By Ramiro Castiñeira The work of Dr. Mario Brodersohn "an alternative to the Bicentennial Fund" may best be understood as a solution to the crisis that sparked the creation of "Bicentennial Fund, as it provides an alternative way for the Treasury to ensure funding for the debt in 2010 without the need of decrees, or increase the possibility of foreclosure, and to respect the charter of the BCRA.
the absence of fiscal surpluses as external financing, with pragmatism proposes that the Central Bank bought dollars as you normally would in their foreign exchange interventions, but to absorb the excess weight that tipped the market, instead of issuing Lebacs , issue of Treasury Bills (LETES) to National Treasury account. It noted that these lyrics are a liability of the Treasury and private sector an asset, not affected (at any time) the balance of BCRA, which only act as an intermediary.
absorbing weights by placing BCRA LETES, deposits in a treasury account under the BCRA, which will be used only for the payment of public debt that matures in 2010. This will give the signal to the market that the funds are for payment of the debt and not for the financing of primary expenditures. In addition, this method prevents the loss BCRA monetary sterilization tool such as the Lebacs.
Posted on deposit with the need to address the payment of debt, the Treasury gives the payment order to the Central Bank, which transferred the funds to the bondholders. This payment is commonly used. From 2002 to 2008, the Government has deposited in the Central Bank of its fiscal surplus. Now, in its absence, which gets deposited in Treasury bills positioning (via BCRA) to the private sector.
Vale noted that this proposal does not necessarily imply that the financial system to lower its current position Lebac to have to buy Treasury bills, since it acts on the margin. Indeed, under the scenario of 3% economic growth for 2010 than in the private sector consensus expected this year, implies that capital outflows will be moderate, allowing the Central Bank bought dollars from the trade surplus, as happened the last month (with a monthly average of $ s1.300 million last quarter).
Part of the subsequent monetization of trade surplus, the BCRA now absorbed by LETES, without having to alter the current stock of Lebacs. The BCRA now impose quotas on the broadcast to Lebacs (equal amount to the weekly maturities) in order to have its stock unchanged, and at the same time offering the LETES without any quota to act only on the new surplus of pesos in the market .
In sum, the proposal means that instead it is the Central Bank that finances the State, whether the private sector, as envisaged in the Budget Law. In recent bids placed Lebacs Central Bank to 14% annually. The shortest Treasury bond in pesos (Pro 11) which expires at year's end, has a TIR almost identical to the Lebacs. Ie the proposal does not represent an increase of rates in the economy.
Needless to say, this is a proposal that arises from the need for a rapid solution to the crisis that sparked the creation of the Bicentennial Fund, to provide security to allow the payment of debt in the short term proceed with the debt exchange, without overwhelm institutional processes. Bicentennial Fund is not bad by the fact that the Central Bank financed the state while advancing the exchange, but because the wording of the decree opens the door for this to be systematic, explicit blending the supposed autonomy of BCRA.
Finally, the proposal is not a long term solution. This requires not only a path of recovery from a primary surplus equivalent to interest payments on public debt (less than 2% of GDP), but also a prompt resolution of all debt in default to allow the refinancing of maturities at rates not financially choke the State. A rate that does not make the debt a heavy burden on economic growth as it used to be in the past.
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