Sale of dollars and rescue of letters from the BCRA: Caputo gave clues to the market

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The minister Luis Caputo started today very early the activity in the microcinema of the fifth floor of the Palace of Finance, to specialists of the financial market to deepen the explanations on the role that the Ministry of Finance will have in two key aspects: the rescue of Letters Intransferable that today are in the Central Bank and the sale of dollars in the financial market.

At 9.30 in the morning, some forty specialists from the market (such as the president of the Stock Exchange, Adelmo Gabbi, his predecessor Julio Macchi, Santander’s economist Juan Arranz, among others) listened to Caputo, who was particularly interested in expanding the information that Thursday afternoon at night was given by the Minister of Finance, Nicolás Dujovne, and the head of the Central Bank, Federico Sturzenegger. Caputo spoke accompanied by his chief of staff, Pablo Quirno and by the secretary of Finance, Santiago Bausili.

The most important thing about an exhibition that lasted almost an hour is as follows:

– The agreement with the IMF resolves three key points. 1) the goals to arrive at the primary fiscal equilibrium will be reached without frights; 2) The Central Bank’s balance time is improved and its autonomy reinforced. In addition, as there will be no more financing from the BCRA to the Treasury, the machine to issue pesos is killed. And not least, “the Lebacs begin to evaporate”, which had become a cause for concern.

– The financing problem is also solved for the remainder of the mandate of President Mauricio Macri “and more also”. Caputo estimated that in 2019 will need fresh funds for 22,000 million dollars, although they could be reduced to 12,000 million if funds linked to public works projects PPP.

– We consider it foolish to continue insisting that we hurry to go to the IMF. The markets have become complicated and with this agreement Argentina will go through the turbulence with tranquility.

– I am pleased that President Macri assumes paying political costs in the short term to correct the imbalances.

Speaking specifically about the rescue of untransferable bills that are currently in the hands of the BCRA, he explained:

– To the extent that market conditions permit, the Treasury will issue debt in pesos or dollars (which will be converted into pesos) and that money will be delivered to the BCRA to recover the non-transferable bills.

– With the pesos received, the BCRA rescues Lebacs and reduces the stock of that debt.

– This allows the Central Bank to remove from its assets non-transferable bills and its Lebacs liability. And the result is that the Central reduces its monetary liabilities remunerated in relation to its reserves.

– This operation maintains the level of gross debt, although it will increase the debt with the private sector (due to the issuance of debt to acquire pesos to buy the nontransferable bills) and lower public intrasector debt.

– In figures, if today gross debt is 60% of GDP (35% with the private sector and 25% with the public sector) after these operations the gross debt will remain the same, but 38.5% will be in the hands of the private sector and 21.5% will be public intrasector.

– Caputo insisted that these operations are aimed at rescuing non-transferable bills for close to 25,000 million dollars in a period of three years. “It will be done at the pace that the market allows, there are no pre-established fixed goals.”

– The minister explained that this “rescue operation” could begin right now so that the BCRA starts to rescue Lebacs that are now in the hands of public bodies.

– In addition, the Treasury will continue to transfer to the BCRA about 1,500 million dollars per year for the payment of interest on different debt bonds that Central has in its assets. “The Central will apply those funds, too, to lower the Lebacs stock”

– As a result of all this, Caputo affirmed that there will be no monetary expansion, because Finance will absorb pesos from the market and then deliver them to the Central.

On the sale of the dollars that are from the Treasury to finance the fiscal deficit (in pesos) or the payment of debts, Caputo explained:

-The dollars that we have in our power will be sold in the market when we see fit, or when the demand exceeds the offer, as is happening these days. This should not be read as “exchange intervention”, because that is the task of the BCRA. We will be sellers of dollars. We do not have a price objective, we will look at it every day. This was already seen in recent weeks, when the Nation sold almost all of the 3,000 million dollars that Finance harvested for the issuance of a bond in pesos that was placed entirely among funds from abroad.