Miguel Kiguel: Argentina currently has major imbalances on different fronts. On the one hand, there is an imbalance in the external accounts, with a problem of balance of payments. The BCRA reserves they are very low and there is no clear prospect that this will be reversed because that would imply important changes in exchange and monetary policy, among other things. I believe that this is the point that most restricts economic policy today: the fact of not having reserves. Secondly, we have very high inflation, which, apparently, in this first quarter of the year, is going to continue like this. There is no prospect that it will stop, even though Massa said that he wants to take it to around 4 or 3%. It will be very difficult for me to achieve it. Because? Because Controlling inflation that is so high and that has been at these levels for so many years cannot be achieved solely through coordinated price agreements, but requires a much more comprehensive approach. And then there is a domestic debt problemSerious, but manageable. Very good progress was made with the voluntary trade and I think, despite all the talk, it was made clear that it is an issue that can be controlled.
For me, those are the three main themes for this year, although, later, there are other problems, such as the fiscal deficit, the prices of the rates and the impossibility of accessing the international market. And then there are some that are more long-term, like poverty and the economic stagnationwhich has been going on for more than ten years and is associated, at the same time, with the lack of investment.
Q.: You mentioned Minister Massa and the difficulty he is having to control inflation, how do you evaluate his management? Do you think he achieved economic improvements?
MK: I think that Massa took office at a critical moment when there was a great risk of some kind of turbulence. important, with reserves falling sharply and inflation rising sharply. And, during the first three months of his management, it seems to me that he pretty ordered macroeconomics. He managed to add foreign currency to the reserves with the soybean dollar 1 and 2 and the deficit was reduced, but only slightly, but inflation is a problem that, for the moment, has not been resolved. Consequently, now we enter a second stage in which the management of Massa appears more complicated. It is, more than anything, about managing the economy until the end of the year without any disruptive movement happening. I think the government could achieve it, but the biggest threat is the issue of reserves, where drought is a very serious problem today. Because, without reserves, the country cannot grow.
Q.: Why can’t the economic team control inflation? What are you doing wrong?
MK: Inflation is a complex problem. It is not the first government that thinks that it will be able to lower it easily and it does not succeed. It was not easy for Macri, nor was it for Alfonsín and, in this government, it was not easy for Guzmán either and it is not being so for Massa. Why is so difficult? Because, in order to lower inflation, it is necessary to achieve a series of preconditions: one of them is that tax policy be congruent with existing funding. And the truth is that, no matter how much the deficit has fallen, the only financing that exists is that of the BCRA. That is, although we have a smaller deficit (in fact, the primary can be around 2.5% of GDP), the truth is that, when there is no financing, as is the case now, any number is enormous and that is a problem for inflation.
Then there is a problem with the relative prices. One knows that the exchange rate is behind, there is no doubt. This is an issue that must be corrected and it is a inflationary process. Prices continue to rise, in line with the dollar, and the exchange rate is adjusting, generating a significant inflationary inertia. And the same goes for salaries. Workers cannot lose purchasing power and that is why the unions carry out the joint ventures, which increase costs, in a context in which, if one item does not increase, others do, such as prepaid, food, etc. Always, a new rise.
Q.: And how important is politics in this battle against inflation?
MK: Right now, a lot. It is an electoral year, in which some electoral measures tend to increase spending. One of them is, for example, the pension moratorium, which generates more need for pesos. Although it is not yet known how much the total demand will be yet, because it is unknown how many people will join, for the moment. And, on the other hand, it will be very difficult for the government to stand up, in an election year, in front of the unions and tell them that they are not going to raise wages because there are problems with inflation.
Q.: Thinking of 2024, what should the new government do?
MK: The first thing you should face is start normalizing relative prices, especially in the foreign exchange market, which is clearly not working. Controls must be removed and all import privileges that exist at discount prices must be eliminated. And, in that train, the issue of tariffs must be adjusted, because the subsidies continue to be very large. A country cannot continue giving away energy when it urgently needs to make investments and that money could be invested in very important issues, such as social issues, to combat poverty, improve education, etc.
Argentina should have a program that combines orthodoxy with heterodoxy. For example, a lot of fiscal and monetary orthodoxy is required, and, surely, price and salary agreements must be made on the other hand. This would be a kind of Fair Prices, but broader. I believe that it is something that the incoming government will be able to achieve, only if it has the necessary political power to do so.
Q.: You often give as an example the plan that Israel implemented. Would it be something like that?
MK: Yes. Argentina did it in 1985, with the Austral Plan, but it didn’t work out. The plan that Israel made was an effort of all sectors to combat inflation. All sectors had to put something in and, here, the same should be done, a comprehensive plan, which is perceived as a serious commitment from all sectors, serious, well designed and looking at the international context.
It would also be very positive, to give it greater credibility, an IMF grant in financial matters. I think currently the Fund is trying to keep a program to a minimum. They do not want the economy to return to balance, but rather they have been applying measures in homeopathic recipes. We have never seen a program of the IMF that tolerates the existence of different exchange rates, for example. What they do is wait for the change of government to apply a stronger program, with a more orderly economy than the current one.
Source: Ambito
