Report Nº: 110419/01/2025
A great achievement of the government was to dismantle the Central Bank’s leliq without a Bonex plan or hyperinflation. To consolidate it, it is now necessary to advance in the integral organization of the State, including the three levels of government. This requires an agreement between the Nation and the provinces.
The year 2023 ended with an inflation rate of over 200% per year. This was the result of the chronic and growing accumulation of fiscal deficits. The national Treasury debt reached the equivalent of 67% of GDP. At this point, the possibilities of financing deficits with increases in Treasury debt were exhausted. The proof was the dizzying increase of the country-risk (the additional interest rate that the Argentine national State must pay for its debt with respect to the United States), which exceeded 2,000 points. This implied paying a 20% annual interest rate above the income paid by bonds issued by the United States.
Given the impossibility of increasing the Treasury debt, fiscal deficits were covered with monetary issuance. As excess issuance generated pressure on inflation, the Central Bank appealed to suck part of that money out of circulation by issuing liquidation–bills (leliq). Commercial banks used their clients’ deposits to give them to the Central Bank in exchange for the leliqs. In this way, chronic fiscal imbalances led, in addition to high inflation, to the accumulation of Treasury and Central Bank debt (Leliqs).
What happened to the leliqs under the current government? According to the Central Bank and the Ministry of Economy between November 2023 and November 2024 it is observed that:
These data show that the disappearance of leliqs was achieved by replacing them with Treasury debt. At the consolidated level, the debt remained at similar levels, but the accounting records are now more transparent. All national public sector debt is recorded under the responsibility of the one that generated it (the Treasury) and the Central Bank was freed from managing the leliq to finance the fiscal deficit. This was achieved without going through traumatic episodes such as a “Bonex plan” (i.e., compulsively exchanging the leliqs for a long-term bond that is delivered to the banks’ depositors) or hyperinflation (i.e., reducing with high inflation the real value of the leliq and the deposits that backed them).
The main lesson from this experience is that the central problem was not the size of the debt but the size and persistence of the fiscal deficit that feed the debt. If the flow (fiscal imbalance) is cut off, the stock (debt) is manageable. The clearest evidence is the dizzying drop in country-risk. As long as this trend continues –for which it is key to provide certainty on the sustainability of the fiscal balance– it will be feasible to renew debt maturities with market operations without the risk of facing traumatic situations that would force to appeal again to the Central Bank.
It has been demonstrated that fiscal balance is a very powerful instrument. The critical debt situation reached at the end of 2023 seemed that it could only be overcome by facing a hyperinflation or by exchanging the leliqs for a long-term bond. However, the government opted for a strong adjustment of public spending by migrating from chronic high financial deficits to surpluses. This reversal in the outcome of public finances allowed, without confiscations, the elimination of leliqs. Thus, it became evident that the enormous relevance of ending the chronic imbalances of the State had been underestimated for a long time.
To give continuity to these achievements, it is essential that the fiscal balance be sustainable. This will only be possible by moving from the adjustment of the State to the integral organization of the State. The foundational point of this transformation is a fiscal coordination agreement between the Nation and the provinces that specifies the functions that each level of government has the exclusive responsibility to attend to (so that the national State stops overlapping expenses with the provinces and municipalities) and the taxes with which each level of government will be financed to meet the exclusive responsibilities it has to attend to.