The Case for Argentina (III): An Overview of Economic and System Dynamics
TL;DR:
- The Debt
- Balance of Payments and Economic Management
- The Power of Banks and the Double-Entry System
- Economic Policy and Foreign Direct Investment (FDI)
- A Choice for The Future 𒋾
The Debt
Argentina has successfully honoured its recent obligations to the International Monetary Fund (IMF), in line with the schedule established in the Seventh Review of the Extended Arrangement under the Extended Fund Facility, confirmed last January.
The reviews, initiated in June 2022, typically conclude with a statement from the IMF’s Executive Board affirming the disbursement of funds to support Argentina’s robust policy efforts aimed at restoring macroeconomic stability and realigning with the program’s objectives.
“The Executive Board’s decision enables an immediate disbursement of around US$ x.x billion (or SDR x.x billion) to support the new authorities’ strong policy efforts to restore macroeconomic stability and bring the program back on track.”
Special Drawing Rights (SDR)
SDRs represent an international reserve asset, formulated by the IMF to enhance the official reserves of its member nations, encompassing potential claims on the currencies of key global economies like the US (dollar), Europe (euro), China (yuan), Japan (yen), and the UK (pound).
Following the latest review, $4.7 billion was disbursed to Argentina, bringing the total received under this arrangement to approximately $40.6 billion. Argentina now stands as the foremost debtor to the IMF, holding SDR 30,987,500,000 of the total SDR 111,098,471,190 issued, nearly 30% of the IMF’s total debt. The debt ratio of Argentina is 85% to GDP and US stands at 110% of GDP.
As stated by Luis Caputo, Minister of Economy, and Santiago Bausilii, President of the Central Bank of Argentina, in their Letter of Intent to the IMF dated January 18, 2024:
“We are committed to ensuring the timely payment of our obligations to the IMF, and to maintain all SDRs purchased in the context of the 7th Review (net of the amounts provided by the CAF associated with the December Fund repurchase) in our holding account for the exclusive use of meeting Fund obligations as they fall due.”
Argentina’s programmed payments stretch until 2042, totaling SDR 48 billion, approximately $62 billion. To manage these payments, Argentina aims for average $3.4 billion annual surplus in the balance of payments only to pay the debt and interest on the debt.
This way, with more debt, the previous debt can be honored and the 2024 payment agenda satisfied.
Balance of Payments and Economic Management
The balance of payments, a key financial statement, summarizes transactions between residents and non-residents, tracking currency exchanges and foreign reserves. Governed by double-entry accounting, this system ensures that every transaction is mirrored by a corresponding entry, maintaining equilibrium between credits and debits. Exactly like in every company in the world.
Annually, the IMF’s Balance of Payments and International Investment Position Manual provides guidelines on classifying a country’s assets and specifies SDRs and currencies as debt instruments.
The Ministry of Economy projects a $10 billion surplus by the end of 2024 on his letter of intent, which would cover about 30% of this year’s financial obligations. This projection underscores the substantial economic challenges and the strategic financial management required to stabilize and grow the Argentine economy.
As Argentina transitions from its national currency, the Peso, to the US Dollar, the parallel impacts on both economies are profound and dramatic. The Dollar serves as collateral for the Peso, leading to a concurrent decline in purchasing power for Argentines as experienced by the US economy. This shift occurs in a context where the US has eliminated its debt ceiling, now standing at $34 trillion, with proposals from some economists to mint a trillion-dollar nominal value platinum coin to solve the mess. Despite these measures, the US has seen a modest net GDP growth of less than 3% over the past two decades. For Argentines, the burden of debt repayment is an onerous one, a sentiment echoed globally by anyone who has experienced indebtedness.
The Power of Banks and the Double-Entry System
Banks wield significant power in the economy, capable of creating money through ledger entries. The foundational principles of the double-entry system dictate:
- He who receives owes to him who gives.
- There is no debtor without a creditor, nor a creditor without a debtor.
Unlike typical corporate accounting, where transactions must reflect prior holdings, banks operate uniquely by recording entries on both sides simultaneously. This capability is why in some countries, banks are still referred to as credit institutions — a bank lender need not possess what is lent but gains economically from this unique ability.
Commercial Banks, Central Banks, Regional Banks, Cooperative Banks, and Multilateral Banks issue tokens with debt as collateral, underscoring our debt-based monetary system. The quality of the underlying debt determines the stability and viability of this system. In countries, surplus generated by the economy is earmarked for debt and interest payments, making it evident that a debt-free nation could vastly improve its citizens’ welfare. The quantity of foreign assets in relation to the monetary base determines de exchange rates of the currency. And the rates determine the amount of foreign reserves you need.
Economic Policy and Foreign Direct Investment (FDI)
The primary concern for any Chief Economic Commander is the formulation of monetary policies that enhance economic growth. When banks control the creation and allocation of money within the economy, and you can’t guide that activity to allocate money to small and medium size enterprises, external capital — through foreign investment — becomes essential for stimulating economic development by integrating capital, labor, land, and technology to produce goods and services.
Unfortunately, empirical studies by Prof. Jorge Bermejo and Richard Werner, featured a few times at the SORA Economic Forum, suggest that favorable scenarios for FDI do not necessarily spur economic growth. Instead, credit extended for financial markets or consumer spending only temporarily boosts the economy, leading to cycles of economic expansion and contraction based on credit availability
If the economy cannot grow through FDI because investors withdraw their reserves at the first sign of profit, and if commercial banks fail to finance the productive economy, then nations are compelled to increase their indebtedness to meet short-term obligations. With recent visits by major New York bankers to Buenos Aires, expectations are that the stock market will maintain its highs until these cycles cease.
The imperative to halt inflation in Argentina and eradicate institutional corruption is paramount to unshackling the country from the burdens imposed by non-serving public servants and to unlock its full potential. The path forward must integrate short-term remedies with long-term strategies, thereby aligning immediate economic stabilization with enduring prosperity.
This strategic reorientation towards managing both the domestic and international financial landscapes exemplifies the pressing need to reimagine monetary policy in ways that leverage both traditional economic frameworks and innovative technologies such as blockchain. This is not just a fiscal imperative but a foundational shift towards a more equitable and productive economic future for Argentina.
The time has come to address the foundational challenges facing Argentina’s economy. With a history of dependence on traditional financial institutions such as the IMF, CBRA, and the Paris Club, Argentina now stands at a crossroads.
A Choice for the Future 𒋾
Argentinians face a pivotal decision: continue on the path dictated by conventional creditors or embrace a revolutionary shift towards the First Blockchain Monetary System, SORA. This innovative system proposes a decentralized, debt-free structure supported by reserves secured within a Token Bonding Curve smart contract. Part of the reserves are backed by labour, that together with technology, conform the minimal requirements for a productive economy.
SORA is a dynamic system designed for the common good. A decentralized bank with on-chain democratic allocation of new money that runs on a high-tekk substrate blockchain. A neutral payment infrastructure that provides instant and trustworthy settlement that at the same time is building bridges with crypto economies and fiat economies.
From Theory to Practice
While Galileo dropped a weight off of the Leaning tower of Pisa to show that gravity causes objects of different masses to fall with the same acceleration, SORA in the 21st Century deploys state-of-the-art technology, an economic model and governance structure that will demonstrate the Disaggregated Quantity Theory of Credit/Money by Prof. Richard Werner, in a similar way how the 1918 Eddington Experiment demonstrated the 1911 Einstein predictions about the gravitational deflection of starlight passing near the Sun, also known as the general theory of relativity.
The deployment of the XOR currency within this system will not be merely an addition to the financial landscape but a transformative element designed to integrate seamlessly with Argentina’s economic fabric. Unlike foreign assets that stand apart from local dynamics, XOR is poised to fuel genuine growth in the nominal GDP by catalyzing the creation of goods and services.
This modern approach redefines economic interactions, emphasizing fairness and accessibility.
With Argentina’s balance of payments showing signs of a surplus, the nation is urged to consider the composition of its reserves carefully. This critical juncture calls for strategic thinking about the types of reserves that will best support sustainable economic growth and stability.
In redefining its economic framework through a blockchain-based monetary system, Argentina could not only resolve its immediate financial dilemmas but also set a course for long-term prosperity and towards freedom.
This pivotal transformation promises to empower Argentinians with control over their economic future, ensuring that the nation’s economic health is robust and resilient.
Embracing a supranational currency like XOR represents a paradigm shift towards a more open and uninhibited trade system. This shift eliminates the need for selling national assets to foreigners via foreign direct investment, fostering a more self-sufficient and controlled economic environment. By joining a supranational economic system, Argentina can engage in international trade more freely, reducing reliance on external economic pressures and enhancing its sovereign economic policy.
About SORA
SORA is an innovative, adaptive, non-debt-based monetary framework that facilitates economic stability, particularly for financially vulnerable countries. As a groundbreaking platform, SORA exemplifies the potential of blockchain technology in fostering a more inclusive and stable global financial system. Its integration in projects like the Bokolo Cash CBDC signifies a new era in digital currency, aligning technological advancements to achieve broader economic stability and resilience. Through its unique approach and capabilities, SORA plays a pivotal role in the evolution of global finance, particularly by supporting economies that need innovative and sustainable financial solutions the most.
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