Monday, June 24, 2024

ARGENTINA | 14-10-2023 05:53

Carlos Melconian: ‘I believe that there is an opportunity because we have touched bottom’

Famous for being the “king of metaphor,” Carlos Melconian will be Argentina’s next economy minister if Patricia Bullrich wins the upcoming election. In an extensive interview he explains his integral plan for putting Argentina back on its feet.

Proud of his Valentín Alsina origins and famous for being the “king of metaphor,” Carlos Melconian might have become economy minister if Carlos Menem had not backed down from the run-off against Néstor Kirchner in 2003. If Patricia Bullrich wins the upcoming election, he will finally assume the position.

In this extensive interview, the 66-year-old economist explains in detail his integral plan for putting Argentina back on its feet, without shock therapy nor gradualism, simply starting from “nursery school to reach Harvard.”


We conversed previously about opinion poll error with most surveys placing PASO primary winner [Javier] Milei in third spot with the possibilities of exactly the same error being repeated. There were expectations that [Patricia] Bullrich could come out of the [October 1] debate shining and slash the differences assigned by most opinion polls. I’d like to hear your own perception of polls reflecting Bullrich as lagging third behind Milei and [Sergio] Massa. Do they respond to how you believe it will end up panning out?

Firstly, I share what we were previously chatting about, the errors. And the most important thing is that everybody admits to being wrong with some whom I will not name but with whom I’m great friends, highly professional in this field, with plenty of historical methodology, telling me that both worldwide and locally there has been for some time a search for the key to fine-tuning opinion poll results. This means that they are trapped by this question of their distance from what ends up actually happening, which does not rule out some random shot hitting the target every now and then. And, I repeat, the noblest aspect of this commentary is that when I have asked, some of them have answered me without any animosity. 


Do you expect Bullrich to continue growing?

Firstly, I cannot understand why, when everybody got it wrong that Sunday [August 13] and it ended up 29, 28 and 27 percent [for Milei, Bullrich and Massa], it should be 38, 32 and 24 percent [for Milei, Massa and Bullrich] just 48 hours later although neither do I have the elements of judgement for saying why that is wrong. Nevertheless, I have to admit that it does Patricia a lot of good in terms of rebounding if she once again arrogates the right to speak in the name of the people. I sometimes wonder how many people you or I might actually get to see? When you arrogate the right to say: “I believe that people …”, that’s a hunch. And Patricia is good at hunches and will make the run-off.


The candidate who made the most concrete announcements in economic terms was [Córdoba Governor Juan] Schiaretti, speaking of a dual exchange rate as from December 10 while appointing an opposition economist to head the Central Bank? Do you agree with the former proposal and disagree with the latter?

Yes, I clearly disagree with the latter. Besides, let’s not fool ourselves, I clearly believe in the operational independence of the Central Bank but, as always happens in Argentina, when things are going wrong, they want to pass from white to black. Today we are gnashing our teeth over neither the president nor the economy Minister being able even to sit down to breakfast with the Central Bank governor. 

Let us simplify things by saying that it is a question of people remaining in their posts for as long as it corresponds to that position. The other day I saw Hillary and Bill Clinton with [Deputy Economy Minister Gabriel] Rubinstein in an interview praising “Clintonomics” where the famous Clinton phrase was reworked to read: “It’s the economist, stupid” as a reminder that [former Federal Reserve chairman] Alan Greenspan, who was a Republican, should also be thanked with his photo added. If for calendar reasons I’d have to co-exist with a Central Bank governor appointed by another administration, I’d have no problems with that. Now having to hand over the Central Bank to somebody from the opposition is a real bottleneck. Ahead of all that comes Senate approval of the appointments, the stability in the post and the suitability of candidates. It’s not a question of “I believe that Tom, Dick or Harry should be a director.” Even if it is formally accepted that not any old person will do, everybody knows that historically there have been Central Bank directors who were not technically qualified for the post. And the next question is that the objectives of maintaining the value and stability of the currency continue to be elemental without, because we are not Anglo-Saxons, mixing that up with the levels of employment or economic activity and knowing that the Treasury cannot be financed. 

You might ask: Is what I’m telling you so categorical? Yes, it is. All the same Argentina has sunk so low that we’ve had a law of the intangibility of [bank] deposits and convertibility operating via quasi-money. So in the final analysis that is going to be the kind of thing which the passage of time will cure. But I do believe in operational independence, in stability, in the tail end of one [Central Bank] governor ratified by the Senate being able to coexist with another and in the elemental outlook required of the superintendency of the financial system with this issue of not financing the Treasury being very necessary.


Regarding the first proposal, a dual exchange rate would be the prelude to its eventual unification but would that dual exchange rate be introduced on December 10?

We have not presented that as openly as Governor Schiaretti. We should also say that we have seen how the dollarisation people are falling back on something which is not precisely that. But from the first moment, we decided that the money markets should back something which Argentine society has already decided – namely, a bi-monetary system. We did not invent this bi-monetary system and nor did we embrace it insanely, we just said to ourselves: ‘What has Argentine society been doing for many years now?’ Saving in dollars with transactions in pesos, something which has not changed in a long while, even when doing well. At the same time we have made no definite decision on formally killing off the peso because we don’t want to do that, not because we do not know what to do. 

Thirdly, we have been studying for a great many years how a bi-monetary system works in such emblematic cases as Peru and Uruguay where you have to know their programmes with the International Monetary Fund with an Article Four entitled “The attempt to dollarise bi-monetary systems,” which does not go beyond that. Even when working successfully in Peru, there are minimal shifts in the ponderation between the local currency and the dollar or between transactions and savings. We are going for that because it would be maintaining the status quo for Argentine society within a format in which it feels comfortable, which would be saving in hard currency while using the peso for transactions.


What would be the difference from what you would do?

Very important. Firstly, we would make that circuit complete by giving it formality, amending the Civil Code so that your contracts can be made directly in dollars and if there is any breach of contract, you do not have to wait for a judge to rule on what exchange rate to use, ending with the hypocrisy of buying a house with the deeds of sale in pesos while in the next room the dollars are being counted. Or cars priced in pesos but you have to go with hard cash in banknotes, all that is ended by formalising it. Secondly, given that the peso continues, you have to have an exchange rate régime and a monetary policy behind the “dual currency.” The ideal regime, which we call Harvard, is a free and floating exchange rate. This may start as a segmented market, which is the nursery stage. So why experiment again, as occurred between 2015 and 2019, with starting in Harvard and ending in the nursery, why not start in the nursery and end up in Harvard, explaining to all our people that those are the entry and exit points, beyond all discussions between shock or gradualism, hawk and dove?


So the nursery stage is a dual exchange rate … 

It’s the segmentation where from among the 100 lines offered by the market you have to decide the least conflictive possible for one and the other, writing it down and making it explicit to prevent people coming along to hustle everything being designed. And then there must be an exchange rate policy behind that, established from the very first day. All very welcome but I only heard the second part from Governor Schiaretti, exclusively, not the coexistence with a bi-monetary regime.


Along those lines the free and floating dollar would be decided by the market.

No, rather than free and floating, the second segment would be for operations which do not enter into the first. And the third question is that at no particular time there will be an attempt to first unify and then free the exchange rate without that coming out in the newspapers. In normal countries such modifications are done by an undersecretary. If we do not see what I’m telling you on a newspaper frontpage some day, that is because we will have succeeded... 


So initially there will be a dual exchange rate with capital controls.



Segmented so not two but several.

There might be prudential macro-economic policies but capital controls become cobwebs. You might say I placed capital controls but when you have 18 different exchange rates plus SIRA [import restrictions], you already have a cobweb. 


And what might prudential macro-economic policies be concretely? People paying for Netflix at a free dollar exchange rate while those who import...

We’re not dogmatic but we are not prostitutes, our ears are open. Of course we end up deciding what I believe to be best and then see how it works out.


Sex with love?

What must be understood is that prudential macro-economic policies have been engraved since Noah’s ark and there are stable countries. 


Which have such policies, for example?

We’ve researched up to a dozen such countries and prepared a report on that.


For example, prohibitions or limitations on dividend and debt payments.

Rather than limitations on transfers, some permanence over a period of time or some sort of statutory reserve requirement suitable to why that capital came. 


That’s for incoming capital.

That is indeed for capital inflow and afterwards you have the bi-monetary system where we’re going to be severe in preventing crosscurrents. 


If you enter in dollars, they are dollars.

Everything to avoid committing the errors of some exchange rate regimes which were not wrong but we discovered ex post facto that there were errors and there’s nothing wrong with that because we have to learn from history. So we have already said that we will prohibit speculative gambling but in a prudential macro-economic sense because we are not authoritarian.  


You’ll discourage it.

Yes, for speculative gambling to be permitted, you have to stay two years. If you see dark clouds on the way, you cannot escape for any reason. For example, to translate this into a comprehensible vocabulary, we are defining our terms because in many of these issues there are different modalities to apply which we continue to study. Fortunately we have many highly talented people, in some cases with great seniority, we are on a par. It gives me great calm to work that way because at any given moment you have half a dozen guys sitting next to you [Rodolfo] Santángelo, [Daniel] Artana, [Marcelo] Capello, [Jorge] Vasconcelos, with whom you start a rapid ping pong which often lasts more than a hour. So I say: “Enrique [Szewach], why don’t you take a look at that?” or “Rodolfo [Santangelo], would you pick up that issue for me?” That’s already happened to me as a consultant when every Monday morning you’d have a team of five with three top economists, Rodolfo and I worked 30 years that way. That ping pong, that “criticise this for me” with none of them, a basic rule, allowed to suck up to you. All my life as a professional I’ve not had many problems but if you spot a brown-noser, you have to weed them out.


Now let me move onto concrete cases.

Brown-nosers are no use. 


I understand the working philosophy in your team and I’d like to go into more depth as to the concrete answers to that plan regarding prudential macro-economic policies instead of capital controls, parking some investments already here, over the payment of dividends, debts, etc. ...

Some things I’m going to be able to tell you but others mostly not, in some cases because we have not reached a decision, not because I want to create suspense.


But could there be prudential macro-economic policies implying some type of limitation?

But those are not prudential macro-economic policies, which are the capital flows which you relate to the record chaos, such as I have never seen as a consultant, which this  administration is leaving. We are not applying prudential macro-economic policies, given the use of words like “dividends” or “stock,” whereby I would imagine commercial debt to be meant. The prudential macro-economic policies to which I referred have nothing to do with these decisions, which if they had been listening to us – and I repeat – we are not going to permit the costs of the drought to be tossed to the next government because they did not want to halt imports nor use reserves they don’t have nor devalue nor suffer recession. And I’ll tell you something in all justice that they should not be tossed to the incoming government even if it turns out not to be us. So when we have to refer to that mega-fart, let us not call them prudential macro-economic policies, they’re something else. And I explain to you, I don’t want to enter into conflict because the one reacting pathologically is Milei, not me. I’m vehement and use strong language at times but he’s the one reacting. Zero hot air on our part because we’ve been warming up for the match on December 10 for the last 18 months and we’re mentally prepared to win, lose or draw. The adventurer plunging into the unknown who finished first in the PASO primaries with the context rapidly escaping him and with 30 days to come up with something is him, not us. That’s very important because it seems to me that the sweet-talking hot air is over there, not here. 


Now what you are saying concretely is that those debts which have been kicked forward to next year cannot all be paid together next year because that would be penalising the next government.They would have to be rescheduled so that they can be digested over time.

We haven’t defined that, there will be an alternative regime. It’s not about recognition nor default, all that nonsense I’ve heard. There will be an alternative treatment because we have to explain it clearly to the people. In the debate I heard the minister/candidate Massa call it a “criminal debt.” Think over the following: the minister is leaving 20 [billion US dollars] of import debt, five more for dividends makes 25 plus 15 in negative reserves makes it 40 [billion]. Which could be doubled with five more for the Chinese swap, 16 for YPF [the adverse New York court ruling], etc. That’s no longer criminal, whatever name you might want to call it. So you see everybody has their own drawer ...


 … of hot air.

That’s part of the debate because you say that if you had been in that debate, you would have replied. I don’t know if I would have cottoned on in the 45 seconds but afterwards I got to thinking that they make such a song and dance of that “criminal debt” and when I add it up, I’m there in five minutes because you have to throw in the debt in pesos. So if one is criminal, the other is doubly criminal. Secondly, with this idea of imports continuing as if they were life, on December 11 there will be companies which won’t want to stop and will run out on the 11th or 12th of January or February. So now after a government which kicked the debt down the road, had to ask for yuans, made people queue, we come along to guarantee the flow because we’ll have, touch wood, the business climate, the energy and agriculture to regain a trade surplus. We have to guarantee: A, firstly, the supply of goods, B, secondly, the recomposition of reserves and C, in 2018 the markets slammed the doors on Macri, which were never again reopened by this government, and we went to the IMF. That means we’re going to see, in terms of the needs of international payments to come, we are already in contact with the IMF and other international organisations with meeting bondholder deadlines as Plan A, supposing that we pay with our own efforts because we are going to honour payment deadlines. So I have to guarantee the supply flow to maintain the level of activity, honour debts and then in time because we started since August at least with record debt last month - if you don’t know what it is, it’s the difference between what you allowed to land, or the SIRA import permits you gave, and what you permitted to pay. Very important, Massa’s own SIRAs expired on him and went unpaid. It wouldn’t be the debut of a SIRA bouncing after December 10 with your saying: “Until now they were paid.” No, the August ones given by them were not honoured, kicked ahead. All this is very clear, going against this hot air is in line with the rules of the game. Neither of the other two candidates are being asked to meet the requirements being made of us.


That’s true because you supposedly have a competitive advantage.

Exactly, I’m going to exploit that.


What would you do with the IMF if you swear in as Economy minister on December 10?

My first hope is that the agreement will not have collapsed when we take office for the good of all of Argentina. In a shoddy agreement like this, bondholders should grab their 45,000 and then see when they return to the market, if ever. The IMF has a different institutional methodology of quarterly targets. I will refinance you but in reality I’m giving you a new credit and you pay me, an incorrect accountancy. Friday I’m paid, Monday you’re paid. Argentina is a country giving IMF officials two sleepless nights because they say: “Che, we paid them on Friday, they’re not going to screw us on Monday, are they?” But it does not matter. Of the US$45 billion [debt], US$21-24 billion fall due in 10 years with a grace period of four years. That US$24 billion has to be rescheduled by June 30 so settling that is the first thing we would want to discuss with them. Because if any bit of it remains unsettled, you enter into a process whereby a third country can get its wedge in, complicating things.


So would a new agreement be started?

We have a programme but I’m not going to say it Massa-style, I’m going to say it seriously.  The current minister/candidate has passed from being the spoiled brat of the White House, the guy everybody in the United States wants to see, to all of that internally aimed double or or triple talk about Macri dragging us into the IMF. The issue is that the relationship is dead, I would say. So yes to the IMF if we have a programme which we believe to work for Argentina, and that the truth is that we don’t need to be told about fiscal balance because the IMF is not inventing anything. 

Firstly, we are in a tremendous mess but we’re not going to hold out the begging-bowl, we have our programme for the next six months which we are placing on the table for those who wish to see it – it has already been approved by Argentine society, Argentine politics, the new president of Argentina and Congress. The first thing I would want to do with the IMF is to get those six months out of the way and then I would want to see the new deadlines and discuss the interest rates. Not acting like a big shot like [former Economy Minister Martín] Guzmán, who resorted to the Community of Latin American and Caribbean States (CELAC, in its Spanish acronym) and brought together three of the world’s worst dictators. It has already been established how much attention the IMF pays to such things, it’s all a show for the mob. The IMF says that if a group of countries asks for this, they are a case for study in a mental institution.


Tell society how you will pay the US$45 billion, it will be rolled over all the time.

A long way to go, of course. By the time the US$45 billion is paid, Argentina will have to be another country with the four-year grace period. Unfortunately I do not have it clearly in mind but the fat years should be starting in 2026 and 2027 but we’ll be trying our luck beforehand.


So the IMF will not be a problem within the plan of stabilisation.

No, no way.


Is a certain degree of stealth and surprise also important within your plan?

Yes, but not on December 10. 


So when then?

We have no calendar, “as soon as possible.”


Your plan already overreaches the Economy Ministry but I would like to know if a Patricia Bullrich presidency would confirm having only eight ministries.

Well, that’s a presidential decision, of course. 


Are you the same age as Patricia Bullrich?

Yes, I believe so. 


And is it now or never?

I believe that there is an opportunity because we have touched bottom.


And is it also now or never age-wise?

That you never know, you have to end the interview here but there is an issue pending.


Why don’t you wind it up?

It’s a pity you can’t just press a button for things to happen. If things occur naturally, you do not feel them. The issue is that it is not a question of knowing the nature button for things to appear. That’s why I say that this responsibility does not weigh me down because things develop naturally. Regarding vehemence, since we live in complicated times, I do not want to confuse vehemence with aggression. And the second issue is that, depending on the president and minister to come, an important part of our society is showing calm and control and that this has a solution. And I’d like to go deeper into this because the anxiety about December 10, the mess, the hot potatoes, the exchange rate regime and imports is overwhelming. So the most important issue is that everything has a solution and secondly, we’re going to make it. Thirdly, and very important for me, I don’t want to rub it in but people have seen the yacht [the Martín Insaurralde scandal]. I should explain that the Armenian inside me tells me that if a swimming-pool, hall or yacht is part of your personal progress, that should give you pride. Not everything is material but it’s part of progress. My mother told me that if you fill up your head first, nobody is going to piss on you in life. A full head is a divine treasure. If you can show off your desk, your library or a yacht, that’s progress – I aspire to people wanting that. Now when somebody is on top only for being a public official and is unable to show how they got there, that irritates people. So it’s, what’s the phrase?


Now and forever.

Now and forever. 

Production: Melody Acosta Rizza & Sol Bacigalupo.

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Jorge Fontevecchia

Jorge Fontevecchia

Cofundador de Editorial Perfil - CEO de Perfil Network.


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