Tuesday, October 19

Miguel Ángel Pesce: “The Argentine monetary mass grew 575,000 million pesos in 2020” | Economy

The president of the Central Bank of Argentina, Miguel Ángel Pesce.
The president of the Central Bank of Argentina, Miguel Ángel Pesce.ALEJANDRA LOPEZ / Central Bank

Miguel Ángel Pesce (Buenos Aires, 1962) chairs the Argentine Central Bank since December 10, 2019. He has been one of the executors of the financial strategy to face the pandemic in a country whose economy was in a critical situation already before the coronavirus. Pesce affirms that, without access to credit markets, the issuance of money necessary to face the crisis was very high (the monetary mass grew 575,000 million pesos) but it has been partially sterilized thanks to its placement in savings instruments. The president of the issuing entity assures in a questionnaire by mail that Argentine banking entities are solvent.

Ask. What percentage of the monetary issue can be attributed to the needs created by the pandemic? What would the total number be?

Answer. The COVID-19 pandemic found the Argentine economy in a severe crisis of public and private over-indebtedness, with large macroeconomic imbalances and a pressing social situation. Argentina, without access to the international credit market and with an underdeveloped domestic capital market damaged by the previous period of instability, had to design a strategy with the available instruments. Fiscal measures to face the pandemic amounted to 1.13 trillion pesos in 2020, which represented 4.2% of the Gross Domestic Product (GDP). Financing to the Treasury through temporary advances and profit transfers from March 20 [inicio del confinamiento estricto] Until the end of the year it amounted to 1.78 trillion pesos (6.6% of GDP) and in all of 2020 it was two trillion (7.4% of GDP). 64% of the Central Bank financing to the Treasury can be attributed to the needs of the pandemic.

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P. How much has circulating money grown?

R. Currency held by the public accumulated, from March 20 to the end of the year, a nominal growth of 52%, equivalent to a rise of 16.4% after discounting inflation. The strong increase in cash was linked to measures of social isolation and the demand for money as a precaution in a context of high uncertainty. This growth of money in circulation responded to the emergency measures deployed by the Government, to avoid disruptions in the payment chain and to sustain the income of families. This transfer of resources was mainly directed towards the most vulnerable social sectors, prone to using cash payments.

P. What measures have been adopted to sterilize this enormous monetary issue and avoid new inflationary tensions?

R. The money supply grew 575,000 million pesos during 2020, the first year of the pandemic. 44% of this expansion of the monetary base was sterilized with its placement in liquidity bills (Leliq) and passive repos. These savings instruments paid an average interest of 36% in 2020. The interest payment in nominal terms was only 4% higher than that registered in 2019.

P. What has been the effect on interest rates?

R. To encourage savings in pesos, it is essential that the interest rates received by depositors offer returns in line with inflation. This, in turn, helps preserve financial stability and the exchange rate against the dollar. Currently the rates of time deposits are 44% per year for savings of individuals of up to one million pesos, and 40% per year for the rest.

P. Has the pandemic changed the way the banking system works?

R. Various measures had to be taken. During the period of greater restrictions, wholesale exchange operations and liquidity bill tenders were guaranteed. The electronic clearing houses were also maintained. Face-to-face banking operations decreased significantly, but it should be noted that more than eight million new accounts were opened throughout 2020. Government programs to mitigate the negative effects of the pandemic, such as the Family Emergency Income (IFE) and the Emergency Assistance Program for Work and Production, together with the need to use digital financial services, explain much of the historical increase, the highest in 20 years, in the number of bank accounts. The set of electronic transfers measured per adult increased 122%. The growing use of the cell phone as a means of payment or electronic wallet determined an increase of 246% in this specific type of transfers.

P. Has the pandemic affected the solvency of banking entities?

R. There have been no shocks. This was possible due to the significant level of coverage previously established by the sector (high levels of liquidity, provisioning and regulatory capital) to face possible stressful situations. On the other hand, the possibility for banks to distribute profits to their shareholders in the face of a pandemic was suspended, in line with the initiatives of other central banks. It also opened the possibility that unpaid installments were transferred at the end of the life of the loans, generating only compensatory interest. Thanks to this, the percentage of loans in irregular situation was 3.9% at the end of 2020.

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