How is the government’s accounting maneuver to be able to spend the extra IMF dollars during the campaign

Around the same time the new Cabinet was announced, the government on Friday issued a The DNU will integrate the special drawing rights (SDR) in the 2021 budget received from the International Monetary Fund (IMF) for an amount equivalent to u$ 4334 million.

The decision, which was formalized by Decree 622/2021, will allow the executive increase spending in the coming weeks without violating the Organic Charter of the Central Bank (BCRA). The measurement aligns with Vice President’s request Cristina Kirchnerwho had questioned in his public letter Thursday, the economic management and the under-execution of the 2021 budget.

How can this happen? As DNU 622 integrates the Budget with the resources granted by the IMF, the government can circumvent the restriction on “temporary advances” that the monetary authority can grant to the Treasury. These advances must not exceed the sum equivalent to 20% of the collection of the last 12 months nor 12% of the monetary base.

More specifically, Article 1 allows include in the calculation of current resources $422,174 millionie the equivalent in pesos of the 4334 million US dollars which will be used to finance the general budget of the national administration.

Then, article 3 authorizes the Organ Responsible for the Coordination of the Systems composing the Financial Administration of the National Public Sector to “issue bills denominated in US dollars” for an amount of up to US$4,334 million (the same value as the SDR entered in the BCRA), with full amortization at maturity, fully or partially callable.

Thereby, The BCRA buys the SDR from the Treasury in exchange for issuing pesos and with these resources the Treasury can spend moreescaping the restriction of the body’s Organic Charter, and places a non-transferable bill on the monetary authority with which it pays the IMF.

Various economists They came out to warn of what had happened and they criticized the maneuvera practice that Cristina Kirchner had already used during her presidency in 2009.

“What was expected for a long time has happened. With sources of monetary financing at the Treasury at the limit of the CO (Organic Charter), the SDRs are sold against pesos and then recovered with a Non-Transferable Bill to pay the IMF. They are used twice, like in 2009. It also comes back,” he pointed out in this regard. Gabriel Camanofrom Ledesma Consultantin the red social Twitter.

And he added: “1) Pesos per SDR 2) Pesos against AT 3) LI against SDR 4) Capability recovered to transmit AT. Bonus track, you have accommodated the tax result with new exceptional income in the form of a current transfer”.

Also for this social network, Martin Vauthier, from Anker consultant (led by former BCRA chief Luis Caputo), warned: “Today, the main obstacle to consumption growth is the monetary imbalance. There was no broader use of SDRs than to bolster the BCRA’s balance sheet. Neither pay the IMF (with agreement) nor increase the monetary end available. If AT is cancelled, CO must be modified to lower the limit”.

For its part, Federico Furiase, also from the same consultancy, said, “Selling SDRs to BCRA for pesos and LLII increases the peso Treasury fund by 1% of GDP to finance more deficits and cover peso maturities if it does not follow the market. The cost: more issues and possibly more Leliqs for the banks (currency risk)”.

The maneuver step by step

  • IMF SDRs belong to the Treasury. Through the decree known this weekend, the government integrates these 4334 million US dollars with the current resources of the 2021 budget, recorded at their value in pesos, or approximately 422.174 million dollars (article 1).
  • In article 2 of DNU 622, the budget for this year is modified and this money is allocated to the cancellation BCRA transitional advances. Temporary advances are “loans” from the monetary authority to the Treasury which involve a increase in pesos in circulation.

As explained by the aforementioned specialists, the Treasury cancels the debt with the BCRA because the latter’s ability to continue to issue money through temporary advances is at its limit. The Organic Charter of the Centrale establishes that transitional advances beyond the equivalent of the 12% of the monetary base and 20% of the tax receipts of the last twelve months.

The monetary issue, which has skyrocketed since the start of the pandemic, has generated the risk that this year’s and next year’s expenses cannot be financed.

  • The last stage of the accounting maneuver is given by articles 3 and 4 which authorize the Treasury to borrow from the Central Bank. These are non-transferable bonds, for the equivalent of US$4,334 million, the dollar amount that the Fund has issued.

Thus, on the one hand, the Ministry of the Economy uses the SDR to cancel the obligations with the BCRA, and thus allow it to continue issuing pesos, and on the other hand, he recovers these same SDRs by going into debt in exchange.

Thus, the BCRA will now have the ability to issue an additional $422 billion to fund spending and a new dollar debt paper in his balance, the Non-Transferable Letters, which have no market value nor can they be turned into dollars.

Darcy J. Skinner