Alfredo Romano and Emilio Ocampo, one of Milei’s candidates to preside over the Central Bank (BCRA), wrote the book “Dollarized Argentina. Perspectives for a new economy” (Galerna publishing house) and they presented it last Thursday.
The event took place one day before the announcement by the Minister of Economy Luis Caputo and the president of the BCRA, Santiago Bausili, linked to the entry of a second phase dedicated to the elimination of the issuance of interest-bearing liabilities of the BCRA. It is a step towards the strategy announced hours before by President Javier Milei: a change in the monetary scheme that ends with a “natural” dollarization, according to the president.
In that context, Ambit He spoke with one of the two authors: Alfredo Romano. The head of Romano Group holds a degree in Business Administration, a Master’s degree in Finance (University of San Andrés) and a Master’s degree in Public Policy (Columbia University). He currently directs the Bachelor’s Degree in Business Economics and the Diploma in Capital Markets at the Universidad Austral.
A firm defender of dollarization, Romano considers that the Adoption of the dollar as legal tender is “the most realistic and pragmatic alternative” to resolve inflation. His model for implementing this scheme is the one applied by El Salvador. However, he points out that in this process “the peso is not eliminated” and the BCRA remains, although with a passive role in the monetary aggregates. Within the framework of Milei’s statements on a new monetary scheme, he affirms that the disinflationary processes without very inflexible monetary regimes are “long and tortuous.”
Q- Six months into his administration, do you think Milei is still sticking to his dollarization plan – including the elimination of the BCRA – or is he opting for an intermediate path? If so, why is dollarization the best alternative?
A- I believe that the president is very clear that populism can and will surely govern Argentina again. To definitively limit monetary indiscipline, it is a necessary condition to advance dollarization, capable of limiting the governments in power from using the BCRA as a blank check. Dollarizing is the most realistic and pragmatic alternative we have to resolve the inflation and macroeconomic instability that has plagued us for 50 years. There is a World Bank report that shows that the Argentine economy was the one that had the most recessionary periods from 1960 to date.
Q- What country do you think should be used as an example for implementing dollarization? Do you think that, given the current economic plan, dollarization could occur this year? Or during this administration?
A- There are different ways to dollarize. Once the dollar is legal tender in Argentina, I believe that the way forward will be to voluntarily offer the exchange of currency in the first instance, and then complete the complete dollarization of the economy over time, as El did. Savior. Society will end up opting for hard currency, but this will happen over a longer period of time. It is important to note that in this process the peso is not eliminated, but rather the domestic monetary policy remains inert and the BCRA has a passive role in monetary aggregates, among several other technical issues.
Q- Is the industrial growth of a country compatible with a dollarization model? Because?
A: Absolutely. What has already proven to be incompatible was the extreme macroeconomic, monetary and exchange volatility in achieving an expansion of the national industry. If one looks at history in the late 70s, industry represented 29% of the GDP of our country; since that peak it has only fallen and for more than a decade it has been at levels of 20%. This demonstrates in a forceful manner that it is not a discussion of exchange rate but of other factors that determine whether an economy can be productive and industrialized. Among the factors I consider stability with low inflation as an unequivocal condition, added to other factors such as investment, the development of human capital and knowledge, added to technological factors and a pro-investment tax matrix.
Continuing to discuss in our country the exchange rate as a determining factor to give competitiveness to our economy is a profound error.
If one looks at other economies, such as Germany, it is highly industrialized, has an inflexible monetary regime (EURO) and has a very high degree of productivity with salaries in hard currency. The aspiration should be to imitate these countries.
Q- How do you read the announcements that Caputo and Bausili made yesterday regarding “phase 2” of the economic plan? Did you think it was enough or did it leave little taste?
A- The inheritance that the government received was much more complex than the one that Macri received in 2015, since it was already a heavy inheritance. Understanding that this economic team has only been governing for 6 months and USD 17 BILLION of reserves have been purchased, in addition to achieving a financial surplus during the first five months and being under a hyperinflationary spiral, there is still a lot to do.
It is very important to highlight that disinflationary processes without very inflexible monetary regimes are long and tortuous. It took Uruguay almost a decade to lower inflation from 112% to 9.8%. This shows that the battle over inflation has not been won by any means and it is important to be able to communicate that to society. In that sense, I understand that it is essential to have sufficient flexibility and reflexes to make decisions that are appropriate for the precise moment.
Q- Do you think that Sturzenegger’s entry into the economic area can accelerate the path to dollarization?
Federico is going to work on the micro. I don’t think he’ll get involved in the macro.
R- What do you think this second stage of the economic plan has to include?
A systematic accumulation of reserves or the lowest possible loss, with a gap at levels of around 20%. A widening gap further limits the accumulation of reserves at the time and can generate even greater anxiety in the markets, reflected in country risk. Argentina must pay amortizations and interest in the coming months until January 2025, therefore, it is essential to take care of the level of reserves. Finally, the exit from capital controls has to be to advance the dollarization regime that I mentioned earlier.
Source: Ambito
