Yet this contrast between a clear-cut orthodoxy and a confused gradualism can also be exaggerated — the media spotlight tends to fall on an unsustainably high fiscal deficit which the Macri administration has yet to show any sign of significantly taming but most observers fail to notice that Central Bank policies have resulted in the accumulation of a formidable quasi-fiscal deficit. While a Central Bank in the red formed part of the Kirchnerite inheritance, the negative data for net assets have ballooned in the last 18 months. But these dollar reserves have been purchased at the price of printing pesos way beyond local demand which then need to be “sterilised” by issuing Lebacs and other bonds at inordinately high interest rates, thus causing Central Bank debt to double from 28-plus to over 58 billion dollars. Such issues not only contribute numerically to the quasi-fiscal deficit but are qualitatively bad for the economy since they crowd the private sector out of credit markets. The previous Kirchnerite administration notoriously sustained its fiscal deficit by draining the Central Bank in order to avoid debt (not really an option while default persisted) but Sturzenegger’s policies do not seem to be doing anything to improve solvency.

Source: Bueno Aires Herald July 28, 2017 16:52 UTC