Thursday, July 18, 2024

ARGENTINA | 03-06-2022 10:27

Hernán Lacunza: 'I believe the government is not going to comply with the IMF agreement'

Former economy minister Hernán Lacunza on the IMF debt agreement, eyeing short-term fetishes instead of solutions and capital flight.

One of the opposition coalition’s most relevant economists and Mauricio Macri’s last economy minister, Hernán Lacunza analyses Argentina’s outlook following the debt restructuring deal with the International Monetary Fund.

The 53-year-old takes issue with the affirmations of Joseph Stiglitz and assures that he applied capital controls in 2019 because “the consequences were worse.”


How difficult it must be to come up with a common plan when not just within Juntos por el Cambio but within only one of its allies, the Radicals, their deputies Alejandro Cacace and Martín Tetaz propose dollarisation while their party chairman Gerardo Morales representing them says it’s stupid.

An error which we must avoid when faced with these scenarios of stress situations with the exchange rate or inflation and instability is to resort to magic solutions and shortcuts. Such easy solutions are stimulated when we quickly fall into the instability of nominal prices and high inflation, which nowadays is emerging as the main socio-economic problem. There is then the temptation of returning to a shortcut which once worked against that problem – the convertibility of the 1990s, a shortcut which does not take into account the differences in the political, economic, social, local or international context so that those ideas do not contribute anything when seeking basic solutions to the problem of inflation. 

In the best of cases they are transitory tactics which might bring short-term benefits and long-term problems, like convertibility. They do not dig deep but seek to attack the surface and not the roots of the problem, which is basically fiscal imbalance financed by printing money. We can try to cut trees in the Amazon but if we leave the soil humid, which is the deficit financed by printing money, we can cut all day and night long.


Magic thinking is the child of despair – faced with a very painful illness, human beings reduce their level of mistrust and end up believing in magic solutions. Do such  differences of economic viewpoint exist within PRO between the so-called ‘hawks’ and ‘doves’?

Firstly, such solutions are not scientific but fetishes, which is what we must try to avoid. Juntos por el Cambio is a maturing force founded by Mauricio Macri, who had a fairly personal leadership during almost two decades and who rose from a local neighbourhood party to become the nation’s top authority. Within that logic discussions are welcome but there is always a vertical authority which ends up defining any dissent. Graduating as a genuinely pluralistic party has the benefit of incorporating more ideas and the disadvantage that solving differences or conflicts can be more anarchistic. I celebrate that maturity of graduating as a political party, even at the cost of the solution of controversies being a bit more disordered. 

We recently also faced dilemmas with the agreement with the International Monetary Fund (IMF). The opposition stance was not homogeneous with differences yet, following many private and public working meetings and an institutional parliamentary debate, Juntos por el Cambio arrived at a solution of consensus which we believe was the best for Argentina, over and above the institutional roles of government or opposition. The differences were resolved in not only a civilised but also institutional manner, in the best way for Argentina. 


Is it correct to say that your vision is more heterodox, representing a form of synthesis between all the economic visions of PRO and the Radicals?

I escape the labels of orthodox or heterodox, as I understand them. The need to simplify sometimes distorts because the field of economic ideas is vast and not always easy to define. I like ideas or visions which are not dogmatic but fit what we can know from economic science and our idiosyncrasies in Argentina at that time. I thus do not claim to represent a synthesis of opposition thinking. We do need to seek concrete solutions with our priorities well defined, knowing that the first thing needing attention is the 40 percent of poor people in Argentina. 


In 2015 there was an electoral coalition but not a ruling coalition, with party founder Macri acting as its only voice. The next Juntos por el Cambio president will head a ruling coalition in which collective decisions will need to be harmonised. 

Is there a risk of that government repeating, even in different proportions, the same tensions affecting Frente de Todos today and that when those differences become public, they affect presidential authority and the capacity of the ministers to govern?

I aspire to things being different. What you are saying is strictly true of the 2015-2019 term of Mauricio Macri. Political dilemmas are always difficult with no obvious solution – if not, they would not be dilemmas – and they always have costs and benefits. As president, Macri used to say that for any difficult situation it was first necessary to reach internal consensus which is often more difficult than external. 

We are evolving towards a matrix of ideas which are beyond discussion, even if there are shades of difference, where we all agree over five or six central questions with minor questions to be finetuned when in power. There was a problem of collective construction in the first presidency of Cambiemos, the apprenticeship, the parliamentary work now being done by the legislators of our different parties, whether PRO, the Radicals or the Civic Coalition. That prolific exchange of ideas and search for consensus, as for example with the agreement with the IMF, is leading to a hard core of convictions with deeper roots than those in early 2015, when it was a more electoral coalition lacking previous time to work on consensus. 


Could the eruption of [ Javier] Milei as an electoral phenomenon push PRO discourse to the right to guard against that sector of the electorate being cannibalised?

More than the emergence of Milei, which is evident, what is pushing the axis of discussion – I don’t know if to the right – are certain universal truths which belong neither to the right or left such as, for example, that you cannot live all the time with a fiscal deficit, that you cannot spend more than you earn all the time. If that makes me right-wing, about time. But it’s more the evident failure or the inconsistency, lack of results and loss of welfare from the opposite ideas of the answer being more state when faced with any economic problem, independently of the level of spending. The current economic model has been exhausted for the last two years now but it had 12 continuous years deepening those dogmas. It’s much more about coming up with new ideas with common sense or changing the axis of public debate. About time because here we are discussing things which the rest of the world stopped discussing a long time ago. 


[Joseph] Stiglitz said that the IMF should have put conditions [in 2018] on handing over US$45 billion, that they not be used for the formation of external assets and capital flight, and that had that been done, much of that US$45 billion would be in the Central Bank with Argentina not in this situation. Is that idea correct?

Stiglitz’s premise is mistaken, the IMF loan was not used to finance capital flight but to meet debt deadlines in that period and for public spending. There is a confusion which makes for a very attractive piracy theory for the current government: presuming that the money entered over one counter and then was grabbed by some pirate under the counter to squirrel it away. That’s impossible – once money enters the Treasury, there must be a cheque to take it out. You don’t make out a cheque against nothing – it must be for some creditor, to meet some debt deadline or for some spending item.


To private creditors on the deadlines of their bonds.

Exactly – if not, the alternative is entering into default. The so-called ‘currency flight,’ which in reality is the dollarisation of assets or the purchase of dollars, is what any citizen does when passing pesos into dollars and taking them out of the bank. That’s the flight, sending it abroad.


Under the mattress.

The word ‘flight’ has an illegal connotation and it’s not illegal, it’s the formation of external assets. The dollarisation occurs due to the loss of confidence in savings in the system. Without the IMF loan the capital flight would be occurring just the same if there is no confidence in maintaining savings in pesos, in the currency – they are independent things. 

The loan goes to finance debts which Argentines, or foreigners, run up with our assets in local or foreign currency. Indeed in the first 2007-2011 term of Cristina [Fernández de Kirchner] the capital flight was greater than in the government of Mauricio [Macri] without any IMF loan – indeed quite the contrary since they paid off the IMF in 2006 and yet there was an exodus of US$70 billion. Reserves were lost and they ended up installing capital controls. There was no flight in her second term because of the capital controls. In Mauricio’s government there was an exodus of capital or the formation of external assets because capital controls were lifted. Let’s not confuse causes with consequences again. The healthy antidote for avoiding capital flight is confidence.


And the unhealthy one, capital controls.

Unhealthy, a tourniquet. I applied capital controls because the consequences would have been worse. But like any tourniquet, they are to prevent [the patient from] bleeding to death, a transitory measure. I cannot live with a tourniquet, as is happening now. 


How much do you think the economy will grow this year? And how do you think inflation is going to evolve?

The agreement with the IMF is a turning-point. If there had not been an agreement, we’d be talking about far more dramatic things in this interview, which is why the opposition accompanied the ‘no’ to default but not the accompanying programme because that is very bad. It should provide some relief for the exchange rate – we were at the edge of the precipice with one foot already over and negative net reserves while today we have US$6 billion in net reserves. We did not step over the brink but ran back six metres plus the good grain prices which we were talking about earlier. There should be relief for the exchange rate but not for inflation because the fiscal correction has been very undemanding. That is why bonds are worth what they are worth because they carry the risk of rescheduling further down the road with no let-up for inflation because it is needed as an escape valve for macro-economic inconsistencies [i.e. financing deficits by printing money], precisely because it is needed to liquidate spending...


In concrete terms, the IMF accepts inflation in order to be able to lower the deficit.

It knows that and recognises it, half-resigned, saying: “What would you want us to put, multi-causal?” – which I would – but accepting without much conviction that this model is not going to correct the problem of inflation. 


Excuse me, not only does it accept it, it considers inflation necessary for this model to work.

Furthermore, the inflation we are seeing this autumn was generated six months ago with the money printed to finance the ‘Platita Primaveral'] [electioneering] plan. The inflation of this first half of the year is already defined, beyond doubt, to the degree that there is compliance with the agreement with the IMF, which instead of printing money, calls for financing via debt in pesos, which is also a problem for the future...


Can it [inflation] be lowered in the second half of the year?

Next year, always assuming compliance with the agreement, about which I have my doubts.


At the same time would complying with the agreement lower inflation but also growth?

No, nothing is going to happen with growth, we will remain stagnant, which was part of your question, because the government takes pride in saying: “I did not have to change any part of my car nor carry out any reform, whether for labour law, pensions or taxation.” Nothing has been changed but the motor is bust. How are we going to get this car on the road? 

The IMF has understood with resignation that this debtor lacks the political will to introduce any reforms so let’s not waste any energy on something which is not going to happen but that condemns us to an economy worse than mediocre with some exchange rate relief for at least six months. Afterwards come a very difficult six months between October and March with hard currency relatively short for seasonal reasons. We’ll be talking again before that for sure but it is an economy worse than mediocre which must be endured to see if it reaches the end of 2023 without resolving any of our structural imbalances.


Concretely you see growth of three percent as a lag from 2021.

Something like that and indeed a lag from last year because December ended up being higher than January. Prolonging that December throughout all this year on average would give more than for January, 2021.


And 2023?

That depends on what they do.


Assuming that there is compliance with the IMF agreement…

I find that hard to assume because I believe that they are not going to comply.


Production: Sol Bacigalupo and Natalia Gelfman.

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Jorge Fontevecchia

Jorge Fontevecchia

Cofundador de Editorial Perfil - CEO de Perfil Network.


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