Argentina – The General Theorist

Argentina in the WEO: Hold your nose and look away. Again.

YOU CAN change the mission chief, but you can’t stop the bullshit. That ought to be the IMF’s motto.

While numerous crucial macro variables of concern for international investors have been purposefully suppressed in the IMF’s WEO database relating to Argentina, presumably to spare various blushes, there is enough there for us to smell the nonsense that the international monetary system—whatever that is—will be expected to swallow in the next 3 months as a new program is negotiated.

Argentina and the Fund: Time for a “Hail Mary” pass?

PDF version with annex.

It’s fair to say that the macroeconomic stabilization of Argentina, first during the Macri administration, including on the IMF’s watch, and now under President Fernandez, has failed.

There have been many mistakes over many years on the way to this outcome—indeed, too many to recall here—as well as some bad luck. Rather than relive these mistakes, including the recent failure of the debt exchange to bring about macro-financial stabilization, we might ask instead what policy options are now available. What policies should the authorities and international community pursue to stabilize the Argentine economy in a time of COVID?

In short: it’s time for a “Hail Mary” pass. And four features of the macroeconomic situation provide necessary background to this unlikely intervention.

Argentina: A sustainability assessment

Slides: Argentina_sustainability note_FINAL

Text, charts, tables, and technical annex: Argentina sustainability note_FINAL

What is needed to restore Argentina to sustainability? An emerging view suggests: (i) domestic law debt—largely held by residents, including the central bank (BCRA)—will carry most of the “sustainability” burden, including through a “haircut” of principal and coupons if necessary; while, related, (ii) foreign law debt—held largely by non-residents—might expect to be reprofiled, but no substantial action in terms of coupon or principal haircut is needed. Continue reading “Argentina: A sustainability assessment”

Argentina: BCRA accounting and government debt

Slides: BCRA_October 2019

pdf: Argentina_BCRA accounting

Buried deep within the monthly balance sheet of the Banco Central de la República Argentina (BCRA) is an arcane accounting entry of crucial import. The entry in question, reported as “Cents Varias,” is more often labelled in IMF documents as Other Items Net (OIN.)

Now, OIN is indeed a misunderstood accounting entry—thus greatly abused. People sometimes think of it as similar to “errors and omissions” reported in the BOP—a measure of our ignorance. This makes it tempting to use OIN as a residual when projecting or interpreting the monetary accounts. But OIN is completely different. Rather, it scoops up balance sheet items that, though not typically pivotal, can still of value in interpreting macro-financial developments. As for Argentina. Continue reading “Argentina: BCRA accounting and government debt”

What to expect from Argentina’s 5th Review debt sustainability analysis

What can we expect of Argentina’s 5^thprogram review? We are told the IMF team arrived in Buenos Areas on Saturday. Presumably the objective is to complete this review by end-September—as this review will be judged against the end-June program targets, already passed. IMF funds can be released before the election, therefore. The implications of the election can be dealt with later. This is the right decision, in my view—despite the challenges facing Argentina. The global community owes Argentina some forbearance. Continue reading “What to expect from Argentina’s 5th Review debt sustainability analysis”

Argentina’s monetary meltdown: What policy reaction function?

BCRA meltdown pdf.

The Central Bank of the Argentine Republic (BCRA) provides, with a short lag, updates on daily contributions to the change in Peso (ARS) base money. With this, BCRA on Thursday offered a glimpse into their reaction function in response to the acute market pressures that followed the primary election outcome. What can be learnt from this experience?

First, local LELIQ claims on BCRA are flighty. In short, ARS257bn of LELIQs were maturing on Monday 12th August; together with interest (annualized at 62.6%) of roughly ARS3bn this provided a rollover need of perhaps ARS260bn to neutralize the impact on base money. However, they were only able to rollover ARS100bn in LELIQ (at 74.8%.) And so, they replaced less than 40% of the LELIQs falling due. Most (but not all) of the rest contributed to the expansion of base money from ARS1,345bn outstanding as of Friday to ARS1,487bn on Monday. Continue reading “Argentina’s monetary meltdown: What policy reaction function?”

Recalibrating Argentina’s Ponzi Program

Restoring stability Argentina pdf plus technical annex.

TODAY’S SHARP ARS adjustment from 45.3 per USD on Friday to about 53.0—a depreciation of 14½%—comes as no surprise to anyone who has been studying Argentina’s macro-financial policies in recent years.

The catalyst for the sell-off in Argentine assets, of course, was the outcome of yesterday’s primary election—where the opposition Fernandez-Kirchner ticket defeated the so-called market-friendly incumbent, President Macri, by 15½ percentage points. A return of populism to Buenos Aries can be expected. Continue reading “Recalibrating Argentina’s Ponzi Program”

A note on debt sustainability in Argentina

THE LATEST International Monetary Fund (IMF) program document for Argentina—the 3^rdReview—was published earlier this month. This document sheds light on the drivers of the public debt sustainability analysis (DSA) that underpin the program.

Since the issue of debt sustainability in Argentina will recur after the upcoming Presidential elections, it’s worth asking: What are the assumptions that underpin the latest IMF document? Do they make sense? And what does this imply for investors? Continue reading “A note on debt sustainability in Argentina”