According to their numbers, 13% of IMF funds were used to pay debt maturities in pesos, 84% debt in dollars, and the rest in primary spending and to strengthen reserves. As a result, the IMF agreement would not have affected the financial and patrimonial situation of the National State and therefore there would be no problem in its constitution and use of funds.
Also, in the opinion of the same authorities of the previous government, it was stated that the reduction of the fiscal deficit was an ex ante condition to the reduction of the debt level, emphasizing how the previous administration was on a path towards primary fiscal convergence and the virtuosity that this would have on future debt sustainability
These arguments are not new. They had already been originally presented by the then Minister of Finance in a paper dated November 25, 2019, prior to leaving office. This script was repeated by the former president of the BCRA, former officials of the Ministry of the Economy and other economists who still look favorably on the management of the previous government.
However, and beyond the legal issue, compliance with the administrative circuits of credit and the evident co-responsibility of the IMF with what happened, the aforementioned arguments are technically inaccurate and of very little use in understanding what happened.
It is possible to state three major technical errors in such statements. In the first place, the public debt did increase. According to information from the Ministry of Finance on the stock of public debt, the total gross debt liabilities of the Central Administration in foreign currency prior to the IMF agreement was $ 229,872 million. After the IMF agreement, for the fourth quarter of 2019 the same debt reached 249,047 million dollars. In other words, the debt in foreign currency not only did not remain constant, but it increased by more than 19,282 million dollars.
Second, borrowing in dollars to pay dollars is not the same as borrowing in dollars to pay pesos. By substituting local currency liabilities for foreign currency liabilities, the debtor’s balance sheet becomes more financially vulnerable. Any jump in the exchange rate raises the cost of repayment, adversely affecting the sustainability of the debt. And this is what happened.
Thus, it is false to claim that the mere reduction of the fiscal deficit guarantees a convergence path towards debt sustainability. Conversely, If the debt in dollars is very high, the fiscal effort does not matter because the repayment guarantee is not given by the ability to save in pesos but by the availability of dollars. In a simple way, even with a fiscal surplus, the high levels of external debt made it unsustainable. Some analysts even consider that the substitution of private creditors by the IMF made the restructuring process even more difficult, since the private ones can be restructured and the IMF cannot.
Third, it must be considered that changes in the composition of public credit affect the financial situation of the private sector. And this goes beyond the denomination of the debt. The payment of public debt by the State implies a variety of possible uses of this liquidity for the private sector, especially in a context of exchange deregulation. This is how many of the payments made did not end up in the creditors’ accounts, but liquidity followed the path towards the purchase of dollars and the subsequent flight of those funds out of the banking system, when they were pesos; or direct flight, when they were dollars.
This ignorance is extremely striking, especially when these same authorities were the ones who decided in August 2019 reprofiling short-term debt maturities in order to prevent a high injection of liquidity from ending up generating an even worse disruption in the foreign exchange market and reserves.
In this sense, the high correlation between IMF credit and capital flight speaks volumes. As can be seen in the graph below, official data shows that between June 2018 and July 2019, US $ 44.49 billion entered the country corresponding to IMF stand-by credit disbursements. In the same period, Net purchases of dollars were registered for Formation of External Assets and Portfolio Investments for a total of 55.2 billion dollars.
During the eve of the electoral campaign this process accelerated to a more. After the last disbursement of the IMF on July 16, 2019, which simultaneously turned out to be the most questioned due to suspicions about non-compliance with the Fund’s own statutes, private dollarization was record, registering in just 4 months an equivalent amount of 18,700 million. In just 4 months, funds were dollarized for 42% of the IMF credit.
So the arguments made by former officials about the uses of IMF credit do not pass the filter of the most basic technical analysis. Such deception is not innocent, but is intended to confuse the population about the obvious. That is, most of the super indebtedness did not result in investment in infrastructure or an improvement in the quality of life of the population, but served to finance a circuit of financial appreciation and capital flight whose most serious consequences will accompany us for many More years.
Economist. Development Research Foundation (FIDE).
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