Interest on the debt paid by Argentina’s  Central Bank exceeds the entire primary deficit of the Government

The accumulated debt of the Central Bank of Argentina (BCRA) is so large that more expenses than the entire primary deficit of the National Public Sector are allocated for its interest alone.

The massive indebtedness of the BCRA increases the prospects for a greater future devaluation.

The financial snowball at the Central Bank of Argentina grew to the most dangerous levels in more than 30 years.

The remunerated liabilities of the BCRA represented an amount close to 11% of the GDP at the end of October, and the debt, compared to the monetary base, climbed to the most violent proportion since 1989.

The last time Argentina suffered a similar situation, the banking crash and the disarming of the financial bomb triggered two hyperinflations and the famous “Plan Bonex” as an emergency measure to try to stop the phenomenon.

Only for the payment of interest on the BCRA debt, up to ARS$ 2.5 trillion (US$149 billion) was allocated in the 12 months accumulated up to October. This represents a fraction equivalent to 3.06% of the reference GDP for the same period.

These results are considered taking the accumulated total of a year, but even considering the interest payment of the Leliq and Passes only for November, the BCRA disbursed ARS$540 trillion.

This astronomical figure exceeds the Treasury’s retirement and pension spending for the same month, which reached ARS$510 trillion.

The totality of the primary deficit of the national State (without accounting for interest on the public debt) represented an amount of ARS$1.62 trillion in the 12 months ended in October, which represents 2.56% of the product.

The interest payment of the BCRA exceeds all the primary red since the month of August when Sergio Massa took over the Economy portfolio.

The Government’s consolidated deficit exceeds 10 points of GDP if the primary imbalances, interest on the public debt, and interest on the Central Bank’s debt are added. It constitutes the most important imbalance of the last three decades.

The interest on the Central Bank’s debt, also classified as a “quasi-fiscal deficit” in economic jargon, puts strong pressure on devaluation expectations since, in the event of its disarming, a large number of pesos would be expelled from the market without any consideration.

In this situation, the peso would face a violent run that would be reflected in all dollar parities.

But even without “exploding” and with constant renewals of the debt in Leliq and Pases, a mechanism is produced by which the monetary issue becomes endogenous and independent even of the fiscal deficit.

The issue takes free rein by itself, and if the interest rate on the remunerated debt is high enough, the mechanism becomes unstable and tends to collapse.

With information from La Derecha Diario