Tuesday, May 21, 2024

ARGENTINA | 08-04-2023 06:54

Martín Lousteau: ‘To order the economy, the state needs to be brought to order’

UCR senator and mayoral hopeful for the City of Buenos Aires discusses Argentina’s economy, introducing a collective change of course and the differences between the Radicals and PRO.

Martín Lousteau, Unión Cívica Radical (UCR) senator and mayoral hopeful for the City of Buenos Aires, assures that in Argentina shock policies should be a collective change of course, with a process of gradually applied measures. 

A former economy minister during Cristina Fernández de Kirchner’s first term in office, Lousteau, 52, frankly exposes the differences that exist today between PRO and the Radicals and the importance of complementing them in order to improve Juntos por el Cambio.


As an economist and ex-minister with experience of that portfolio, and bearing in mind that in your last interview you said that it was not necessary for the economy minister to be an economist and that it might even be better, how do you evaluate these seven months of Sergio Massa?

Firstly, I continue to subscribe to that. I believe that the Economy Ministry obviously requires much technical knowledge but that does not mean that the minister has to be an economist. The minister often has to have sufficient political clout to be able to push through economic initiatives, whether in the productive, fiscal, financial or monetary fronts. I believe that is partly what has happened. [Former economy minister Martín] Guzmán had more academic credentials and knew more about economics than Massa, beyond any doubt, but he lacked the political clout to do certain things. Beforehand you had, in line with what I’m commenting, an economy minister who was conducting an orchestra where each player had a different musical score, playing their instruments in clear dissonance with all the others. What did Massa do? He transformed himself into the director of an orchestra where everybody plays the same music but the problem is that it is a very bad score and not the music we Argentines wish to hear. What he could have done, if you like, was to bring order to the different instruments a ministry might have at its disposal, and even of other ministries, but nothing more.


There is the opinion that to be a good journalist, you need to be more than a journalist. At the most prestigious school of journalism, the University of Columbia, journalism is a postgraduate degree and first you have to get a degree in law, economics, sociology or something. Could there be something similar with an Economy minister needing to be more than an economist?

To be a minister in general, you need more than specific knowledge, beyond any doubt. [John Maynard] Keynes said that about all economists, not just about economy ministers, since there are no very good economists and not because it is an especially difficult subject but because an economist has to be a bit of a philosopher, a bit of a sociologist, a bit of a political scientist, a bit of a mathematician, a bit of a historian and indeed a bit of everything. A combination of all those elements is no simple matter. 

Now the post of economy minister implies bringing order to certain things where there are many vested interests and that requires political clout. Without political clout it is very difficult to find or push the right buttons or move in the correct direction. I believe that the economy minister has to have political volume because when we had economy ministers with that, they could put some things in order. You might disagree or not with some or all of what they did, but [Domingo] Cavallo and [Roberto] Lavagna definitely had the capacity to order their agenda.


Who might have such attributes within Juntos por el Cambio?

That’s where I sometimes disagree with the focus Juntos por el Cambio gives to economic issues. To order the economy, you have to order politics because the state also needs to be brought to order. There, I believe, the grieta chasm also has two very different perspectives and I do not agree with either. On one side of the grieta, Kirchnerism will tell you: politics comes first before the economy and when that happens, the consequences of economic policy blunders are ignored, which is happening with the mess we are seeing now. Some Kirchnerites have gone so far as to say: all prices are political. I had one economist friend who told me: “Just as well that there are Kirchnerite economists and no Kirchnerite physicists because it is one thing to deny inflation and another to deny gravity.” So one half of the grieta says: we dominate the economy via politics. The response to that is, in the words of [former Uruguayan president José] Pepe Mujica, the right is right about something, you cannot fudge the numbers. And Keynes also said that in economics you can do many things except escape the consequences of what you do. The other side thinks that what must be done is to ask an economist for an economic plan and then push it through, regardless of reality and the political restrictions …

What must be done is to construct a political channel with every imaginable economic plan needing to be thought up within that political channel so that you can say, after the interaction: if the economic plan passes that way, it can have more political support with a broader political channel. Yes, I think that’s the way to go.


Can you imagine how the social climate in Argentina would be if they tried to instrument the reforms which [Buenos Aires City Mayor and presidential hopeful] Horacio Rodríguez Larreta said should go through not in 100 days but 100 hours?

Firstly, when you have 6.6 percent inflation in the past month and over 100 percent in the past year, with an economy set to shrink four percent and an oppressive reality putting everybody in a bad mood, if you ask people, we all want an abrupt change, a shock to take us out of where we are now. But when you begin to interact and say: ‘Shock [policies] imply your earning less and public services costing more so that less money is left in your pocket,’ people will say: ‘No, no, stop, stop, we’re having second thoughts.’ That’s what needs to be done. 

The great shock for Argentina would be to be capable of reaching agreement on broad lines to put the state in order because when the state is disordered, so is the economy and daily life. I could name you some areas where the postures on the two extremes of the grieta seem irreconcilable but with an exercise of imagination as to what needs to be resolved, some rapprochement is possible. If you take utility billing, one side will tell you that the pricing of public services has to be political and the other side will tell you that we have to cover the cost of generating energy. Basically, eliminating subsidies means that you have to increase utility bills more than inflation every year until eventually weeding out the subsidies. You can do it all at once by quadrupling utility bills or you can say I’m going to raise them a bit more than inflation for the next four years, thus giving consumers the certainty that the state is emerging from that problem and any possible opposition the certainty that in four years this problem will be resolved…

Do we have too many public employees? Yes, in the national and other levels of government there are too many public employees and 23.5 percent of them are more than 60 years old so that we can make a commitment not to replace anybody who is not essential. For example, I would replace judges, prosecutors and the Armed Forces. I live in the Senate and I have also experienced many public departments where a large percentage do not need to be replaced so you can reduce the state payroll if you replace one out of every five, 18 to 20 percent, over the next four or five years. Those are the things which I believe can be done … 

Another mega-item is privileged pensions. Somebody is going to tell you that this affects acquired rights. Those rights are acquired but there’s something weird about a régime of privilege which means that you collect much more than you contributed so that system makes for a deficit which all the rest of us pay. I could then say to you: ‘Look, you were contributing to that régime which is unfair on the rest of Argentina but which was the law for you. From now on you’re on the same régime as everybody else.’ What does that mean? Suppose that you had worked 20 years up to that point, you would collect your pension according to that privileged régime but the 10 remaining years would fall under the general system. But anybody starting from that point would fall under the general system. So that would place a channel against state spillover and that for me would be a shock. The great shock would be being able to do that, to order the major items of state [spending] because we have tried other ways many times and they have never worked. What people imagine is going to happen versus what does happen afterwards in their daily lives are two very different things.


Should all the announcements be made together, independently of whether they end up being carried out in the course of four years?

What I would say is that the shock is a collective change of course with the steps afterwards being gradual, as steps always are. The shock is: ‘We’re going to walk in that direction but how do I reach the end?’ I go step by step but the course is already a collective commitment. I’ve posed this question not only to people in different places – at meetings, in chats in the street, in a bar, in universities or in different organisations – but also to investors: ‘What would you prefer for your business to invest more in Argentina, would you prefer monumental fiscal cuts on the first day [of a government] winning by one vote and which can be overturned within two years if the political results are unfavourable or a far more definite course which is not reversible but gradual?’ The response is: ‘The latter.’ Now this has nothing to do with what happened in the 2015-2019 [Mauricio Macri] government. No collective course could be set because there was no collective discussion but also because many internal government policies were inconsistent. Thus, for example, they increased utility billing, affecting the middle class, while doubling the number of social plans. So no course was set, I’m telling you. At one end I’m expanding public spending permanently and at the other I’m correcting excessive subsidies for energy but it’s not a course for ordering the state.


Shock announcements and gradualism in their application.

The shock is the change of course, of ground rules.


Can macroeconomic order be established gradually or do the solutions have to be immediate?

Some of the disordered issues now are what is causing the everyday problems requiring concrete measures which cannot be gradual. Ordering the main aspects of the state when you can see what is disordered – the [high] public spending, hiring left and right which is not the fault of those employed, the pension system, the utility bill subsidies, the privileged regimes which are not only limited to pensions - there are institutions in different areas of public life, including banking, which are sometimes an entire power in their own right paying no income tax.


A split exchange rate as a transition towards a unified currency market is under discussion. Can this be instrumented progressively or, as in 2015, can you come out of capital controls from one day to the next?

When you look at what the government is doing today, in different ways it is recognising that it cannot live as a product of mismanagement. Afterwards we may talk about why this state which it created is so costly and so bad that it cannot live with this exchange rate, offering different exchange rates to one sector or the other. It is thus saying that with its exchange rate today, there is not a sufficient entry [of dollars] or if they do enter, it loses at the other end. When you talk about a split exchange rate, it’s a bit of the same thing – I’m going to offer two exchange rates, one for the financial sector and the other for trade. At some point there is speculation with the commercial exchange rate for imported products, depending on whether they are basic needs or involved in a process of production of something which ends up being a basic need. But what the government is saying is: ‘I have a problem with the price of the dollar,’ which it is recognising all the time. So the question becomes whether it is possible to emerge immediately. 

For example, could you split the exchange rate today? You could but if you do not generate conditions of confidence while doing it in the short term, with these exchange rate problems, you need to show the collective path towards which we are heading. If you do not do that other part, there will be perpetual disorder because there will not be sufficient confidence. So you might say to me: ‘The exchange rate must be unified overnight.’ My response is no, but you do have to go taking measures which narrow the gap [between official and parallel exchange rates]. If you do not do that other part, that gap will not be narrowed. If you unify the exchange rate overnight, it will carry an enormous cost, both social and political, with a much more inflationary regime than before. 

I was at a meeting with the future big guns of Macri’s economic team and Andrés Velasco, whom I know and who was finance minister under [former Chilean president Michelle] Bachelet, came along and said at that dinner: ‘If you are going to come out of capital controls overnight, you will be creating a problem with consequences which will not be seen in the short term. With exchange rate unification, you can bring in capital from abroad at the blink of an eye but you will be triggering social problems and inflation.’ It seems to me that this discussion was slightly underestimated in terms of how much inflation it could generate. Today the social and inflationary situation is even more serious for taking shock measures which we obviously all want to resolve certain things as soon as possible. But, as I said at the beginning, they have an immediate impact on your capacity of daily consumption the very next day after those measures are taken.


The International Monetary Fund informs that 140 of its total 180 members are running a fiscal deficit. Over and above the access to credit to finance that deficit which most of these countries have but not Argentina, might not the trade deficit and the lack of dollars be a bigger cause of inflation than the fiscal deficit?

There are various sides to that question. Firstly, the problem of why Argentina does not grow is the result of a very noxious pincer movement generated by the administration of the state. I’ll explain that a bit more in detail. 


You once said that we could not export this state.

That’s the problem. This state gets costlier and worse all the time. The most striking example in my book is the train to Mar del Plata, which was inaugurated in 1957 with any amount of comforts which today’s train does not have but it also took four and a half hours [to arrive]. Today, if you’re lucky, you arrive in seven hours so in 60 years our state has made the train take 60 percent longer to reach Mar del Plata. You can multiply that by saying the same thing happens in health, justice, public safety, infrastructure and education. What you have is an increasingly expensive state which costs each one of us twice as much as 30 years ago when adjusted for inflation but it has gotten much worse. 

So what do I have to do to export something which is worse and more expensive? I have to make it cheaper. One way of making it cheaper is with a higher exchange rate for the dollar. So to the degree we have an increasingly worse state, we are going to be poorer in dollars, our salaries will be lower in dollars and our companies will be worth less in dollars with less profitability in dollars, which has been happening for a long time. So the pincer movement is on the one side, an increasingly worse and costlier state, and on the other side, if I have that worse and costly state, to compete I can make life easier for myself with a higher exchange rate for the dollar but since I have a deficit, the exchange rate lags. 

So how does Argentina function? I make the state costlier and worse with a lagging exchange rate while the economy stagnates. Suddenly a devaluation comes along and the economy grows a bit until the same thing happens all over again. In the last 60 years we’ve had two processes of growth, from 1991 to 1998 with the exception of the tequila crisis in 1995, and from 2003 to 2008. In the former there was a great improvement in the state. We might discuss how or why, what could have been done differently and what consequences it had but the productivity of the state was improved. In the latter you had a favourable exchange rate and could export any kind of state. What we need is an exchange rate which permits us to export and at the same time improve this state because if not, it’s impossible. Those two things simultaneously will trigger another process of growth.


Accepting that mutual feedback is total in economics, what is cause and what is consequence?

Let me come back to your point because it interests me greatly. Firstly, we have the country with the greatest volatility in the real exchange rate, which you really take into consideration to see if you are competitive or not, so that it is impossible to add value and export. Adding value is, by definition, time and money which must be committed. Why time? Because if you want to add value by using the soy and maize to make chicken milanesas to sell in European supermarkets, it will take you time. You must set up an animal feed plant, make the milanesas complete with breadcrumbs, package them, do the marketing, sell shares abroad, find stable clients, set up a logistical chain and have representation abroad. How much time? Several years, at least three. I might take that decision today and when the moment arrives, the conditions might not be there. 

Today many farmers producing for Argentina and abroad will tell you: “I’m selling at a loss, it cost me so much time to establish a market abroad that I can stand losing money in order not to lose it.” Then you might say: What is before and after? We don’t export much because it is very difficult to export this state and with so much volatility it’s very difficult to make a commitment. I think it was the Nobel Prize for Economics winner [John] Hicks who said: ‘Long-term investment is handing over a hostage.’ In Argentina they cut a finger off the hostage one day and beat him up the next so it is very difficult to add value. The two things are connected.


How do you imagine the candidacies within Juntos por el Cambio being resolved both at City and national level?

By the PASO primaries, I defend that instrument. Those holding power in a district or political party don’t want the PASO because they have a typically Argentine system where the state has huge clout. We see that when in San Juan they decide on the Ley de Lemas [primaries and elections on the same day] or when they eliminate institutions making for more even electoral competition. The PASO primaries permit the emergence of new leaders when the leaders with power in the narrow sense but no anchorage in society try to avoid it. So I believe that the presidential ticket is going to come out of the PASO primaries, as well as the mayoral ticket for the City of Buenos Aires.


In an earlier interview you mentioned that in your judgement, the most suitable ticket would combine the different components of Juntos por el Cambio. Do you continue to think the same?

I do indeed. Everybody has a different outlook to contribute, not only for better diagnosis but also to find solutions for more complex moments, there is more strength there. It’s like saying: ‘Do you want a seat with two legs or four?’ I prefer a seat with four, which also forces us to have a far more concrete and rigorous interaction before forming a government. 


Who would you like to be president?

Whoever emerges from the PASO primaries. For me the most important thing is to have the necessary attributes. Looking at the candidates, I would say that some have some attributes and others others. And sometimes somebody who is a good candidate today might not be a good president.


Would [Jujuy Province Radical Governor]Gerardo Morales be a better president than Horacio Rodríguez Larreta?

I think Gerardo would be a very good president, he has brought order to the state in Jujuy, transforming a province with a deficit into one with a surplus. He is a pioneer in things which matter for the future, new industries like cannabis.


Has your relationship with him evolved positively over time or did it begin badly and then evolve?

I have spoken to him. The first time we clashed because we are two people with [strong] character. I told him: ‘I think we clash a lot because we don’t know each other’ and that does not mean I always agree with him. But today we have constructed a very frank relationship. Whenever I say or do something which he does not like or may be corrected, he tells me so. And it’s reciprocal when I have to point out things to him where it seems to me that he’s going wrong.


From your point of view would Gerardo Morales make a better Radical president than, for example, Facundo Manes?

Yes, for his experience, for what he has achieved, for his character and his managerial skills. People who vote for us often ask: But can you beat Peronism? Jujuy was ruled by the Peronists for 32 years after the return of democracy. Gerardo won and won again and is now reforming the Constitution to prevent re-election and ensure a new governor, surely from Juntos por el Cambio ranks, for Jujuy. 


And among the PRO candidates, do you think Horacio Rodríguez Larreta has more experience and attributes to be a good president or would the assertive character of Patricia Bullrich make her better for solving the problems which will face the next government?

It is very important for a president to know how to administer many different state areas and to have had the experience of having handled many things at the same time. I think that Horacio has a marked edge there. Character does seem very important to me. We need, as I said before, managerial skill and character and what is lacking in a presidential candidate must be complemented. Whatever characteristics might be lacking in Gerardo, Horacio or Patricia must all be complemented.


Since you prefer cross-party tickets and the City PASO primaries do not elect deputy mayors, should you win, would you like your running-mate to be a rival like [City Health Minister Fernán] Quirós, who has one of the best images in PRO and indeed all Juntos por el Cambio?

I would like to be complemented by somebody who has characteristics which I lack. 


And does he have them, for example?

He might do, there are several who do, among other things because they belong to PRO. I’d like that because I need it. If I’m to be mayor, I aim to be the best mayor possible. That implies not governing with other Radicals but with the best, with PRO with the Civic Coalition and I need somebody accompanying me who can say to me: ‘You’re going wrong there,’ or who has a different outlook from mine. I believe that to be greatly enriching. When there is a complex problem and you don’t know how to tackle it, things are always calmer when another person has a different outlook and afterwards you can arrive at a synthesis. I think that’s what we must achieve both nationally and locally. 

Production: Melody Acosta Rizza and Sol Bacigalupo.

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Jorge Fontevecchia

Jorge Fontevecchia

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