The quasi-fiscal deficit is growing at ever-accelerating rates, and it only takes five months to generate a new monetary base by issuance.
The Central Bank pays 0.8% of GDP monthly to maintain interest on interest-bearing debt.
The monetary imbalances of the Argentine economy have been the deepest since the first half of 1989.
The interest-bearing debt of the Central Bank (the position of Leliq and Pases) concentrates the equivalent of 230% of the monetary base circulating in the economy.
In other words, more than two monetary bases are virtually “trapped” in the remunerated instruments of the BCRA, implying an ever-latent hyperinflationary danger.
A total of $11.8 trillion (US$57.3 billion) are held in the system, 76% of which comprises Leliqs, and the remaining 24% is under the position of Pases.
This phenomenon is known as “monetary surplus” and was very common in the socialist economies of the last century.
The ratio between interest-bearing liabilities and monetary base is the highest since March 1989, the month preceding the worst hyperinflationary episode in Argentina’s history.
Some analysts still rule out a further bursting of the system since most of the relative growth of interest-bearing debt versus monetary base is because the latter slowed down its expansion (and, in fact, is falling in real terms).
From this point of view, it is argued that the stock of interest-bearing liabilities remained “relatively stable” at around 11 points of GDP since 2017.
However, this scenario may no longer be representative if one considers the dynamics of the interest paid on that debt.
The monetary sterilization policy led the BCRA to withdraw pesos from the market by placing interest-bearing debt to combat inflation and lessen at least part of the impact of monetizing the deficit.
But what is out of control is the interest burden that this mechanism generates.
So far in March alone, the BCRA had to print up to $800 billion (US$3.89 billion) to pay interest on Leliqs and Pases, equivalent to 0.8% of the reference GDP for that month.
The accumulated 12-month interest payment position, formally the quasi-fiscal deficit, climbed to 5% of GDP in March 2023, and something similar had not been observed since 1989.
If it continues on this path one year from now, the BCRA would be forced to print money to pay up to 9.6% of GDP in interest on its liabilities.
Retail inflation exceeded 102.5% year-on-year in February 2023, while wholesale inflation reached 104.5% in the same period.
These results occurred despite the equivalent of 2 additional monetary bases being retained within the BCRA, money that does not circulate and that, if it did, would quickly generate hyperinflation.
The monetary authority headed by the radical Miguel Pesce ordered a new increase in the interest rate for Leliqs, taking it to 78% per annum and up to 112.98% in effective terms (if the capital is reinvested for 12 months).
What started as an anti-inflationary maneuver now generates the opposite effect.
The interest payment on an interest-bearing debt is the main explanatory factor for expanding the monetary base monthly.
Even by withdrawing pesos from the market, the mere interest payment renders the task useless for lowering inflation, even independently of the National Treasury’s fiscal deficit.
The quasi-fiscal deficit generates an endogenous monetary emission mechanism, independent of deficits and with a “life of its own”.
It is the main obstacle to anchoring inflationary expectations in the future and the main stone in any stabilization attempt.
With information from Derecha Diario