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José Luis Machinea (Puerto Madryn, Argentina, 1946) was President of the Central Bank of Argentina from 1986 to 1989 and Minister of Economy from 1999 to 2001. He then held the executive secretariat of the Commission Economic Community for Latin America and the Caribbean (ECLAC). until 2008. It can be said that he is an expert on Argentine crises. Now he considers it essential that Mauricio Macri and Alberto Fernández come to an agreement.
Request. What can you expect for this Monday?
Reply The government seems to have made the decision to put a lot of money on the market, which can, in a way, prevent or reduce the purchase of dollars. The question is, for how long? If the uncertainty persists, it will not have permanent effect. Then there is the issue of dollar deposits, which are down. That does not bother me because they have a 50% reserve requirement: they can fall by half and there will always be money at the Central Bank. It would be worrisome if the peso deposits were reduced because it would mean that people buy to buy dollars. This has not happened yet. In this country, when the dollar becomes more expensive, people buy it more and more.
P. How many similarities are there between this crisis and that of 2001?
R. When I left the department in March 2001, the deposits were at maximum. From there, people began to withdraw their deposits and, although the arrival of [Domingo] Cavallo was a country risk improvement that lasted a short time. There was a liquidity problem as a lot of debts were due each month. Cavallo tried to build a bridge with a loan to finance the two or three year deadlines. Interest rates were very high, 10 or 12% of the debt, and insolvency became a reality.
"In this country, when the dollar becomes more expensive, people buy it more and more"
P. What lessons has this crisis left?
R. I was in all crises, including in that of [Raúl] Alfonsin In crises, there is always an economic component and a political component. At Alfonsín, the economic situation was very poor and [Carlos] Menem saying that he would not pay the debt before three years, he would double wages and lower taxes. It accelerated the race [contra el peso]. We tried to negotiate with Menem the transition, but he did not want it. There was an economic problem that became explosive when politics complicated the situation.
P. Does this link this crisis to the current crisis?
R. The economy has problems, at least, since May of last year. Solvency problems were complicated by liquidity problems. Then the political factor was added. It can be badessed whether the statements of [Alberto] Fernández was reasonable, but there is a presumption of the markets that a Fernández government will be similar to that of Kirchnerism. And the markets work, although Fernández tries to prove that it will be different.
P. Why is it so difficult for Argentina to control inflation?
"The Argentinian crisis leaves the IMF in a complicated position "
R. Because with 20% or 25% inflation, we adjust wages and rates to reflect past inflation. There is an inflationary inertia. Even if we apply a very restrictive monetary policy, we can not stop it. This economy has been experiencing high inflation for 70 years. One of Macri's problems was to think that monetary policy would solve the problem as a whole. This is good for the Federal Reserve or the ECB. Here you have to combine fiscal, monetary and income policy.
P. What will the next government inherit?
R. If there is no consensus, the government that comes forward will have a much more complicated situation. If deposits in dollars and pesos start to decline, you will not have local financing. And it will not be external either.
P. Is not Fernández's goal that Macri badume the full political cost of the crisis?
"Macri thought monetary policy was going to fix everything"
R. But part of this cost will be that there will be no financial system for granting credit. It's a problem for everyone, so I say that some consensus is needed. The crisis will not be as serious as that of 2002, but there will be virtually no investment and if deposits continue to decline, there will be no financing in the domestic market.
P. You are familiar with multilateral organizations. What is the IMF's position on the crisis in Argentina?
R. It's in a complicated position. I'm not saying that the Fund bet was bad, but it went wrong. [Christine] Lagarde is gone and it is clear that the Fund's bureaucracy now has a lot more weight. Without leadership, the bureaucracy of the Fund is needed, afraid to blame it and that's why they say "put an end to this story".
"The crisis will not be as serious as that of 2002, but there will be neither investment nor financing"
P. How do you see future relations between the IMF (International Monetary Fund) and Argentina?
R. Argentina must reprogram the due dates and must therefore interact with the IMF. The Fund will set the conditions and a negotiation is forthcoming. Being extremely aggressive with the Fund, while paying politically, can complicate the future relationship and cut access to credit.
P. Can we hope that Macri and Fernández reach an agreement?
R. The opposition is tempted to say "the worst, the best", but in this case it's worse for everyone. Reaching a certain consensus is imperative. If Macri and Fernández do not agree, we will all suffer: this government, the next and the people.
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