Why did Luis Caputo use the dollars, the Messi of …

The Minister of Finance and President of the Central Bank of the Government of Cambiemos, Luis Caputo, reappeared publicly. A series of supposedly “technical” comments aimed at keeping the price of Argentine bonds sunk was its first test of public reaction to its reappearance.

Caputo then dived directly into a political defense of its leadership. A critique of the restrictions that the IMF imposed on foreign exchange interventions after the 2018 agreement, which resulted in a extreme dollar volatility, was the basis for shifting responsibility for its failure to the then leadership of this international organization.

Then went to the usual tactic of all former Macrista officials: to dilute the fiasco of their work in the supposed long economic decline of the country. “75 years ago we blamed the debt, the dollar and inflation,” said the market called “Messi of finance”, then pointing to “budget deficit” as the underlying cause of all evil. .

Caputo’s proposal shows how the ideological blinders of orthodox economists prevail over the facts, even when they live, they directly manage the economy. The idea that the public deficit financed by monetary issues was the cause of inflation and dollarization led to the contraction of external debt at the start of the Macri administration.

Since there was no social support for a sharp adjustment in public spending, the way to stabilize the economy by reducing inflation and pressures on the dollar from an orthodox perspective was to finance the deficit by l issuance of bonds. However, the data shows that despite financing the deficit through debt instead of issuance, inflation has not come down and neither has dollarization.

The real effect of taking credit was not to avoid inflationary issues as Macri’s economics team suggests, but get dollars to generate some short-term exchange rate stability. The structural problems that had created the shortage of foreign exchange in CFK governments, associated with the dependence on imported energy, inputs and means of production, as well as the dollarization of the financial surplus, remained intact. However, its effects were neutralized by the abundance of foreign exchange provided by the debt.

The argument that the debt came from the public deficit is contradicted by Caputo’s own statements in February 2018 after the last bond placement on foreign markets. At that time, and faced with the ultimatum of the international banks according to which there were no more dollars for the Argentine economy, he stressed that there was no need for more investments since the financing needs of the state were covered.

After a few months, a race on the exchange rate showed him that the credits were not really taken to finance the State, but to cover the red of the currencies of the private sector. So they closed after the biggest credit in history with the IMF, which also ended up financing a historic capital flight.

@AndresAsiain