-I have no idea, José Luis. We don’t know how.
The dialogue took place in October 2000 between José Luis Machinea and Stanley Fischer, Argentine Minister of Economy and number two at the Monetary Fund. They met in Washington weeks after the vice president of the Argentine government, Carlos “Chacho” Álvarez, He would knock on the door and resign from his position. claiming that pro-government senators had participated in an act of bribery to pass a labor reform bill in Congress.
The market reads the vice president’s departure with concern because without political power the government would not be able to carry out reforms that, it was believed, would energize an anemic economy, in recession and with an appreciating currency that would make the export sector uncompetitive for generating dollars and strengthening reserves (something fundamental in adollarizing convertibility scheme). Therefore, The agenda at that time was to reduce the cost structure of companies, and the labor chapter was important among the structural reforms. But also, and no less importantly, it was one of the conditions required by the IMF to release an outlay of 7.4 billion dollars.
Two weeks before Álvarez’s departure, at the IMF Assembly in Prague, IMF Director Hörst Köhler asked Machinea about the future of convertibility.
-What are you going to do? Everyone tells me that Argentina needs to devalue.
Machinea did not respond.
When the vice president resigned a few days later, returning to Buenos Aires, the views of investors such as Goldman Sachs or Lehman Brothers, who owned Argentine securities, They began to change and the economic team’s alarms went off. Country risk increased by 200 basis points in two weeks and reached 800. “It was the beginning of the end”recalls the economist and analyst Alberto Ades, then at Goldman.
Daniel Marx, then Minister of Finance, spoke the next morning from his economics office with the US Treasury about what a few months later would be known as the term protection: financial aid of almost 40 billion dollars divided between the contributions of banks, private investors, on the one hand, and the IMF and other international organizations, on the other, and which Machinea would announce argue that Argentina would strictly maintain the parity 1 dollar = 1 US dollar and would not devalue.
But market doubts and uncertainty about the government’s ability to truly support convertibility They came from before Álvarez resigned. Even the fights between a president and his vice influence, as happened in Machinea, the actions of the Ministry of Economy. The fact is that Duhalde, Carlos Menem’s vice president who wanted to become president and ran in the 1999 elections (and who would have lost to De la Rúa), had said that convertibility was exhausted and that he had to leave. Subsequently he relativised his statements because he realized that the market had not taken it well. But there was no doubt that that was what he thought, as did his economic reference, Jorge Remes Lenicov. Note: Duhalde, when he assumes the Argentine presidency after the crisis that will arrive at the end of 2001, will dictate the exit 1 to 1 and Remes will execute it.
But returning to the Menem-Duhalde era and their clashes, Menem’s Minister of Economy, Roque Fernández, had to go on a tour abroad with the main economic references of the candidates in the 1999 elections (including Machinea and Remes) , explaining that they would maintain convertibility.
Machinea was affected by Álvarez’s departure and the Alliance’s political crisis. Not only because the financial engineer’s time needed to shore up the reserves and the 1 to 1 that would lead to shielding would have been accelerated, but also because this would have altered the dynamics of the very economic team that was in Economy at the time. The vice president came from Frepaso (one of the political parties that made up the Alliance that governed between 1999 and 2001), and without him at his side, De la Rúa had less commitment to supporting Machinea, who served as a liaison between the UCR and Frepaso himself. Machinea was a trusted man of the UCR leader, Raúl Alfonsín, with whom he had worked in his government until 1989.
Only 73 days passed between Álvarez’s resignation and the announcement of the shield. And immediately after, Machinea’s departure. Conflicts between presidents and vice presidents can be harmful.
Source: Clarin
