Report Nº: 98411/10/2022
The optimism generated by the success of the “soya dollar” overlooks the growth of Leliq (the central bank’s debt) that it provokes. The experience of the previous government with the Lebac (predecessor of the Leliq) is very instructive. When they grow too much, they impose the need for a big devaluation.
Leliqs are a monetary policy tool. They consist of sales of debt securities from the Central Bank to commercial banks in order to take money out of the economy and thus mitigate the inflationary impact of monetary issuance. They have had different denominations over time. They began to be well known in 2014 –under the name of Lebac– when they were profusely used to absorb the monetary issuance for the fiscal deficit that put the reserves at risk. The Cambiemos government continued to use them intensively to absorb the issuance that caused the inflow of dollars to finance the fiscal deficit. The point of maximum tension came in May 2018 when large devaluations began.
Currently, the persistence of the fiscal deficit led the government to continue using them intensively, even though it had promised to eliminate them. The “soya dollar” accelerated monetary issuance as the Central Bank buys dollars by printing pesos at $200, when the official exchange rate is still at $145. As this massive issuance of pesos puts pressure on prices, particularly that of parallel dollars, the Central Bank has no alternative but to place increasing amounts of Leliq.
What level are the Leliqs reaching comparing with the 2018 crisis? According to Central Bank data, it could be observed that:
These data show that the flip side of the success of the “soya dollar”, in terms of increased reserves and collection of export duties, is a destabilizing increase in Leliqs. The most suggestive reference is that Leliqs measured in official dollars are approaching the 2018 level (when they were called Lebac) just before the exchange rate crisis was triggered. As long as the Central Bank keeps buying “soya dollars”, issuance will increase and, with it, Leliqs. Rather than celebrating the success of the “soya dollar”, concerns about its dangerous inflationary impact should prevail.
The “snowball” of Leliq is also fed by the interest they yield. The Central Bank is forced to increase the interest rate to induce banks to continue buying Leliq. The Leliq interest rate has already exceeded 100%. Added to this is the low level of reserves. While in May 2018, Lebacs were equivalent to US$ 62 billion with reserves in the Central Bank of US$ 55 billion, currently, Leliqs are equivalent to US$ 56 billion with reserves of only US$ 38 billion. The exchange controls indeed hinder the loss of reserves, but the magnitude of the growth of Leliq ends up putting pressure on prices and parallel dollars.
A devaluation jump, such as those that occurred in 2018 and 2019, is becoming an inevitable alternative. Strong devaluations are a traumatic process that needs to be managed with extreme care. A critical issue is utility tariffs whose update continues to be delayed. As a reference, it should be noted that between 2018 and 2019 subsidies were equivalent to 1.2% of GDP while they are currently at 2.5% of GDP. Devaluation with frozen tariffs increases subsidies and, with it, the fiscal deficit. For this reason, devaluation adds more monetary emissions. Thus, although the devaluation devalues the Leliqs and improves the trade balance, it does so with a high risk of spiraling inflation.
The “soya dollar” is an accounting gimmick that allows showing a reduction in the fiscal deficit (due to increases in export duties) and an increase in reserves. But in reality, it aggravates the precariousness due to the explosive increase of Leliqs. This increases the probability of triggering a process of successive devaluations which, under the current conditions –particularly with the continuous improvisation in energy tariffs– increases the risk of entering an inflationary spiral that will be difficult to control.