Argentina's Definitions of a Leading Economist in the United States

Martín Uribe is an economist, an ordinary professor at Columbia University in New York and a research badociate at the US National Bureau of Economic Research (NBER). He studied at the National University of Cordoba and obtained his Master's degree in Economics at the Center for Macroeconomic Studies of Argentina (CEMA). This university brought him to the country this week to give an international seminar of economy within the framework of the camps of Ucema.

Uribe received a Ph.D. in Economics from the University of Chicago and was part of the International Finance Division of the Board of Governors of the US Federal Reserve (Fed). He has lived in this country for 20 years, but does not rule out returning to Argentina. A position in the civil service, and more specifically at the Central Bank, would encourage him to make a decision.

In an interview with
THE NATION, The Cordoba badyst said that the benchmark interest rate of the central bank at 60% was not sustainable and that, although it seems paradoxical, a reduction of this rate would contribute to believe that a weak inflation rate is possible. "I would add to the system a normality that it does not have today," he explains.

– How do you combine all international uncertainties about trade war with local uncertainties about elections?

– Argentina is in a very abnormal monetary policy situation. It is a very rare situation in which the interest rate is 60% and the rate of monetary expansion of 0%. The Central Bank has no more excuses for not starting to lower rates anymore. Argentina has made a big step forward since the agreement with the IMF, which was to interrupt a very detrimental process of transfers of resources from the BCRA to the Treasury. I put it at the same level as the loan the Fund gave us. Once this step is taken, there is no reason for monetary policy not to return to normal. A sound monetary program would be to increase the rate of monetary expansion from 0% to 6% and start a process of reducing interest rates from 0% to 15%.

-Why do you think they do not lower it then? Are you worried about new dollarisation of portfolios?

One of the reasons is that if interest rates fall, people go to the dollar and increase the currency. I think that reason is not well founded, because in this situation it is justified and it would be good if the plant used the reserves to absorb Leliq in the process of reducing rates.

– In which way to use reserves?

-Pay the Leliq with reservations. The argument is that if rates go down, the BCRA will have to absorb Leliq with pesos. But these weights can be sterilized using reserves.

-Do you have enough reservations?

-Yes, the Leliq represent 40% of the reserves. BCRA should feel completely free to use all the necessary reserves to continue the process of reducing non-issue interest rates.

-What can happen if this rate level is kept as high?

-C is totally unsustainable. I hope that the strategy of the Central Bank is that rates start to fall when inflation decreases, but I think the standardization process must be different. The BCRA must start lowering interest rates without waiting for inflation to start to fall. One of the problems for which the inflation rate is not low is this very rare combination of zero interest rate and 60% interest rate. This is a very abnormal combination, which we do not see in many countries of the world. It's something that needs to be standardized very quickly. Lowering rates will help people begin to believe that low inflation is possible, even if it seems paradoxical. I would add to the system a normality that it does not have today. The situation we have is totally useless, because the most important step of having interrupted the process of transfer from the Central Bank to the Treasury has already taken place. With this measure, there is no reason to continue to have rates of 60%.

-Why is the inflation rate still high if the budget deficit falls sharply, if the trade balance is in surplus and more money is issued to finance the Treasury?

Inflation is down, but there is a lot of uncertainty in the economy. There is the external, but there is also a lot of internal uncertainty. The tax situation of Argentina is very delicate. It is true that there is a primary fiscal deficit of about zero, but the secondary deficit [financiero] It is still very high and unsustainable in the long run. The primary fiscal outcome should be about 4 percent of the GDP surplus to keep the fiscal position sustainable, given the level of debt. The way in which the budget deficit has been reduced to zero is a very unorthodox and highly unsustainable method in the long run. This has been practically done thanks to the retentions and the brake of public works. These are the two basic ingredients. There have been no major structural reforms. Much remains to be done and monetary adjustments take time and have delays that are sometimes uncertain and very long. We are reducing the inflation rate, but it will take time. This is why it is important that the Central Bank lower interest rates because they constitute a factor of uncertainty in the process of disinflation of the economy.

-Why do they generate uncertainty? Why is a Leliq ball formed?

– Because it will be a ball of Leliq and that it creates a lot of uncertainty. There is no reason for rates to not start falling now. Many people say that this can not be done now and that we have to wait until the end of the elections, but if I were Macri, I would love to tell SMEs that the interest rate is going down. I do not understand why voting is bad to lower rates. Among the reasons why I've heard that rates do not go down, I do not share any.

-Coincide with your colleague
Guillermo Calvo that a government of Cristina Kirchner would be better for the market because it would make unpopular reforms
What did this administration not do?

-No, I totally disagree with that. Mrs. Kirchner's government had no vocation to badume a heavy fiscal responsibility. It has eroded virtually all tax institutions. This government, even though it did not implement the necessary structural reforms, began to recognize that we had a fiscal problem, a debt problem and started a process of rate re-composition which, unfortunately, has now delayed for the elections. It is a bad electoral policy. It is trying to fix with the provinces a rationalization of public expenditures. Therefore, the story does not tell us what will happen, but what can happen. On the basis of the history of recent years, Ms. de Kirchner's government and Mr. Macri's government have used much more conducive measures to streamline and solve the tax problem. If one of the two must remedy the fiscal situation, Macri is much more likely to do so than the Fernández government.

-When the government took office, the market was hoping things would be different and yet, at one point, management was lost. When do you think it happened?

-The course has taken a little, but unfortunately it cost us a crisis.

– Was it avoidable?

-I think the crisis was preventable. The tax situation inherited by the government was really very serious. Tax institutions have been totally eroded, in a state of absolute overload, overflow, without even having reliable data to badess the situation inherited initially. All this combined with a flaccid gradualism. As a result, the match began to be lost from the start. The crisis finally materialized when, from within Cambiemos, the area of ​​Lilita Carrio and Alfredo Cornejo questioned the re-composition of tariffs by the government, which was the only dimension on which progress had been made. It was the straw that broke the camel's back, but we already had a very difficult financial situation due to inaction.

– Was the situation underestimated?

-The costs of a tax adjustment were oversized and the benefits of doing so were underestimated. We had a crisis and we had a
sudden stop, the rest of the world stopped lending us very suddenly last April and we had to go through this crisis, which led us to ask the Fund to solve our credit problems. The Fund, whenever it lends money, demands an adjustment. We had to start the process of adjustment seriously during a recession. It would have been better to adapt before the recession.

-When do you think the financial market will open again for Argentina?

– Insofar as political uncertainties are lifted and elections are held, and the government shows signs of wanting to continue this process in which the fiscal situation is changing, the markets are still interested in Argentina. The country has great potential. You must see that we are walking in the right direction. That's enough.

– Can there be another currency crisis?

-I hope not. The Central Bank and the Treasury are both determined to try to normalize this situation and I hope that the BCRA will quickly begin to normalize the rate problem. I hope that once the elections are over, the path of tariff normalization left out will be resumed and that inefficient and oversized state that we have begun to be resized. By acting in this direction, we will be able to avoid a currency crisis.

-Guillermo Calvo also said that the economy could fall further. Does this coincide or believe, like the IMF, that the country could develop next year?

– All the signs that I see seem to indicate that we have reached our low point and that the economy is slowly recovering. of the
sudden stop It is usually difficult to get out quickly, especially if there is a serious interruption of private credit. It is difficult for the machine to restart, but the signs I see are rebounding, although very shy, but I do not see the fall of the economy.

IN ADDITION