks), ”they say. On Friday, the reserves closed at US $ 50,949 million.

Between PASO and September 4, total reserves fell US $ 13,992 million: US $ 993 million daily in those 16 days. The projection is based on the following logic: “Specifically, the loss of reserves reduces the dollar assets of the BCRA balance sheet, reducing the ability to meet their monetary (monetary base) and non-monetary remunerated liabilities (net passes + Leliq) in pesos. This decrease in assets makes liabilities in pesos less and less payable, which means that the sure promise of more devaluation and inflation grows. It takes more devaluation and more inflation in the future to liquidate these liabilities in pesos and put them at bay with the (now) smaller amount of dollars in the asset. ”

There is more. The current monetary policy increases the weight of the monetary base sum, Leliq and net passes in relation to the (decreasing) amount of asset reserves and, on the other hand, the average life of monetary liabilities has been shortened , since the stock of net passes has increased from $ 3,000 million to $ 98,000 million. “There is a tranche of placements that went from Leliq to net passes, decreasing their term of placement from 7 to 1 day, with which the risk of monetization grows”, they add and add another cloud: “Additionally, we must also consider that it would be very likely that it ended up having a little machine (issuance) and consequently expansion of monetary base. Why? Because the Treasury has no pesos to pay Lecap or primary fiscal deficit, which should be used to issue money to meet these payments. If the BCRA insists on fulfilling its monetary-based expansion program 0, such new issuance should be absorbed by more Leliq and passes (more rate). ”

The result of all this is that "Argentina is heading for a more expensive real exchange rate (TCR) future scenario, but with more inflation, which necessarily implies higher nominal (upward) adjustments." That, in addition, will hit (even more) the level of activity. When? “The probability that the TCR is higher and the dollar is expensive is high by the end of 2019 and the beginning of 2020, which is why we recommend taking the (best) actions to minimize its (negative) microeconomic impact,” they test. That rise in the dollar will make debt management more complicated. “The debt will probably cease to be honored, and consequently Argentina will advance in the chain of defaults,” says Giacomini recklessly.

This is detailed: “It will be passed sooner rather than later from the selective default to the internal default (Bonex) if the Leliq are not liquefied, and the total default with the IMF and the bondholders. The impossibility of honoring public debt in a timely manner can be seen very simply with two numbers. First, visualizing that a primary surplus of 4.5% -5% of GDP would be needed for the debt to be sustainable in dynamic terms. Second, warning that the next president should pay debt maturities of US $ 52,613 million (IMF) and US $ 136,274 million (bonds) during his presidency, which represents more than 50% of his GDP in 2020 dollars. ”

In case there are any doubts, E&R says: "We advise the private sector to prepare for‘ the worst ’."

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