LatinNews Daily - 01 July 2024

*Argentina’s Economy Minister Luis Caputo and the head of the central bank (BCRA), Santiago Bausili, have announced the government is moving on to the “second phase” of President Javier Milei’s economic stabilisation plan. This phase involves swapping BCRA repurchase agreement (repo) notes for new Treasury debt, aiming to close another so-called “tap” or “faucet” of monetary emission that risks fuelling inflation. Caputo explained that the first “tap” was the fiscal deficit, which was targeted in the first phase of the plan, whereas the second phase will target the interest paid by the BCRA on interest bearing liabilities, formerly known as Leliqs and now known as Pases. The move will phase out these short-term notes that served as the BCRA’s monetary policy instrument, replacing them with new Treasury notes. Bausili emphasised that this shift will restore autonomy to the BCRA. Bausili also confirmed that the BCRA will continue to manage monetary policy and will continue to operate in a very similar way, but “it will no longer suffer the consequence of movements in the interest rate resulting in higher monetary issuance”. The measure aligns with demands from the International Monetary Fund (IMF) for positive real interest rates as part of its US$44bn debt agreement with Argentina. An IMF official confirmed approval of the new measures to the local press. The third phase of Milei’s plan, involving the end of currency controls, is yet to be detailed. The announcement comes after the lower chamber of congress gave final approval to Milei’s omnibus bill of reforms on 27 June, along with an accompanying fiscal reform. Milei has stated that the bill is key to the success of his economic plan.