Money Printer Goes Quiet and Argentine Government Gets Squeezed
Ignacio Olivera Doll, 28 April 2021
The Argentine central bank’s fight against inflation is upending the local bond market and squeezing government finances as the country struggles to regain traction while the pandemic rages on.
Long known as some of the world’s most prolific money printers, Argentine policy makers are cutting back on the largesse in an effort to curb inflation running at more than 40% a year. While the move toward orthodoxy has often been urged by economists, the timing is difficult. Slower expansion of the money supply over the past six months has cut liquidity and sapped demand for debt, pushing up interest rates and making it harder for the government to fund itself given its lack of access to overseas markets.
The policy clash between the central bank and Treasury means the government has had difficulty raising pesos from recent sales in the local market, even as spending climbs ever higher to offset the economic effects of coronavirus lockdowns and appeal to voters before congressional elections set for October. Now, less than two years after Argentina emerged from its last default on local debt, investors are eyeing the situation with trepidation, with some increasingly concerned it isn’t sustainable over the long term.
“There is an inconsistency between fiscal and monetary policy,” said Juan Manuel Pazos, the chief economist at TPCG Valores in Buenos Aires. He said a debt auction today, at which the government will seek to sell inflation-linked bonds and other securities as 123 billion pesos ($1.3 billion) of notes come due, will provide a test of investor demand.
