Interview : Javier González Fraga
How does Argentina’s current monetary policy impact the performance of the banking sector?
Javier González Fraga: Lowering inflation is one of the government’s key priorities. However, this is difficult to achieve, due to the distortions created under previous administrations. Argentina is transitioning from being a closed economy to an open market economy. Given the country’s strong fiscal deficit, the government has decided not to introduce large readjustments and shock therapy in public spending. Previously, this has proven to be ineffective in the long term and has severely affected lower-income segments of the population. Instead, the macroeconomic base of the country must be reformed.
Therefore, monetary policy remains the only available anti-inflationary tool. In this context, the only possibility of borrowing money comes from international sources, generating the sale of US dollars and the need for the central bank to absorb Argentine pesos – it is a dangerous and unstable situation. The task of the central bank in monetary matters is difficult and interest rates have increased significantly. This has important repercussions for Argentina’s banking sector. We have experienced very low growth in private sector deposits and a drop in some public sector deposits. That being said, we share the vision of the central bank, and we are confident the country will overcome the current challenges by pursuing its chosen path.
What can be done to increase savings in the Argentine peso and in turn to increase bank deposits?
FRAGA: There is a cultural aspect to this issue, in that Argentines typically seek refuge in the US dollar given the country’s recent history of hyperinflation and strong devaluations. There is no easy mechanism to revert the situation, rather the only option is to be patient, while consolidating a lower inflation situation where the public sees that it is more profitable to have savings in Argentine pesos than in US dollars. When analysing Argentina, one usually looks at the domestic figures, however, in reality we must also consider the wealth of Argentines abroad and we must encourage the reintroduction of those savings into the Argentine financial system. It is worth noting that Argentina recently carried out a programme which managed to expose almost $120bn in international markets.
A similar case happened during the economic expansion of 2003-07, when GDP growth figures were around 5-6% per year. In that period – with a fiscal surplus, low inflation and an attractive exchange rate – Argentines trusted the local economy and brought 20% of their savings from abroad, which led to a significant expansion of the economy. It is therefore possible to boost savings in Argentine pesos, but we need to generate trust in our currency over the long term. This does not have a significant impact on the current liquidity of the banks, as the country’s monetary policy is still far from causing problems in this regard. In fact, since the 2001 crisis in which the entire financial system suffered greatly, banks have had excessively liquid positions until 2017. Currently, Banco Nación has 30% of its deposits in cash, which is still very high by international standards.
How might small and medium-sized enterprises (SMEs) find greater financing opportunities?
FRAGA: Financing is an essential part in the development of any SME, but other aspects also matter. First of all, a competitive exchange rate is required, along with a reduction in taxes and labour costs. There are two other important factors to mention here, namely achieving a reasonable interest rate with longer terms and achieving the long overdue simplification of bureaucratic procedures. This is an complex issue in that it requires the greater involvement of technology and the digitalisation of current processes. There are a great deal of norms and regulations to manage, and some of our procedures still require up to 20 approvals. In this regard, the central bank has already done a lot to simplify the process, but more needs to be done.
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