Santiago Bausili: “Our programs may be more or less creative, but they are fundamentally orthodox”

Special envoy to Mendoza. Santiago Bausili, President of the Central Bank (BCRA), spoke about the development of the economic plan of Luis Caputo and referred to the The role of the International Monetary Fund (IMF) in the stabilization program they are carrying out. He defended the actions of the local monetary regulator and said that it is “orthodox”. He also spoke about the risks that lifting the restrictions would entail without first charting a path of fiscal commitment, which could lead to a new “Rodrigazo” in Argentina.

And, in this regard, he stated in response to the criticism that the Government receives from the international organization and from those who question Argentina’s compliance with its goals: “Our programs may be more or less creative, but they are fundamentally orthodox.”

The stabilization program and the path to currency competition

In this regard, Bausili spoke about the direction that Javier Milei’s Government is taking in economic matters and pointed out that it is a stabilization program that sought to avoid a previous crisis. “Most countries implemented these types of plans once the crisis had already hit, when they had already reached a terminal situation and began to rebuild from there. We We arrived convinced that we wanted to avoid that so that the negative effects would not be so great.“, he detailed.

He also said that Argentina is going through the adjustment of relative prices and that the first six months of the program were very hard because digesting excess stocks is not easy. “That is a cost that must be faced.We are working at this stage in a controlled process“, he assured.

From the other side of the screen I heard it Julio Velarde, president of the Central Reserve Bank of Peru, who has been in office for 18 years and has gained special relevance in the region as a case to follow in terms of the independence of the monetary regulator, but also as an example of a country that achieved success in a stabilization program and moved towards currency competition, as Argentina aspires to do.

The case of Peru: a reference for the BCRA

“We reached such a level of crisis that prices rose between 30% and 40% per month and People saved in dollars. Local currency rates were extremely high and we had to implement a floating exchange rate with the implementation of a currency competition. In that context, of course it was the stock problem, which was gradually resolved, But for the program to be successful, it was essential that the government commit to never again borrow money from the central bank, that is, the fiscal commitment,” Velarde explained.

In this regard, Bausili pointed out that, In Argentina, people have already dollarized“Save in dollars, and the peso is a currency that is only used for transactions. Credit does not exist in pesos or dollars as a result of the economic situation, but also because of the various obstacles that have been placed on the development of the financial system,” he said.

He emphasized that Argentina has a very serious problem and that is that Domestic savings are not channeled to the local levelbut largely outward in an informal manner. He said the country is in the process of moving towards currency competition as a result of a stabilization plan that is underway.

On the other hand, he said that The “Rodrigazo” that Argentina suffered was the product of a process similar to that of Peru, But the problem was that there was no fiscal commitment after the release of all the variables and that led to a very strong crisis. Thus, Bausili pointed out that “the deregulation of the economy is a process that takes time and we are demonstrating fiscal commitment so that, by eliminating the restrictions, it does not have such a negative impact on the economic variables.”

The independence of the Central Bank is a distant goal

Regarding the independence of the organization, Velarde indicated that, in Peru, it was achieved because the suffering of the crisis was so strong that people became aware of the importance of the regulator having to become independent from the Treasury in monetary matters and he assured that, “As long as the government has access to financing, there will be no pressure on the central bank.”

However, he said that, starting in 2000, Peru managed to develop anti-cyclical policies. And he said that, for that, “credibility was key, although building it takes time.” According to Velarde, it is necessary to achieve low inflation for a long time. Thanks to that, they managed to lower the rate to very low levels and he pointed out that, in the 1990s, that would have been impossible because the dollar would have skyrocketed.

For its part, in line with this approach, Bausili said that, in order to achieve the independence of the BCRA, it is key how the Government positions itself in terms of fulfilling its contracts. “The countries that have succeeded have gone towards an independent central bank because they have had many experiences where the government turning to the bank for funds caused the currency to depreciate very abruptly, so they don’t want to go down that path again,” he said.

Thus he acknowledged that The BCRA still has a lot of interdependence with the Treasury, but the objective is to move forward in cutting that link and he said that when they arrived at the building on Reconquista Street, the main debtor of the regulator was the Treasury, but that, little by little, that situation is changing.

A look at the global context

Finally, both referred to the perception among central bankers globally of the inflationary situation in the world. “There is a consensus that This totally anomalous period began with Covid-19. That triggered inflationbut better results than expected were achieved in combating inflation. This is the first time that there has been such clear coordination of monetary policy at a global level,” said Bausili.

Thus, both bankers agreed that The vast majority of countries share the methodology on how to combat inflation and they evaluated this as very positive because it strengthens the tools of central banks to control inflation and combine it with economic growth.