The Central Bank, hidden protagonist of the clash between the governor of Chubut and Javier Milei: the resolutions that exacerbated the conflict

The escalation in the media and on social networks of the conflict between the governor of Chubut, lgnacio “Nacho” Torres (PRO) and the government of Javier Mileifor which the provincial president has threatened to suspend the shipment of gas and oil to the country starting from Wednesday, has a hidden protagonist: the Central Bank of the Argentine Republic (BCRA).

Under the management of Chubut’s former Peronist governor Mariano Arcioni, the province he got into debt through the Provincial Development Trust Fund, one of the 29 controversies due to which the Omnibus Law began to fall. In fact, it is one of the two funds that the deputy Nicolás Massot asked to exclude from the changes, a proposal that the entire PRO bloc and La Libertad Avanza voted in favor of.

The financial conditions of the debt assumed by Chubut included two fixed monthly installments with the first due on the last working day of January 2024, already under the management of the new governor, Ignacio Torres, of the PRO.

Interest on the debt is adjusted to the reference stabilization coefficient (CER) published by the BCRA. One of the conflicts is in the Warranty. The fact is that paragraph “f” establishes that Chubut assigns to “pro solving” the rights to the sums to be received from the Co-participation. This is the point that the governor angrily claimed on Friday, which accounts for $13.5 billion and which he calculates as a third of the share the province receives.

The end of the exception: so Chubut ended up in the red

For years the Provinces have been financed by an exception granted by the BCRA. But, a month ago, the government announced it would limit provinces’ ability to borrow from their banks to cover short-term expenses, such as paying salaries at public companies. That safe conduct, therefore, no longer ran.

“The Central Bank informs us that the extension of the provinces’ authorization to borrow from provincial banks, a mechanism they have used several times to address urgent financial needs, has been left off the agenda,” the spokesperson said presidential Manuel Adorni.

This is a BCRA rule from October 2019, during the administration of Mauricio Macri. There, “financial assistance for the payment of staff salaries” from non-financial public enterprises was excluded from the share of credit available to provincial banks to finance public sector expenditure. This communication was renewed every year. But in the latest communication A7674, dated 19 January, it is announced that the extension ended on Wednesday 31 January.

This is the first obstacle Chubut has encountered for the Central Bank with its debt. However, there were other mechanisms to stick to.

Debt and bond restructuring rejected by the Central Bank: the point of no return of the Chubut-Nación conflict

“On December 15, 2023, the Chubut Government requested to refinance the December and January/24 installments of the FFDP [Fondo Fiduciario para el Desarrollo Provincial]to improve the maturity curve,” said the radical deputy governor of Chubut, Gustavo Menna.

“After a meeting with the Secretary of the National Treasury, on 16 February (3 days before the start of the withholding of the share) another note was presented to the Minister of the Interior in which the need to refinance the debt with the trust fundas the CER update that it foresees in times of very high inflation has made it impossible to cancel it without affecting the essential services of the Provincial State,” added Menna.

And then came Chubut’s attempt to use it another tool to pay off your debt. “On February 22, formal authorization was requested to cancel the debt to the FFDP with the resources obtained from issuance of debt securities guaranteed with royalties, without any response, since the intention is to financially suffocate the Province”, explained the deputy governor.

That is, Chubut asked to issue a bond to cover that economic hole. But he met another rejection from the Central Bank. And without exceptions (which allowed him to take out a loan at the provincial bank) or bonuses, the conflict broke out. Thus, Nación used the guarantee of retaining part of the share to pay off the debt the province had and Torres exploded.

Already with the open discussion and the media darts flying on social networks, the radical deputy Martin Tetaz He noted on his Twitter account: “The BCRA does not allow Chubut to restructure. “That’s why we need to shift down a gear and find a way out.”

Tetaz was responded to by the president of the Central Bank, Santiago Bausili, who is usually silent on social media. “Your comment can be interpreted as if the BCRA is sitting in a command center and discretionally decides who does and who doesn’t. The BCRA monitors the risk that banks can take“It does not limit the action of anyone who intends to get into debt,” said the head of the institution.

When Chubut asked to issue a bond to cancel the debt, Central refused to approve it because it insured it it was too risky for banks that would like to acquire it. Tetaz insisted on this point.

“The banks are backed by the nation’s debt without any collateral. It seems very reasonable that they could have royalty-backed securities, such as BOCADE, which collects its royalty collateral from the trustee, before the province sniffs out the money,” he said the radical deputy. He hinted that the BCRA might approve Chubut to issue such a bond and thus restructure the debt.

Even him Minister of Economy of Chubut, Facundo Ballunderlined to the Government.

“His initial position was delay responses to all our proposalseveryone was willing to pay, we asked for refinancing, debt exchange, total cancellation, Ignacio Torres led this process from the beginning,” began the provincial official.

“Total cancellation was also a proposal that the national government has no rationally economic possibility of refusing to accept, but for this we needed the authorization of the BCRA for the placing new securities on the marketintended to pay off the debt to the FFDP,” he added, speaking of existing bonds the last proposal Chubut made to get out of the labyrinth.

In this regard, economists close to the Government point out that it is not necessary for the bonds issued by a province to be purchased by banks: other investors can purchase them. And they underline that the Central Bank, to “take care” of the banking system, establishes which bonds are risky and which are not.

However, since banks already own the nation’s debt, other analysts believe the BCRA could have allowed Chubut to issue the bond to decompress the situation.

There were no longer any exceptions. Nor the renovation. And then the placement of bonds was not authorized. It was the final trigger. Then came the most obvious part of the conflict: the failure to send the sharing funds to Chubut, the cross accusations of missed payments and the threat of cutting off the oil supply.