Carlos Fernández Valdovinos, former President of the Central Bank of Paraguay: "The key to reducing inflation lies in the fiscal part"

PhD in Economics from the University of Chicago, Senior International Monetary Fund (IMF) Economist for the Western Hemisphere between 2006 and 2011 and President of the Central Bank of Paraguay (BCP) between 2013 and 2018, Carlos Fernández Valdovinos is one of the architects of success of this country in the fight against inflation: 3.2% per year in 2018. Even in December, the rate of deflation was 0.3%. It was not a miracle: 4.5% in 2017; 3.9% in 2016. Thus, Paraguay has had in the last three years (12.04%) inflation similar to that suffered by Argentina in the first three months of this year (11.8%). The economist has something to say.

Fernández Valdovinos knows Argentina well: he also reported as Chief Economist of the World Bank (WB) what happened on the file under the government of Néstor Kirchner. And then, already at the PCA, he again closely followed what happened in the country because it affected his. However, when badyzing what is happening in Buenos Aires, ask before TN.com.ar make an introduction

Fernández Valdovinos, in Asunción, recalls that "Paraguay is the second oldest in the region, with 75 years, because, unlike in other countries, we have not had since 2003, in addition, what whatever the political color of the president, BCP maintained a monetary policy. And since 2011, we have set ourselves targets for inflation"

"We started with a goal of 5% per year in 2011, with bands of plus or minus 2.5%, then we lowered it to 4% with bands of 2%." We are now at 3 2% per year, but our new goal is to take it at 3%, "he says. "It was not always like that: in 1990, we had suffered the worst inflation: 44%, but we learned a lot: inflation does not have a single cause, but several causes, "he explains clearly showing what is happening in Argentina.

The economist, who had a career at the Central Bank before chairing it for five years, remembers that Paraguay had tried everything: the monetary aggregates of the 80s and 90s, then the fixed exchange rate, still in the purpose of controlling inflation. It did not work there. And warn: "The inflation goals alone are not either: the fiscal part is essential, Hacienda can be your best friend, but also your worst enemy".

"There must be a coordination between the monetary and the fiscal," he insists. In Argentina, after the departure of Federico Sturzenegger, two finance officials turned to the Central Bank: Luis Caputo, then Guido Sandleris. In Paraguay, it was the opposite: Benigno López Benítez, a former member of the BCP board of directors, is now Finance Minister, appointed by his half-brother, President Mario Abdo Benítez.

But for Fernández Valdovinos, coordination between the fiscal and the monetary is not enough either. "Macroeconomic stability has four legs", described. "The monetary, with the objectives, the fiscal, with the law of fiscal responsibility, which accepts a maximum deficit of 1.5% of GDP, the financial, with the Basel III consensus, and the exchange rate, with floating" , graph.

The support of society is also important. "One day, I got angry with a reporter who wrote that" the central bank has not reached the inflation target. We had reached 4.1% while the goal was 4.0%, "he recalls with a laugh." Citizens sometimes despair when newsletters put the price of the dollar, but do not go to the currency purchase. What concerns us sometimes are the purchases of large companies, "he says.

On the other hand, the economist differentiates the different pressures exerted on the exchange rate: "Our citizens have learned that it is not the same thing that our currency depreciates as the dollar appreciates in the world, we see always how it affects neighboring countries. the devaluation does not translate entirely into the pricesCurrency has an impact of 12% in the basic basket. For example, cars grew by 15%, but the change in all prices ended at 3.2% last year. "

The theory of the four "C"

When Alejandro Vanoli the magazine Global Finance I gave him a D for his paper at the head of the BCRA, Fernández Valdovinos took an A for his job at BCP. The same thing happened in 2016, 2017 and 2018, when he was awarded the title of "best central banker" for this publication. Among the remarkable achievements of this economist, there is the low inflation in the neighboring country.

Paraguay ended the year 2018 with inflation of 3.2%, according to official figures of the Central Bank. A figure that would make more than one dream in Argentina.

Born in Asunción in 1965, Fernández Valdovinos holds a degree in economics from the Federal University of Paraná (1990) and a master's degree in economics from the University of Lanzarote. Illinois in Urbana-Champaign, United States. (1994) and PhD in Economics from the University of Chicago, USA. (1999), the temple of monetary orthodoxy.

He began his career at PCO where he headed the Monetary Programming Section (1991-1992). He was then adviser to the head of economic studies (1999-2001) and responsible for economic studies (2001-2004).

Valdovinos then became international and was transferred to the World Bank (Washington), Washington DC, where he was chief economist in Argentina for two years, between 2004 and 2006, before holding a position in the Fund. International Monetary Fund (IMF) as Senior Economist. the departments of Africa, Europe and the Western Hemisphere (2016-2011).

On October 3, 2013, he badumed the presidency of the Central Bank of Paraguay, a position he held until August 2018 and placed himself among his main objectives of controlling the government of Paraguay. inflation.

"It is essential that central banks reaffirm their Commitment with price stability. Studies show that the best contribution that a central bank can make to society is to keep inflation low, stable and predictable, "wrote Valdovinos in an article on" The four criteria that central banks must take into account ".

The other three C's were Communication, the Calculation the actual growth capacity of an economy and the The coordination between monetary and fiscal policy.