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Active Memory 2001 (Part 2)

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The seventh package of the trio (Machinea-López Murphy-Cavallo). The new measures outlined by Minister Cavallo and his team of notables: Sturzenegger, Marx, MondinoIn October 2001, amid strong social and political pressures, they found the weak president De la Rúa agreeing to keep the Titanic’s course convinced by these qualified professionals to regain credibility in the markets and try to avoid an inevitable economic chaos with an outbreak social, that everyone saw coming. In fact some of them got off a stop or two earlier. What followed was a leap into the void: extended default, deposit confiscation, devaluation (perhaps) forcing a disciplinary dollarization that would direct the disorderly and disconcerting situation engendered by the magicians of Minnesota, Chicago y Harvard in the “happy nineties” (Stiglitz).

No wonder they don’t claim Guzmán. Seven plans in 21 months.

The super ideal of those who ask for plans. They announced an average quarterly plan. Fernando de la Rúa took office in the midst of a recession of seven consecutive quarters: 1998-1999 that left him “Chicago boys” to his comrades from Minnesota, an “honoris causa” and Harvard respectively. None of them ever achieved the vaunted “Investment grade”, having tested all the prescribed antibodies in Dr. Frankenstein’s famous laboratories, without ethical limits in social and political terms. In both arguments, in the nineties: Harvard and the “Chicago boys” took on debt to finance fiscal deficits. In the end, Cavallo chose to increase taxes rather than lower spending; months later Cavallo-Bullrich lowered state wages, sinking the level of activity. In the beginning remember: “How nice it is to give good news” (Shield) in which structural reforms were committed that were not carried out either, which converged with the dismissal of Machinea.

Ricardo López Murphy’s failed attempt, which took 15 days to prepare a plan, announced it as if it were a statement from the board of commanders and he was fired in less than 24 business hours. Cavallo replaced him, embodying Foucault’s pendulum. A magical and mysterious novel about magic, secrecy, creativity and macroeconomic fiction; an agitated chimera, a luminous fable of an underlying world. In his short term, he went from active policies to boost supply by lowering taxes, to ultra-orthodoxy.

Specifically, the seventh plan

Overwhelming restructuring of public debt with local bondholders: AFJP and banks, in three tranches: 1) restructuring of provincial debt; 2) exchange of promissory notes held by the AFJPs, in Financial Trusts and, 3) exchange of promissory notes held by banks, a process that faced enormous conflicts.

The objective of the provincial debt swap was to achieve a reduction in transfers to the provinces under the co-participation guarantees agreed in the Fiscal Pact of December 2000, in exchange for a reduction in provincial financial payments in 2001 and 2002.

In mid-2001, the stock of loans granted by the financial system to the provinces totaled u $ s 7.700 million directly yu $ s1,200 million through the Trust Fund for Provincial Development, which represented around 40% of the provincial debt. Those loans paid an average dollar interest rate of 25% a 30%, given that they were indexed according to the fixed-term or wholesale survey interest rate (Badlar) plus a spread equal to an additive or multiplicative factor, depending on which was the higher. The proposal of the second best team of the last 50 years was to maintain the additive factor by eliminating the multiplicative, with which the interest rate that would be paid would drop to 15% or 20%. A bargain.

Central Bank BCRA Mariano Fuchila

Mariano fuchila

The new bonds would continue to include the national tax co-participation guarantee and, to achieve the reduction of financing needs in 2001 and 2002, the securities would include the capitalization of interest and a grace period for the payment of principal until December 31 of 2002. This way they would be exchanged approximately u $ s 7.700 million, with a reduction in the financial needs of the provinces by US $ 850 million in 2001, a figure similar to the amount that was thought to reduce non-automatic transfers destined for those jurisdictions. Savings for 2002 could reach $ 3. 000 million ¿…?

Section irruption in the AFJP

The national public sector debt stock amounted to u $ s132,000 million as of June 30, 2001, u $ s 98,400 million it was debt placed in the internal and external voluntary markets, and u $ s 33,800 million with multilateral organizations. Of the debt stock u $ s49,500 million they were held by local holders and the rest abroad. Some u $ s 83,300 million. The local holders were banks and AFJPs, and a process of voluntary restructuring of u $ s 27,000 million in medium and long-term fixed rate bonds and u $ s5,500 million in medium-term variable rate bonds, to which were added short-term Letes for u $ s 2,800 million. The medium-term variable rate securities that would enter the swap accrued extravagant interest rates indexed by Badlar and by the fixed-term loan survey plus an average spread of 350 bp. Some u $ s 2,570 million in banks, and u $ s 1,385 million in the AFJP.

The purpose of the second best team was to exchange these $ 3 billion holdings for other bonds that would lower the interest rate using the collection of the tax on bank debits and credits or gasoline as collateral. It was not so much like delivering “The Falkland Islands” for the Pfizer vaccines that Patricia Bullrich proposed, but more or less … The interest coupon for a successful exchange would be 7% and would be compounded until the end of 2002! In order for the AFJPs not to make legal demands for investing at low interest rates?

They talked about saving. The economy in terms of reducing interest payments would be US $ 81 million in 2001 and US $ 480 million in 2002, at an implicit rate for 2002 of 12% plus a spread between 350 bp (15.5 % in dollars). When saying of Luis Sandrini in the movie “The House of Millions”: What a pichincha!

Luis Sandrini The House of Millions.jpg


They were also studying the possibility that 50% of the new investment flows of the AFJPs will be used to buy new securities. Another reduction in interest payments with savings of US $ 12 million in 2001 and US $ 71 million in 2002. A small thing for Anton Chekhov.

Traction to activity with highly insufficient measures

VAT refund on final consumer purchases with credit and debit cards, to stimulate domestic consumption. They would return 3% of the 21% rate. Filtering of provincial bonds through the issuance of Provincial Obligations Cancellation Bills, issuance of $ 1,000 million for the provinces. This program aimed to cover all the provinces, but only reached half of them. The Buenos Aires patacones that circulate in Jujuy and the Cancellation Bonds of Formosa would be rescued. They thought that as a substitute for LECOP was generated, the demand for pesos would fall. The increasing issuance of national and provincial bonds represented a substitute for the peso, which generated a contraction in the demand for monetary circulation. This fall would cause a drop in the international reserves of the financial system by the same magnitude, with a negative impact on the expectations of economic agents. It will continue tomorrow.

Professor of Postgraduate UBA and Master’s degrees in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books. @PabloTigani

Source From: Ambito


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