The lapidary analysis of economist Diego Giacomini


            The director of Economy and Regions (E&R) warned that "it would be a mistake to discount that the economy would have bottomed out and we started dating"
                    <p>The director of Economy and Regions (E&amp;R), Diego Giacomini, warned that &quot;it would be a mistake to discount that the economy would have bottomed out and we started dating&quot; and said that there is &quot;nothing further from reality&quot;.

"According to our vision, there is no basis to get excited, even to discount that everything will remain‘ equally ’complicated. On the contrary, we continue discounting and warning that we must prepare for the‘ worst ’," said Giacomini.

According to E&R, "everything is" given so that both the stocks and the default gain size and strengthen over time, "although the" positive "fact is that hyperinflation is avoidable.

"The main macroeconomic problem in Argentina is none other than a resounding fall 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 liquidate the (excessive) liabilities in dollars and bring them in line with the (scarce) assets in dollars, in short, the devaluation is not the origin of the problem, but its consequence, "he explains in the E&R report.

"The policy of the BCRA does not attack the origin of the fall in the demand for money, but goes over its consequence, that is, the devaluation," broadens and explains that the entity's equity problem is growing.

In addition, he argued that "the current monetary policy of the BCRA shrinks the assets and enlarges liabilities, making the net worth more and more negative and the BCRA is increasingly broken."

"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, they lose gross reserves rented to the IMF to pay debt in dollars and freely available reserves to meet some exceptional needs (for example, repo to banks), "he said.

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 assets in dollars of the balance sheet of the BCRA, subtracting it from being able to face its monetary (monetary base) and non-monetary remunerated liabilities (net passes + Leliq) in pesos. This decrease of the asset makes the liabilities in pesos are less and less payable, with which the accurate promise of more devaluation and inflation is growing, it takes more devaluation and more inflation in the future to liquidate these liabilities in pesos and put them at bay with the (now) lower dollar amount that is in the asset, "he added.

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 section 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 from the consultancy.

In addition, they warn that "additionally, we must also consider that it would be very likely that it would end up having a little machine (issuance) and consequently a monetary base expansion."

"The Treasury has no pesos to pay Lecap or a primary fiscal deficit, which means that the monetary issuance must be used to meet these payments. If the BCRA insists on fulfilling its monetary base expansion program 0, said new issuance should be absorbed for more Leliq and passes (more rate), "they said.

The result of all this is that "Argentina is heading for a more expensive future real exchange rate (TCR) scenario, but with more inflation, which necessarily implies higher nominal (upward) adjustments."

That, in addition, will hit the level of activity more, according to the publication El Economista.

"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.

"It will be passed sooner than later from the selective default to the internal default (Bonex) if the Leliq are not liquefied, and to the total default with the IMF and the bondholders. The impossibility of honoring the public debt in time and form 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, "they detailed.

In case of doubt, E&R says: "We advise the private sector to prepare for‘ the worst ’."

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  1. Giacomini is an eminence in the matter, goverment does’n listen to him and his workteam, it’s a shame, goverment’re on the other side of the path.


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