UNIVERSIDAD SERGIO ARBOLEDA
Juan Pablo Fonseca Camacho
Introducción a la Economía.
SUMMARY TEXT BPI2019 ARGENTINA.
As a result, the primary balance showed a surplus of 0.1% of GDP during the first 10
months of 2019, compared to a deficit of 1.2% of GDP for the same period of the previous
year. After interest payments on debt, the fiscal balance for the cumulative period from
January to October 2019 showed a deficit of 2.4% of GDP, below 3.2% of GDP in the
previous year period. Due to these financing needs, the central government's public debt
stock grew in the first half of 2019, and in June it was equivalent to 80.7% of GDP. In
2019, the central bank's policy focused on stabilizing the exchange rate, in response to the
tensions observed in the first half of the year, which intensified in August after the
"simultaneous and mandatory open primary" elections. Despite the greater intervention of
the central bank in the currency market, and although interest rates remained high, the
nominal exchange rate increased by 58% in the year to October, from 37.8 pesos to the
dollar to 59.7. In fact, as of August, the central bank adopted a net selling position in the
foreign exchange market, for a total of US $ 7.3 billion between August and October. This
sale by the central bank, combined with a sharp drop in dollar deposits and public debt
payments in foreign currency, together explain the drop in international reserves of US $
24.6 billion between August and October.
Given the persistent exchange rate pressure and the fall in international reserves, the
government and the central bank chose to establish capital controls to curb the outflow of
financial capital and accelerate the liquidation of exports. First, a limit of US $ 10,000 per
month was established for purchases of foreign currency for free use by individuals, and
companies' access to the foreign exchange market was restricted for purchases in
foreign currency to repatriate profits and dividends , and for free use currency. After the
presidential elections in late October, in view of continued high demand for foreign
exchange, the central bank lowered the limit on the purchase of free foreign exchange for
individuals to $ 200 per month. Second, the central bank also reinstated a measure that
had been removed in 2017, requiring exports to be settled on the local exchange market
within a maximum of 5 business days after collection or 180 days after the date of
shipping permit. Monetary policy was contractive in 2019, with the aim of stabilizing the
currency market. In the year to October, the nominal annual interest rate on commercial
loans increased 314 basis points to 67.7%, and the consumer loan rate increased 1,166
basis points to 75.6%. Finally, in 2019 the central bank also changed the objective of
monetary aggregates, to avoid excessive monetary contraction, in a context of
accelerating inflation, and due to changes in the integration of reserve coefficients. The
improvement in the goods balance was attributed to a 28% year-on-year decrease in
imports in the first half and to a 2.4% growth in exports.
Meanwhile, the revenue account deficit grew to 4.2% of GDP, driven by interest
payments on portfolio investments, which increased by 13.5% year-on-year. The
capital and financial account recorded a four-quarter cumulative surplus of 4.2% of
GDP in the first half of the year, mainly due to general government and central bank
debt, linked to IMF inflows. Standby Line of credit and expansion of the currency
exchange with China. Demand for foreign exchange driven by hoarding partially offset
this surplus, with a cumulative deficit of four quarters equivalent to 3.4% of GDP.
Meanwhile, foreign direct investment fell by 37.1% year-on-year in the first half of 2019,
reaching a cumulative level of four quarters equivalent to 2.1% of GDP.
October data shows that the accumulated trade surplus for goods for the year widened,
due to a year-on-year drop in imports of 25.6% and a year-on-year increase in exports
of 5.4%. The demand for foreign exchange remained high, as a result of the hoarding
and portfolio investments of non-residents that were recorded in the central bank's
foreign exchange balance, and totaled US $ 31.4 billion during the first 10 accumulated
months of year, in a context of continuous exchange and financial tensions. In the
same period, the international reserves of the central bank fell by 34.3%. Economic
activity contracted 2.5% year-on-year in the first half of 2019, explained by a drop in
private consumption, public consumption and investment.
In particular, wages in the registered private sector decreased by 9.7% in real terms in
the cumulative period until August, while wages in the public sector decreased by 9%,
and those of unregistered private workers decreased by 14%. In October, the minimum
pension was 12,937 pesos and the minimum wage was 16,875 pesos. In October,
minimum retirement benefits decreased 9.2% year-on-year in real terms and the
minimum wage decreased 12.9%. The unemployment rate stood at 10.6% in the
second quarter of 2019, one percentage point more than in the same period of the
previous year.
