Fausto Spotorno: “If the Government fails to break free from the trap, its lack of credibility will cost it dearly”

Fausto Spotornodirector of Orlando Ferreres’ consultancy and former advisor to Javier Milei, joined the group of economists who argue that the economic team has entered a kind of countdown in which it must remove foreign exchange restrictions. “If the Government fails to get out of the trap or the departure is delayed a lot, The lack of credibility will cost you a lot”he warned. Although the official discourse seems to be moving the goal further and further away, he said that this should happen by the end of the year or, at the latest, before March.

He did so during a talk he gave at a luncheon at the Rotary Club at the Libertador Hotel, where He argued with the President on his statements regarding the possibility of growth with restrictions. In addition, He referred to his departure from Milei’s Council of Economic Advisers and said: “The Government would have liked us to operate as public officials.” without being so”.

Surrounded by businessmen, who were finishing an appetizer of Neapolitan-style eggplants, Spotorno spoke about the economic scenario, analyzed the roadmap for Luis Caputo and said that “the main challenge is to get out of the trap.” Beyond sharing certain central aspects of the official plan, his presentation was marked by some counterpoints regarding the latest moves by the Executive.

Fausto Spotorno, Javier Milei and growth with restrictions?

For the consultant, it is necessary to remove the exchange restrictions because “they affect investments.” He said that investment in Argentina today is at 15.9 points of GDP, which is what the amortization of capital costs per year. “It is a sign that with exchange restrictions there is no growth. Argentina never had economic growth with currency controls; what he had was rebounds or whatever you want to call it,” argued Spotorno.

So, He got into a controversy with one of the president’s latest statements. After the Government gave various signals that established in the market the idea that exchange controls could extend beyond the legislative elections of 2025, Milei stated two weeks ago that “it is false that with the exchange controls you cannot grow”, an expression with which he contradicted his countless statements to the contrary.

“The President said that it is possible to grow with restrictions; I think it is doubtful, difficult”said the director of OJF & Associates. And he appealed to the classic liberal textbook: he said that the idea that someone would inject capital into a country with capital controls is like thinking that a person could voluntarily decide to go to jail knowing that they will not be allowed to leave.

The deadlines to get out of the cepo

As he had done on other occasions, Spotorno maintained that the Government had in fact put together a transition plan. “This was not Milei’s plan.”he said. He recalled that, during his campaign, the current president spoke of dollarization, deregulation, opening up to the world and lowering taxes, but he stated that “what we have seen so far is fiscal adjustment as much as possible.” He maintained that this first phase of the plan is 80% complete and that a second phase of ordering the Central Bank is underway, which consists of the Treasury taking charge of its debt.

In line with the scheme announced by Caputo, he said that The third phase must be the lifting of the restrictions. But he raised his concern regarding the timing of this opening.. This is an aspect on which the Government is trying to appear relaxed in order to calm the anxieties of some sectors of the City and the business community. Negative net reserves and a series of measures aimed at containing inflation to the detriment of the possibility of accumulating foreign currency are the main warning lights that are worrying the market.

For Spotorno, it is true that the conditions for an opening are not right today, although the Government needs to prepare the ground. “You have to do it when the gap is as low as possible, when the reserves are as high as possible. (after the money laundering or the agreement with the IMF) and when inflation is as low as possible (but there are still tariff increases),” he considered. And he recalled that there are still “a lot” that are pushing to get out of the trap: commercial debt, dividends, etc.

However, the economist proposed a sort of countdown “from now until the end of the year or, at the latest, until March”“At some point, if the government fails to break free from the embargo or the exit is delayed too much, the lack of credibility will cost it dearly,” he warned.

The truth is that the official message is that they want to avoid the lifting of controls leading to a large devaluation, which would imply a new overheating of inflation. In response to this, Milei’s former advisor said that “The government must have some numbers in mind: US$10 billion in reserves, an exchange rate of $1,100 and inflation at 2% per month,” as requirements. But he said that they may have to do so with an exchange rate closer to $1,300 and somewhat less reserves.“And lowering inflation is costly,” he stressed.

In this regard, the economist pointed out that, a few months ago, “the exchange rate gap reached 10% and the Government did not leave the trap; today it is at least 30%.” Thus, he argued that The risk of delaying the exit “is much greater the closer you get to the elections and the further you get into 2025” regarding the expectations of devaluation that are generated.

He also said that, in the first conversations he had with the officials of the economic team after taking office, “it seemed that the Government was thinking of lifting the restrictions in June,” but that this was postponed as the approval of the Ley Bases was delayed. “The weakest part of the Government is politics”he sentenced.

Fausto Spotorno on his removal from the Advisory Board

When the dessert was already served on the tables, in a final dialogue he had with the journalist Clara Mariño, he was asked about his displacement from the Council of Economic Advisersin early July, after questioning some of Caputo’s announcements.

Spotorno said that the Council headed by Demian Reidel “was a good idea” because it meant that consultants and businessmen who were not part of the Executive could contribute ideas for the long term. “But that was not achieved, at least not while I was there. The Government did not find the Council functional,” he said.

“My problem was that I am an economic analyst, we write reports, we produce data. And there was naturally going to be a conflict there. The Government would have liked us to operate as public servants without being so. That was creating friction,” he said. And he described his departure with the expression “I want to go” and the answer “Yes, we would like you to leave.”

The economist recalled that this “later became complicated because of Twitter (the social network X).” He was referring to the accusations made by Milei, who said that he removed him because he wanted to “steal confidential information to make the consultancy more profitable,” although without mentioning him directly and without providing further details.