What happened to the "Leliqs bomb" that Milei had as a priority

2024-01-12 08:30:00

With the expiration of the last billion pesos left in stock this Thursday The famous Liquidity Letters (Leliq) became extinctthe much discussed “bomba“that had to be deactivated in the campaign.

So much discussion and after a month of management the problem ended? No, just changed name accruing lower interest rate but with more instability.

The bomb is in the same place that always for now: the Banco Central, the agency stated THAT.

Now they are called passive passes and the Government seeks to first liquefy it and then convert it into Treasury debt by changing instruments as the Treasury carries out debt tenders.

The Government’s optimism in the face of 25.5% inflation: “We are on the right path”

According to the latest daily monetary report from the Central Bank, the Passive passes total 25.2 billion pesos, adding this billion that came from leliq to passes, totals $26.2. With some differences due to the nature of the instrument. Passive passes expire in one day, while the Leliqs expire in 28; and passive repos are remunerated at a lower rate. However, it is estimated that they represent about $2.1 billion per month, which they continue to be an emission factor.

Hence the greatest instability and one of the obstacles to dismantle the trap.

If the exchange market were freed and the purchase of free dollars was allowed in the MULC, added to the negative real rates in the different instruments that are available, a good part of that ball of pesos would go against the dollar.

What began to be called LEBAC in the time of Federico Sturzenegger in command of the Central, then became LELIQand now Passive Passesbut the debt is still there accruing interest and generating deficits.

Luis Caputo, and the president of the Central Bank, Santiago Bausili.

The objective of the Government is clean up the balance sheet of the Central Banksomething Milei needs for her dollarizing dream.

So the idea is transfer that debt from the Central to the Treasuryand with the control of the fiscal deficit and the administration of liabilities by giving a greater horizon to the maturities by extending the terms, canceling them in the future or going rolling them at a lower and lower rate.

The head of the Treasury said this at a press conference on Wednesday, Luis Caputowhen consulted by a possible mega-swap to clear the financial path.

But first, they seek to liquidate the debt. This is where the strategy carried out by the head of the Central Bank comes in, Santiago Bausiliwhen he modified the monetary policy rate and the significantly reduced from 133 to 100 percent annual nominal.

This became a very negative real ratesince it pays between 8% and 9% monthly against an inflation that was known today in December of 25% and is projected at those levels for at least next month.

From Central to Treasury

When the banks and insurers, the main holders of the leliqs, were concerned about political and electoral uncertainty, they began a transfer of the leliqs to the passes, preferring to pay the cost of a somewhat lower rate but with the peace of mind of being able to “go out for a day”.

Once they dismantled the leliqs and were mostly in repos, the monetary authority lowered the rate and When the banks wanted to return to the leliq, the Central stopped bidding.

Since then, caught in the passes, they seek to exit at a better rate. The exit is through Treasury tenders.

An easy explanation to know how the Leliq were born and how to “disarm the bomb”

In this way they are redirecting the passive Caputo and Bausili.

But the Treasury has been bidding only according to its calendar (it did not make a special call to pass them en masse).

There you can understand the offer of more than 11 billion pesos in the last Treasury tender for very short-term securities to which only 2 billion subscribed.

The rest have been in passive repos for more than a month, losing heavily against inflation.