My Car Stereo Has Stoped

University of BCRA crisis now affecting economic recovery

By Ramiro Castiñeira

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While 2010 started in the midst of conflict following the creation of "Bicentennial Fund, also development did not undermine the pace of dollar purchases by the Central Bank during the first three weeks of the year, implying for now the crisis led to an increase in capital outflow or affect the economic recovery.

in numbers, so far the month of January the Central Bank intervened in the foreign exchange market by buying $ 759 million, of which U.S. $ s260 million bought in the first week of the year, and $ U $ S287 S212 million in the second and third weeks, respectively.

The pace of foreign purchases is just over of $ 1,000 million a month, a similar magnitude to the expected trade surplus for the period. The figures indicate that the crisis for now with the Central Bank did not increase the demand for dollars by the private sector. In fact, as the month of December last, the outflow of capital from the economy would be void in so far in January, After a two consecutive years where the average monthly portfolio dollarization was $ s1.800 million.

The dollar purchases by the Central Bank not only allows you to add reserves to the monetary institution, but also revive the main factor of monetization of the economy. Indeed, once undermined the capital outflow, the Central Bank began to buy all surplus dollars from the trade balance. Thus, since August last year the Central Bank bought U.S. $ s5.800 million, turning the market more than $ 22,200 million. The expansion of the monetary base was about the same magnitude.

However, it noted that the dollar purchases by the Central Bank means that the private sector demand for pesos. The increased demand for money in Argentina is not an end (saving), but a means to purchase other assets.

Therefore, without the restructuring outflows of private monetary aggregates implies a higher aggregate demand in the economy, the first step in the revival of the domestic market (such as levels of inflation), which adds to the recovery of demand from abroad, mainly from Brazil.

In numbers, the M2 monetary aggregate private (which comprises currency in circulation plus deposits public private in sight), went from a variation of less than 2% in April last, a 19% in the first days of January. Similar behavior reflects private M3 (which adds to M2, the deposits).

In sum, despite the crisis that erupted after the creation of "Bicentennial Fund, for now it does not reactivated capital flight nor impeded the recovery of economic activity. At least not in the first weeks of the year. Moreover, prices of government securities did not fall significantly in magnitude, perhaps because the market does not question the ability and willingness to pay of debt maturities this year, with or without "Bicentennial Fund."