– At the end of the year there were tensions on the dollar, are they temporary?
– The dollar is the thermometer of what is happening and there was a bit of a stir with the Court’s sentence, for the return of the shared funds to the Municipality. If the President changes his mind three times in one day, it creates an institutional security breach. And when people panic, they take refuge in the dollar.
– This week the soybean dollar ends 2, what can happen in the summer?
– The government doesn’t manage the drought but you must have a plan B. The problem is what you have control over and the most important thing is spending because taxes have hit a ceiling. You will charge more if you can reduce your spending and it is very difficult because it is very inflexible. What the Fund has done with the Economy Minister, Sergio Massa, is going well so far, it’s on the right track, but it’s not fantastic. There is no plan.
– Why not?
– I didn’t see a general equilibrium plan. The steps taken aren’t ridiculous, but they aren’t long-term. We need to adjust the structure of government, civil servants and transfers.
– Isn’t that what Massa did?
– Yes, but arbitrarily. There is a problem in the price and wage structure, tremendous rigidity, too much union power. Wages do not take into account the fact that there are many unemployed.
– The real wage decreased for the fifth consecutive year in 2022
– Because inflation is very high, not because wages aren’t going up. The trade union structure needs to be more orderly. Aerolíneas Argentinas has 17 unions, there is union competence to set salaries. Real wages must rise, but for productivity gains.
– And why doesn’t it happen?
– Over the past 70 years, the type of crisis has been recurrent: excessive public spending, high inflation, falling real wages, debt default, recession, large devaluation and then it starts again. It happened with military, civilian, Peronist and anti-Peronist, interventionist and liberal governments. In Argentina it is very difficult to compete without devaluing, and if this is not done there is a crisis and inflation returns.
– Is Massa changing expectations?
– People need to see results. At first glance, they’re better than expected because we got to the end of the year without a blowout and look at the low I’ve set. The downward trend in fiscal imbalance, inflation and some silver in reserves is fragile. It is no worse than in June. Some say Massa only lengthened the fuse but when she is about to explode this gives more time to see how she disarms herself. Argentina is important for the US against China and Massa has exploited it well. Debt used to be very complicated, even now, but he made the bomb smaller.
– Can elections put a strain on the economy?
– If drastic things are done or the opposition gets worse, there may be instability because everything is pinned together with pins. If they start helicoptering money, people will see worse.
– Can inflation be brought down?
– In this scenario, only if the need to issue pesos is reduced. It is the problem of fixing prices and wages, of competitiveness and of being able to save with very disorderly public spending. Not only the social plans, but also the simplification of bureaucratic costs in the public sector and not a little in the private sector. The other point is that there is talent to be productive, but lack of incentives.
– The government intends to lower inflation from 4.9% to a rate starting at 3% in April
– Inflation has been reduced but not to a sustainable level because it cannot be financed without increasing the amount of money. Also there are accounting tricks: the IMF has assigned the SDRs (special drawing rights) to the Central Bank, the Central has sold them to the government and the latter to the Central.
– And what about the debt of the Central Bank?
– It’s not broken. The fact that you have more expenses than income and liabilities than assets is not a good way to measure that because you have an asset that is not listed, which is credibility, the ability to print and put a number. Central can always pay, it can’t go bankrupt. The problem is when you go shopping, the liability has no additional impact, it’s accounting.
– And the reservations, are drawn?
– In some cases yes. There is something to worry about if you think there is an ideal level of reserves. They are needed to import what the country needs, cover immediate needs and defend the exchange rate. Not all reserves are mined, but there are mining. It is common in all countries, but the extent of usage can be part of the problem.
– How do you see the end of the year?
– The negotiation with the IMF went well, there is a momentary calm plus some effects on public spending, it was thought that the end of the year would not arrive and inflation was around 100%, it did not escape, all this gives a some calm, but in the short term. The problem is when the campaign starts, how it holds up until a plan is made. I dare not say it will go to hell, but it is necessary to show the public some improvement.
– The government set out to stabilize without devaluing, did it succeed?
– Poverty is on the rise and failed to keep wages high. You don’t want to gain competitiveness with low wages, like Bangladesh, but we are in the worst of the worlds: real wages have worsened and you haven’t gained competitiveness because you haven’t devalued and the structure doesn’t allow you to attract investment, it’s a circle. We need to gain competitiveness without devaluing, with more technology, little bureaucracy and good infrastructure.
– Can you make a shock, as the opposition proposes?
– I’m closer to the development idea. You have to have a plan, sectors that win and lose, Frondizi didn’t say that the government rules everything, but he had to open the door in many cases, which forced you to invest or not. You can’t build trust with a shock. People don’t believe that everything will change overnight. The plus is that the institutional framework was respected when Cristina lost the election to Macri. There hasn’t been a rupture like in Peru, even if its economy is doing better than ours and one of the most stable things is the president of the Central Bank. But Argentina doesn’t have someone to generate trust. Not even Cavallo could do it in 2001.
– So there are few tools to get out of the chronic crisis
– There are few of them, but they are there. Controlling public spending does not mean eliminating subsidies overnight. If you have people who have nothing to eat, you have no credibility.
Source: Clarin
