Sunday, June 23, 2024

ECONOMY | 29-04-2022 16:32

Jeffrey Sachs: ‘Argentina needs the continuity of reasonable policies, not heroics’

Renowned economist Jeffrey Sachs on Argentina’s IMF debt restructuring deal, the global economic impact of Russia’s invasion of Ukraine and post-pandemic politics.

Renowned economist Jeffrey Sachs says that Argentina’s ongoing problem with inflation is due to its poor reputation in the international financial markets. He stresses that the country should “avoid large swings in policy” and “heroics.”

Sachs, an advisor to Economy Minister Martín Guzmán on Argentina’s debt restructuring process with the International Monetary Fund who visited the country recently, is confident that the targets outlined in that deal will be met. 

The 67-year-old believes confidence can be restored and that the normalisation of international credit financing must be achieved in order to achieve long-term economic stability.




Considering your position [calling for] a review of the global financial system to make it friendlier to developing countries, how do you view Argentina’s recent debt refinancing agreement with the IMF?

This is a good agreement. It gives Argentina time to recuperate from the upheavals of the past decade – the debt crisis, Covid, Ukraine War – and to chart a new long-term growth path.


Do you think Argentina’s agreement with the IMF is a novel agreement, outside the parameters of the organisation?

The terms are quite reasonable. There are no stringent or harsh IMF conditions, and none were needed in my view. The basic problem of Argentina is the country’s bad reputation in international capital markets, and therefore the difficulty of refunding government debts on a routine basis. With a large tranche of debt to the IMF falling due, this IMF debt needed to be refinanced. The new IMF agreement accomplishes that. 


Do you think that the pandemic has softened or weakened the international lending agencies, especially the IMF?

The pandemic has made clear the need for more financing on non-punitive terms. The IMF is responding to that.


One issue that generated a lot of discussion in Congress was the reduction of subsidies, one of the IMF’s demands. Do you think energy subsidies should be eliminated or are they necessary as part of workers’ wages?

I think the government negotiated a reasonable arrangement across many different issues. The programme should be viewed as a package, and I think as a package, it’s very reasonable. 


Do you believe that the debt refinancing agreement signed with the IMF is sustainable?

Yes. It will be a good idea for Argentina to re-enter the international capital markets in the coming two years so that the debt repayments from 2024 onward can be refinanced in a regular manner rather than in a crisis mode. 


IMF Managing Director Kristalina Georgieva said last week of the Fund’s new spirit: “I am determined to support our members however we can … Now is the time to take this opportunity to build a better world.” Did the IMF contribute, in the past, to creating this ‘worse’ world?

The rich countries, led by the United States and Europe, have been utterly inattentive to the financing needs of the poorer nations. The result has been too many debt and financial crises, and an inadequate flow of capital. The IMF could have done more in the past to solve this crisis, but the IMF is, after all, governed mostly by the rich countries. The IMF leadership now is working hard to address the chronic underfinancing and illiquidity of development finance. 


Of the 85 countries that received pandemic support from the IMF, 73 of them have been forced to undertake austerity measures in the name of “fiscal consolidation.” A recent Oxfam report records wage cuts in Tunisia, the reduction of social benefits in El Salvador, the elimination of energy subsidies in Egypt. IMF austerity leaves the top 10 percent of earners economically stronger, but only impoverishes the bottom 90 percent.

The problem is not the IMF conditions overall. The problem is Covid, combined with the chronic failure of the entire global financial system to provide an adequate flow of financing to developing countries. The system is broken, and needs urgent fixing. This should be the priority of the G20. 


Contrary to its “new spirit of solidarity,” interest rate surcharge fees doubled from US$1 billion to US$2 billion between 2019 and 2021, while the number of countries facing surcharges increased from nine to 16. By 2025, the IMF expects that number to rise to 38. Recently invaded Ukraine, in just two years, had interest surcharges of US$423 million, equivalent to 25 percent of the country’s entire healthcare budget. Do you share Joseph Stiglitz's criticism of interest surcharges on less solvent countries?

Yes, these interest surcharges definitely make matters worse. The surcharge policy should be ended. The G20 should recommend that. 


On your recent visit to Argentina, during your lecture at the Economic and Social Council, you said that “there are no obstacles to a new period of stability and growth for Argentina.” However, many economists and politicians in the country are against import taxes on agricultural products, which are the main sources of dollars for the country.

My point is that Argentina has the human capital and the natural capital to thrive. What is missing is the financial capital. With a normalisation of financing, and with the macroeconomic stability that would come with that, Argentina could experience significant economic progress. My additional point is that the debt levels of this country and the overall budget framework are both manageable. What is needed is the continuity of reasonable policies, not heroics. 


You also said that “Argentina’s economic situation is better than that of many countries that criticise it, but its reputation is the worst in the world.” What is Argentina’s bad reputation down to?

Argentina’s bad reputation is due to its financial history, not its current realities. This country has had so much inflation, so many defaults, so much turmoil, that the world expects new crises in Argentina. I would like Argentina to prove these sceptics wrong!


The fact that “Argentina has 50 percent inflation and zero reputation,” according to your own words. Is it not a problem for the economy and for possible foreign investments in the country?

Of course, it’s a major problem! My point is that it is a solvable problem. The inflation is not because of current irresponsibility, or heavy debts, or massive budget deficits. It’s because of a bad reputation, so that the government lacks access to normal market borrowing on normal terms. I would like to see Argentina win back a good name in international finance. If one looks at the data, at the actual budget and debt situation, this is possible to do. 


Do you think that the IMF, under Kristalina Georgieva’s leadership, has a new, more supportive spirit and that its prescriptions for the poorest countries understand and adjust to the idiosyncrasies and economic realities of each country?

Yes, she is doing an exceptionally good job. And she helped to guide a good and effective IMF agreement with Argentina. 


In the National Congress, a bill presented by the ruling coalition is being debated. It consists of paying the debt to the IMF with undeclared assets – that is, with the dollars, properties and stock market instruments – that Argentines have abroad, for which they do not pay taxes and which is estimated to be around US$300 billion. What do you think of this proposal, do you believe it would be correct and viable?

My basic hope is that the IMF debt will be refinanced in the form of new long-term loans from the international capital markets, which would replace the short-term debt owed to the IMF. The interest on the long-term loans should of course be serviced by taxes. The tax system should of course be fair and transparent, including the payment of taxes on all income, including overseas income as subject to law. 




In many countries across the world, after going through the hardest stages of lockdown and economic contraction due to the pandemic, in most of the countries where there were elections, ruling parties lost the elections, and there was a shift of voters to the right. In France, for example, there was a ballot between the centre-right (Macron) and the ultra-right (Le Pen). How do you analyse, or what do you think, of this shift to the right in the world?

As a supporter of social democracy and multilateralism, I am of course against a shift to conservative economics and nationalism. I think that progressive parties need to campaign hard on the benefits of social democracy and global cooperation. 


If in Argentina’s presidential elections of 2023, a new neo-liberal government takes office, do you think it would be a mistake to change the economic policy that the government of Alberto Fernandez has been carrying out?

I think this country should avoid large swings in policy, or new “heroics.” This country needs healing and sustainable development after a long, tumultuous period. I hope that a large consensus on reasonable policies can be formed, and that 2023 will see stable fiscal policies in an election year!




Do you think Ukraine should agree to neutrality, with regards to being part of NATO, and also give in to Russia's requests for autonomy of the Donbas regions along with the annexation of Crimea in order to achieve a diplomatic peace agreement?

Yes, definitely. If Ukraine had declared neutrality and the US had agreed that NATO would not expand, there might have been no war at all. 


If Ukraine gives in to Russia’s requests, could this be seen as a Russian victory and Ukraine’s loss of independence?

Neutrality is not a loss of independence. Ukraine’s neutrality should be combined with a full withdrawal of the Russian military. 


What do you think will happen with food and energy if the war continues to spread over time?

We will have a great deal of suffering in many parts of the world. That suffering is avoidable. The war should be ended urgently, and at the negotiating table. It won’t end on the battlefield. 


What do you think would happen if Putin gets defeated?

I don’t know what “defeat” would mean in this context. Russia has thousands of nuclear weapons – I am afraid that Russia might use them if its conventional forces are thwarted or defeated. I don’t want to test that proposition. I want a negotiated peace. 


How do you imagine the new world order emerging from this conflict, one where Russia is closer to Asia and China and at odds with the United States and Europe?

The US sees the world in terms of US-led alliance – the US versus China, or NATO versus Russia and China, or the democracies versus autocracies. I don’t agree with this approach. I believe in a multi-polar world and all regions of the world living and cooperating together under the UN Charter. 


How likely do you think it is that Russia will use nuclear weapons?

It’s possible. That is shocking and very worrying. 


Do you think that the economic sanctions applied to Russia by the West are working to corner the Russian economy or is it that the West is ultimately harmed by these sanctions if the conflict is extended over time, for example with respect to the lack of gas and food?

I don’t believe that the sanctions will be effective in forcing Russia off the battlefield, or into defeat. Sanctions very rarely have that effect. 


How do you think a renunciation of NATO membership and thus probably of the European Union would impact Ukrainian society?

I think neutrality is much to be desired. It is the prudential step for Ukraine. Ukraine should not have abandoned neutrality after 2014. That was a tactical mistake. The US should not have pushed for NATO enlargement to Ukraine back in 2008. That was a set-up for a crisis. 


If a diplomatic agreement were to be reached, such as the one you point out in your March 28 article published in Project Syndicate, how do you think the world order of the powers Russia, China and the United States would be established?

I would like to see a multilateral, multi-polar world operating under the UN Charter. 


US President Joe Biden presents the war in Ukraine as the continuation of a long struggle for democracy against Russian brute force. Do you think this is really the United States’ struggle or is it an opportunity for it to exercise its hegemony and strengthen it in the face of the decline it has been facing, in the face of the rise in power of other countries such as China, for example?

I believe that Biden has it wrong. We don’t need a struggle of democracy against autocracy. We need a common struggle against poverty, illiteracy, climate change, loss of biodiversity, and other ills that confront humanity. 




In an article you published in El País, you defended the revision of a global financial system, proposing one where developing countries suffer less from the ratings for access to international credit and the high interest rates caused by those ratings. What would a fairer global financial system that really helps to boost developing economies look like?

We should have larger financing flows from the rich to the poor countries, as the poor countries are capital scarce, and have a much higher social return to the investment flows. Yet the international financial system is not functioning properly. It is far too short-term and prone to crisis. 


Global warming has been on the world’s agenda for some years – the 2030 agenda and the Paris climate agreement – with calls for the necessary energy transformation, but this change has not been implemented. Why do you think there is no progress in this regard and what are the social and economic consequences of making this major change, which on the other hand is becoming urgent?

So far, the fossil-fuel interests have prevailed in the main fossil-fuel producing economies, and there has been far too little financing available for zero-carbon energy systems. This is now starting to change, thankfully. 


The mission of sustainable development that the European countries and the most developed countries such as Japan, Korea, China and the United States have set themselves is to do it all together at the same time. Furthermore, this energy transfer implies a large investment to develop it.

We need much larger zero-carbon financing to the developing countries. That should be high on the G20 agenda. 


One of the Sustainable Development Goals of the 2030 Agenda is to eradicate extreme poverty in all parts of the world, how can this be achieved?

The solution is: finance, global cooperation, and well-targeted investments in six main areas: education, health, zero-carbon energy, sustainable land use, urban infrastructure, and digital transformation. 


At the end of March, Argentina’s Productive Development Minister Matías Kulfas presented the “Argentina Productive Plan 2030.” One of the steps outlined is the exploitation of the country’s mining potential, especially lithium, and the offshore exploitation of hydrocarbons. The proposals generated strong rejection from environmentalists and communities close to those exploitation points, but on the other hand, they would generate strong amounts of foreign currency revenues. You are an advocate of sustainable development, and the UN urges the world to put an end to the coal, oil and gas era. Do you think that progress should be made in the development of the exploitation of these resources and the derived industries?

Hydrocarbons will be viable into the 2040s and 2050s only as a source of zero-carbon fuels (e.g. hydrogen) or for zero-carbon energy, in both cases by using carbon capture and storage (CCS). Otherwise, large-scale hydrocarbon investments today are very likely to be stranded in the future. This country has vast renewable energy potential, and should prioritise those energy sources, and should plan to use hydrocarbons only in the context of a zero-carbon energy system, that is, for blue hydrogen or for power with CCS.


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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