In the midst of the international tension that international markets are experiencing, the Senators of Together for Change have asked the president of the Central Bank, Miguel Ángel Pesce, to report to Congress “in detail, verbally and documented” on the latest regulations involving guarantee liquidity to the financial sector at the expense of reserves of the financial authority.
They did so through a draft resolution which has the signatures of the president of the Juntos Interbloc, Alfredo Cornejo, together with the holders of the PRO blocks; Umberto Schiavoni; and from the UCR, Luis Naidenoff.
The oppositions asked for clarifications on what powers the BCRA has to offer financial institutions liquidity options on securities assigned by the National State starting from 7 March with a maturity between 1 January 2024 and 31 December 2025, in particular indicate the powers of the Operations Analysis Department and of the Main Market Operations Department to issue Circular “A” 7716 and the reason for which it is not approved by the Board of Directors of the entity.
In a statement, the opposition senators specified that they wanted to know why they believe that the offer of liquidity options is not contrary to the prohibition of guaranteeing the debts of the National State envisaged by the Organic Charter of the BCRA; and also explain how the liquidity options work and to what extent they lead to the creation of a privilege for financial institutions over other holders of the Notes.
In the justification of the project it is highlighted that it is up to the Congress “to order the payment of the internal and external debt of the Nation” and that “it is ultimately responsible and has the constitutional power because in it the Argentine people Nation and the provinces that compose it.
The “Communications “A” 7716, “B” 12491 and “B” 12494 of the Central Bank are measures that need to be discussed in Congress and exposed to public debate. Despite the impact that their application could generate, they were dictated by second-line authorities of the institution and in a framework of transparency incompatible with the most elementary republican principles”, state the senators.
“Public opinion must understand the impact of the Communications and its link to the mega-exchange of government bonds recently announced by the Ministry of Economy, as well as the circumstances of its issuance. These communications initiate the tender for liquidity options on the securities awarded in said provision”.
“These notices commit the BCRA to financial institutions to purchase the Securities at any date prior to the maturity date set by the National State as issuer, and upon the exclusive request of its holder. It is a commitment undertaken by trillions of pesos, which will operate at the mercy of the financial institutions: with the exercise of the option, the change of creditor of the Securities will operate, which will pass from the hands of the banks in favor of the monetary authority”. admonish Together for Change.
“What the authorities make appear to society and public opinion as a conversion of short-term debt into medium-term debt, in fact means for the Argentine state the conversion of a short-term debt into a daily maturing debt and permanent”, indicates the reasons for the initiative and underlines that “the sources of funding or the resources with which the BCRA will honor the compulsive purchases to which it may be forced” are not explained.
“The public debt, acquired by financial institutions with private deposits of savers, would be taken with public funds and, in fact, the “nationalization” of the debts of the financial system towards the national state would take place”, it reads. stands out in the JxC initiative and points out that “the communications do not envisage any mechanism to sterilize the volume of pesos that would be preemptively injected into the financial system and which are currently pledged to the state in their debt securities, nor is the position of the savers, since their deposits no longer guaranteed by short-term securities are not fully protected by an early put option which takes place at market values”.
Nor is any explanation provided regarding the presumed “gap” that will exist between the liquidity that institutions could obtain through this route and the value of the savings that they must honor and manage with their own income, nor is there any restriction on the ability to monetary authority to offer these options, which appear as a blank check that admits any level of discretion in terms of volume, and thus becomes a liquidity insurance for financial institutions ”, the lawmakers denounced in the upper house.
“The generous offer of the BCRA is projected over time well beyond the democratic mandate of the government authorities, generating commitments that will have to be respected by the next administration that will be elected”, they underlined and highlighted that the economic materiality of the provision far exceeds the regulatory powers of the monetary authority, the participation of the Congress of the Argentine Nation being essential.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.