Juan Cuattromo, head of Bapro: “When doing economic policy you have to be pragmatic”

– Is it a good time for companies to take out a loan with these levels of inflation?

– Production grows and this is reflected in the statistics of the activity. On weekends there is a tourist movement, the balance sheets of companies that ask us for credit are robust and the share of loans to companies in the portfolio has gone from 7.5% to over 11%, focusing on the SME sector.

– But how does a company expect to return inflation with 90% inflation?

– There are companies that have the ability to transfer the different costs to their pricing structure. A productive investment credit at a fixed rate below inflation does not generate suffocation for productive activity. I don’t think the financial burden of credit is delaying investment projects.

– But doesn’t the bank run the risk that a rapid increase in the rate of inflation could erode the ability to repay the debt?

– It depends on how the income of the borrower evolves. At the moment, both in our bank and in the general financial system, we see a decline in delinquency in the business segment and we see that credit leverages assets.

– Has not the acceleration of inflation in recent years further complicated the benefits of the financial system?

– Today Argentina has a solvent financial system with high liquidity. But it is a small system and not the size of neighboring countries. For this, we must solve the problems of our macroeconomics and our institutions. Now, if the question is, has the acceleration of recent years made the financial system smaller? I would say that it is something more structural because since the return of democracy the financial system has not shown levels like in other neighboring countries.

– Do you see measures to lower inflation?

– The challenge to lower the inflation rate is in the medium term in Argentina due to the inertia it brings and which requires consistency in the external sector as a starting point. If we fail to channel the dynamics of the external sector of the economy, we will be subject to exchange rate instability.

– Inflation would close the year close to 90%, what do you mean by lowering it “it’s a medium-term challenge”? Isn’t that something urgent?

– I mean that disarming the inertia factors is not solved in a few months but requires readjustment behaviors in the definition of contractual guidelines such as parity, fees, credits, etc.

– Do you see a descending path?

– We had to stabilize the economic process and give centrality to the management of economic policy by the Ministry of Economy in order to be able to operate on expectations and on the various variables. These steps are in progress. The hiring of Sergio Massa and the centrality of the economic process by the Ministry of Economy to anchor expectations are a first step. The first measures were in the sense of ordering to stabilize a dynamic in the foreign exchange market. All this must materialize in a descending nominality.

– But aren’t the removal of subsidies and the rise in rates inflationary?

– Exchange rate calm is a first measure to lower inflation. Sure, costs are one of the variables that drive prices, but inertia and expectations also play a role. By stabilizing the foreign exchange market, signaling a path in which economic policy has a centralized leadership, we can see a horizon in which nominality falls.

– Isn’t Massa following Guzmán’s plan? What are the differences?

– I will not dwell on a name controversy. I believe that economic policy tools are political tools and it is not just the way they are implemented, but also the way decisions are validated and executed in a coalition government where there are different actors. The latter could bring some noise and is not a personal consideration for anyone. So the tools need to be validated against political criteria because this is how a ruling coalition works and what we see today is greater consistency when it comes to validating decisions. Now no one can predict a war or a pandemic or a drought.

– Is the way out of the crisis orthodox?

– I do not identify the instruments of economic policy with a certain type of economic position or tradition because we could also discuss what is orthodoxy and what is heterodoxy.

– But you call yourself a heterodox economist

– Yes, but when doing economic policy you have to be pragmatic. The execution of economic policy is one thing and another is that it can reflect academically or conceptually. I think it is important that beyond the tools we use, our control variable is the living conditions of workers and a situation of adjustment cannot be recharged on this sector.

– The first measure of the Minister of Economy was to ratify a reduction in the fiscal deficit for this year, the same thing that Guzmán said and was signed with the IMF.

– If you look at the economy, there is public spending and private spending. Quietly, public spending can be reduced and offset by an increase in private demand. To say that any reduction in the government deficit is an adjustment is to ignore how private spending responds. At the end of the road, what matters is whether the economy grows and creates jobs.

– So you agree that reducing the fiscal deficit can be expansive?

– In certain contexts, yes, and on a conceptual level, yes.

– And also on a practical level.

– Yup.

– Even the Orthodox say so.

– On a theoretical level everything has been said and there are more answers. From authors such as Alberto Alessina, Keynesians and post-Keynesians support this view. But our goal is to improve the conditions of the popular majority, it is the motive of our government, and in some respects it has not materialized. We must see that wages do not lose with inflation and that jobs continue to be created.

– How do you get the camp cleared more?

– Instruments can be constructed in such a way that, even by paying the official and agreed exchange rate, these pesos are inserted into an investment with hedging of the exchange rate. If there is a vocation of the sector to understand the macroeconomic needs of the country, it is possible to build tools that are not only for exchange. We can work with financial resources that allow them to guarantee producers the same coverage they would have by holding back production with soybean funds.

– And the devaluation?

– In this context, a devaluation would contribute more as an acceleration of inflation than as a stabilization of the exchange rate. Sometimes the dollar price is referred to as the price of another commodity and that it is organized like the supply and demand for tomatoes. The dollar is a financial asset and spiral dynamics can be generated. If this were not the case, there would be no bubbles or sudden devaluations.

– Do they accompany the rise in BCRA rates?

– Yes. The rates defined by the monetary authority form the framework of the bank’s activity. Our role as a public bank is not to maximize the bank’s profitability, but to offer better services at the lowest cost and to be accountable.

By Axel Kicillof and to celebrate the bank’s 200th anniversary

Juan Cuattromo is an UBA economist and from there he accompanies Governor Axel Kicillof. He was with him in Economics and then for a year he was director of the BCRA. Today he presides over Bapro, which turns 200 this year. “Banco Provincia reaches its Bicentennial with an unprecedented level of solidity since the beginning of the 21st century: solvent, liquid, with low levels of delinquency and good results”, says Cuattromo. “The agri-food sector in terms of production financing is our main customer”. Three out of four credits go to SMEs.