Crowding Out | CEA Perspectives

By Centro de Economia Aplicada

Perspectives' column for October 2021. This section of the Center for Applied Economics (CEA) of UCEMA offers an analysis of prominent economists, with different orientations about economic problems of our country and the world.

The plan to pay off the debt is to grow. The plan to reduce the fiscal deficit is to grow. The plan to lower inflation is to grow. The plan to reduce poverty is to grow. It seems that the solution to everything is economic growth. Unfortunately, we do not grow. The causes of the economic stagnation (to be generous) that has trapped us since 2011 are undoubtedly many, but today I want to focus on one: the lack of credit to the productive private sector.

To grow you have to invest. If an entrepreneur wants to invest, he has two paths: he can use his own funds or he can resort to the capital market and obtain funds from third parties. The Argentine capital market is non-existent. According to the World Bank, the market capitalization of all publicly listed companies in Argentina is equivalent to 8.8% of GDP. In Brazil, the market capitalization is equivalent to 68.4% of GDP, in Chile it is 73%, in China it is 83% and in the United States the figure reaches 194.5%. It is clear that getting stock market funding is impossible in our country. Another way to get funds is to go to a bank and borrow. However, as we will see below, this is not so easy.

In order for a bank to lend money, it has to get deposits. Deposits in banks have been falling continuously, from a maximum of 20% GDP in 2004 to a floor of 12% in 2019. Although there was a strong recovery in 2020 due to the pandemic, it seems that we are rapidly returning to the pre-pandemic trend. For comparison, in the United States, deposits in banks increased from 65% to 80% of GDP in the period 2004-2019.

In Argentina, we have the additional problem that the private sector has to compete for scarce bank credit with the public sector. In 2004, credit to the private sector represented 30% of deposits and 6% of GDP. Thanks to the fiscal surplus of the early 2000s, the financing needs of the public sector subsided and loans to the private sector grew to a peak of 70% of deposits and 12% of GDP in 2013. In 2014 the private sector had to once again compete strongly for credit with the public sector, but this time with the Central Bank.

In December 2013, the remunerated liabilities of the BCRA (net repos, Lebacs, Leliqs, etc.) represented 3% of GDP, 19% of deposits, and 28% of loans to the private sector. At the end of 2017, remunerated liabilities had grown to 10% of GDP, 72% of deposits and 97% of loans to the private sector. Remunerated liabilities of the BCRA came to represent 5% of GDP, 37% of deposits and 67% of loans to the private sector in the fourth quarter of 2019, after the currency crisis. Since then, they have increased again to 8% of GDP, 48% of deposits and 120% of loans to the private sector. For those who are not good with percentages, let's state that in pesos: as of October 18, 2021, loans to the private sector were 3.4 trillion pesos, while on that same date the banks lent the BCRA a total of 4.3 trillion pesos. So we Argentines are lending more than half of our deposits to the Central Bank instead of lending to other Argentines.

Unfortunately, the sad story of the entrepreneur who wants to get a loan to invest does not end here. Deposits are low, less than 20% of GDP, and more than 60% go to the BCRA. Of what remains for the private sector, the majority is used to finance consumption with very short-term loans. Pledge loans represent 6% of total loans to the private sector, personal loans 17% and credit card financing 29% of the total. In other words, more than half of the loans (52%) are to finance grocery purchases, televisions, cell phones, motorcycles, and, eventually, a car. The other 48% is made up of 8% of mortgage loans and 11% of current account advances. Which only leaves us 30% of the total of the very small loans to the private sector to finance productive investment. Given that loans are less than 40% of deposits and these in turn are 15% of GDP, then we are talking about 1.8% of credit GDP that is channeled by the banking system to finance growth. Turn off the light.