Miguel Kiguel: I believe that the goals for the first quarter will be met, there will be no problem there, especially the goals of the program, those of accumulation of reserves, of fiscal deficit, of monetary issue. Inflation is clearly higher than the one used in the program and so is the real exchange rate. Therefore, I do not see problems for the disbursement of the first quarter. It seems to me that everything will be fine there, but this review also looks at how the second goal is coming, which has not yet been closed.
Q.: What can the IMF look at for the second quarter?
MK: The Fund is going to look and suggest things according to how the Argentine economy is evolving. And there I see some complex points. One of them is the reservations, where there is a detour. Accumulation is very slow, in fact, at the best moment of liquidation, the Central Bank is unable to accumulate the stock. Fiscal numbers are also likely to be adjusted. The fiscal aspect seems difficult but not impossible and in monetary matters, that there was a limit on how much the BCRA can finance the Treasury, that is going to be fulfilled.
Q.: Do the goals have to change?
MK: Based on statements made by the Fund, I believe that what the agency and the Argentine government are going to do is somehow rebalance the goals. In what sense?. The goals for December will remain as they were, but the quarterly setting of the goals will be changed to give the Government time to take the measures it deems necessary to comply. The greatest demand would be towards the end of the year. The other thing that will surely be done is that since inflation is higher (the program was designed with an inflation of 43% and the REM says it will be 72.5%), change the nominal goals. They are going to be recalibrated although in terms of GDP they will remain the same.
Q.: One of the legs of the program is the ability of the Treasury to finance itself in pesos, but the market buys debt in terms that do not exceed the second half of 2023 for fear of a re-profiling. Is that possible?
MK: In Argentina everything has happened but you have to see the numbers. One thing is what can happen and another is the numbers. The truth is that the Argentine debt both in pesos and in dollars, in a normal country, should not cause concern. The debt in pesos is 7% of GDP, which is a small number, and the debt in dollars is 15%. These are numbers that should not worry.
Q.: But the market doesn’t seem to see that…
MK: What happens is that there have been rumors that the debt in pesos is large. Unfortunately, in its first report, the Fund expressed some concern about the debt in pesos. It is very important to see what he says now on that subject. There may be some changes, and in that sense, since today the government is weak, with problems generating credibility, all kinds of rumors appear. Now, I say that with reasonably good management I believe that the debt is refinanceable. A recasting would be a very strong blow to the capital market, I’m not saying it’s catastrophic. Today we have the external financing closed and the only thing that remains is the internal one. If you give the internal market another coup de grâce it will be very difficult to generate a market and the truth is that there are many instruments and ways to avoid it.
Q.: It seems, according to some analysts, that the doubts would be with the next government in the event of a change of political sign…
MK: Obviously there have been people from the opposition who have come out with unfortunate statements. But I think that today a re-profiling of the debt is not convenient for anyone, neither for the ruling party nor for the opposition. To the opposition, which is the most likely scenario that the market sees, in the event that it assumes it will need financing in the event that it finds imbalances, even if it is transitory and it does not have to resort to the Central Bank.
Q.: How do you see inflation for this year?
MK: Inflation is a very uncertain thing. The truth is that there is no clear policy to lower it. Monetary and fiscal policy and a political commitment from the main actors to support this program are needed. There have been many successful shows that were based on that. They are programs with income policies but they have an orthodox monetary and fiscal component that makes them consistent and gives the signal that the Central Bank does not have to issue to finance the Treasury. And an income policy that generally, when it works, does so as a coordinating element, not as something repressive. It is not that the Secretary of Commerce comes out and threatens them that they are going to send the inspectors to see that they comply, but as an element similar to a pirinola where “everyone puts in”.
Q.: Is there a possibility of returning to something like convertibility?
MK: In a future program there may be many options, but the important thing is that this is what we were talking about. There has to be a clear message with fiscal policy, a clear message with monetary policy with the interest rate, and then to that I add convertibility, I add income policies. Each of these issues will have to be resolved. Dollarization is very controversial and we have already experienced convertibility, which makes it very difficult to sell it again. But it is for another time.
Q.: Would the Central Bank have to accelerate the rate of devaluation?
MK: The central problem of Argentine exchange policy is the gap. With a gap of 70%, no country can accumulate reserves. At the best time, which is April, May and June, Argentina accumulated very few reserves in the Single Free Exchange Market. What Argentina needs is a strategy to close the gap and put the exchange rate at a more competitive level than it is. I think it’s a matter of opportunity. I do not see that the conditions are given, due to the political situation with all the disagreements that exist in the Government, to attack all fronts. What it can do is raise rates, which would be like a balm. Accelerating the crawling peg so as not to have the delay that existed at the end of the year, recovering a little would be good, but it will not be enough for the gap to fall much.
Q.: Is the economy slowing down?
MK: When you look at the factors that help it expand, in general almost all of them are retracting. Credit is getting more expensive even in nominal terms, which makes it more difficult for people to qualify for loans. Inflation in these months has beaten wages, so there is a drop in purchasing power and the fiscal restriction is starting to hit. Statistically there will be growth. We have that for the year it will be 3.5%, but basically it has already happened, we could say.
Source: Ambito
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