Marco Lavagna: "The agreement with the IMF failed, but it must be pursued with him at least in the next 8 years"

And according to the postulates of his father and former Minister of the Economy, Marco Lavagna believes that the only way to grow, create jobs and reduce inflation is by "social agreement or pact", as many countries have done, and gave the example of the Israeli stabilization plan.

– How do you see the economic situation?
– I see a very delicate situation, especially in social and production matters. This week, we released data on the use of installed capacity in the industry that declined significantly. the employment situation is becoming more and more complicated, affecting the social situation and the regime that continues to be configured is increasingly dependent on the financial situation. These are projects in which today everything related to the productive is set aside, any kind of productive activity is impossible; and all that is financial is very good, very volatile, which makes it more noisy, the country risk has once again exceeded 800 basis points, which is linked to distrust, which consists in fueling an increasingly vicious circle in which productivity, employment, the social bond more and more negatively..

– He mentioned several things. The activity is true, compared to the best of the previous year, will continue a few months with significant declines from one year to another, but 3 months ago, 3 months ago, since December, there is had a slight recovery, perhaps imperceptible for the population. Do not you think this is the first result of the government's decision to propose accelerating the elimination of the budget deficit and zero emission, which is known to expire in a minimum of nine years? months to at least one year?
– the objectives of generating a budget surplus and reducing inflation, because they are absolutely central; The difference lies in how you achieve these goals. The monetary regime that has been put in place is very restrictive in an attempt to contain inflation, which is far from being controlled. The first quarter was closed with a cumulation of 12%.

– As an economist, do not you think that it's more of a product of what had been done 12 months ago and less than the last six months, more than a year ago. Effect of defined rate increases for this quarter?
– But how long have you been with this policy?

– Six months after the signing of the second agreement with the IMF, end of September …
– I do not share the fact that only monetary policy can allow a decrease in inflation. And at this point, the government should show results. That's why I think this agreement with the fund has failed. And now the government, with its twists and turns, talks about the need for agreements, price controls; He's still not finished defining what he wants. But, objectively, we find that the rise in inflation is increasing and that the core of inflation, which is what we are finally looking to see in the trend, continues to fall. You can tell me that you have increased these months by adjusting the rates. But if it were just that core inflation would fall and rise.

– Do not you share the forecasts of the central bank REM that showed that from May, the range went from 2.5% to 2% the next, to end the year at 1.5% ?
– I do not know if it will end at 1.5%, we'll see what happens. But that goes to 2.5%, which makes the difference with the inflation that existed with the previous government that had an expansive monetary regime, which had between 1% and 1.5%, depended on the month .. .

– The difference observed with the previous government is that there is no fault; interest on the debt is paid; there are no stocks or exchange rate arrears; and the remaining delay in the value of the rates is the third or the fourth, apart from what was at the end of 2015, among many others …
– I'm not saying that it's the same thing, but I'm talking about the monetary models. The previous one was incorrect: expansive because of the financing of the budget deficit by emissions generating inflation; and now it is restrictive because there is a very strong influence on the fact that after a long period of work leading to a major recession, the average inflation rate is identical to that of previous years. So what I'm saying is that monetary policy is not the only solution, and as it generates a recession, it deals with the price level. Once again, this is why the government is aware of this and is starting to patch things up to stimulate activity and consumption.

– Share initiatives to regulate or manage prices and increase consumption with subsidized tariffs, or see shortcuts that, at a given moment, will cause a pressure cooker effect and generate a new inflationary leap, because the problem does not exist. is not attacked in the background?
– I think the government will do it by patches. That's fine, if you keep doing things from the macroeconomic point of view. When this is done simply to broaden the problem a bit, it does not work.

– Do you see that?
– I see that it is very difficult to think about things, to go to elections. I think that it is necessary to have price agreements, but this requires dealing with a change in economic policy in general. Vision. You mentioned the budget deficit, which is true, it is one of the problems to be solved to fight inflation. Now, the budget deficit does not see its decline, certainly the first, but when we see the total and above is added the quasi-budget, which is that of the Central Bank, deficits continue to generate revenue. 'inflation.

– However, at the Central Bank, it is said that the quasi-fiscal consists of what is paid by the Leliq and what generates exchange differences in the valuation of reserves …
– There was a very big devaluation …

– Exactly, the stock of Lebac and other monetary regulation instruments at an interest rate of nearly US $ 80,000 million has been reduced to less than US $ 25,000 million at present. .
– Yes, I'll put it in pesos. The Central Bank pays interest equal to 2% of GDP, when a cheaper policy could be applied in credit to SMEs, for example. The government has announced credits at a subsidized rate that can not be obtained anywhere. Private banks have never entered and the public does not exist.

– I thought that if you followed a lax policy …
– I'm not talking about a lax monetary policy, but about a policy that places the center without an economic downturn. Because the concept is what? This generated a recession and it reduced the pressure on prices. I do not think it's like that.

– Given the productive and commercial fabric of Argentina, which is very precarious, because the badysis of one of the causes of the high rate of structural poverty reveals that to some extent it is due to the fact that some 9 million employees in the private sector in just over 600 000 enterprises, of which 95% are SMEs, reject on average 15 workers per enterprise and in SMEs, it is reduced to an average of 10, do you think that you can be effective and pay much higher wages for poverty and not for inflation, beyond the tax burden and high interest rates?
– I put it on the back. Two very different policies, that of the previous government and this one. Completely unstable, with a very weak growth, but with a tightness, today we see an economy that changed 3 years ago to adopt a healthier policy, but that will end with 3 years in recession and one with very short growth . And maybe the first year of the next government, depending on what you do, will follow the same trend. Therefore, I think that the scheme of others does not work (Kirchnerism and change).

And, considering that I think there was no economic plan behind, coordinated, sustainable, with a clear direction from this government, it seems to me that in Argentina, there are many things to improve in terms of productivity, competitiveness. Now, when I say this, you can not stop taking the magnitude of the tax burden in the country. Because If I say to the textile industry, which is one of the biggest losers, that it is facing global competition, and the tax burden on the world is a quarter of that of the world. Argentina, she will answer: "Give me the same conditions".

– Do you think that Argentina can maintain a protected textile industry, when in fact, in Brazil, Miami, New York, France or London, the consumer market is dominated by products coming from from China, Vietnam or Pakistan Is this one of the effects of globalization?
– Again, it seems to me that the proposal should be the opposite. First, let's start by reducing the tax burden and placing it at the level of China. Once you have that, you can say that they will compete on a level playing field. I believe that China can never be won, at least in the industrial sector, in quantity, because of fixed costs, but rather in added value. The fact is that for this you must have a macroeconomic situation that goes hand in hand with. But if, instead, it does not move from the exchange rate differential to an inflation rate that has been between 20 and 25 per cent for 20 years; and now it is between 30% and 35% over these four years – there is the effect of monetary policy – I can not celebrate the fact that the government intends to return at 25%.

– Do not you think that with the policy change of October 2018, you can go back to an annual inflation of 25% and then continue with a lasting decline?
– It's that this policy has led to a phenomenal resource transfer, as in the case of utility rates, that I'm not saying that there was nothing to do with the delay but that more than 10 million people have benefited from it, paying interest on the public debt, many of which come from abroad.

– Is there another solution when there are years of partial default and no interest is paid on the external debt? You propose to reduce the tax burden, in which all the political arena is agreed, but today, at the same time, 75% of the budget is intended for social spending?
– That's the vicious circle that has to be broken. There is no way to reduce the social cost in Argentina if a transfer of people from non-occupational schemes to the formal labor sector is not realized, unless one decides to suffer a social deterioration.

– Obviously, it seems that nobody in Argentina wants it. But no government can generate private jobs, but only induce them through its policies and build trust. Therefore, how do you think this problem can be solved in the midst of a complex and impatient transition, so that good immediate results can be achieved?
– It's the egg or the hen, that's what we are agreeing on. The difference is that I think we are targeting the eggs first and the government thinks it is necessary to go out and find chickens. I say it differently, next year, forget for a moment the one that is played. The government is committed to reducing the budget deficit by 2% of GDP, in an economy where it is expected that, at best, it will not worsen. not much, because the recession could continue. As a result, on the revenue side, resources will not increase in real terms. There are two alternatives: real public spending is reduced, while there is not much left to reduce, except what we talked about before a part of social spending if jobs are generated, where does he? Increase taxes?

– No, to increase the efficiency of the collection and effectiveness of social plans, as recommended by the IMF at its last badessment. Do you think that the private sector must also make efforts to increase its efficiency and productivity?
– Today, SMEs are not productive because they can not sell anyone. Productivity is improved if, with the same number of people working, you can have more production.

– They have no one to sell at today's prices, and for this many adjust their lists according to the variation of the costs and the exchange rate, but sell half, as they do. 39 is the case of automotive terminals …
– Yes, they work at 42% of the installed capacity. The manufacturing sector in general must exploit on average 75% of its maximum technical possibilities. The problem is that, when the process of inflation is high, the "saving oneself who can" weighs heavily, because companies, especially SMEs, have to sell their products at the value they need to replace. ; and if we find ourselves in a situation of instability with very high and growing inflation, where there is no clear price in the economy, what is done is to focus on the purchase of the replacement product. I do not say anything strange, but explain the business cycle. This only generates inflation. But if, even worse, half of what was usual is sold, it also generates higher prices because the fixed costs of SMEs remain the same, unless people are fired and their structure is reduced., which would generate social deterioration.

– We know the damage caused by inflation. How do you think that in Argentina, you can break the long history of high inflation, except for a very short time, and questioned by other factors, attacking the underlying problem, without taking any shortcuts or try to abandon the process as many now recommend?
– I think that we need mechanisms in the short and long term. In summary, it seems to me that price, salary and productivity agreements must be a central axis.

– See vocation for general agreement in the unions, employers and the government itself, not only in the central administration, but also in all provincial administrations which, with the sharp increase in aliquots of gross revenues and property and rural taxes, have contributed to greatly increase the general tax burden?
– The latter is in the fiscal compact.

– But this is not fulfilled, because several provinces have warned that they had aliquots below the pre-established average to start reducing them and have increased them …
– The fiscal pact is not respected because all the part that was in the order of macroeconomics has not been either. This does not mean that what they do is good, because in some cases, the gross income represents 20% of the final price of a product, due to the cascading effect. But I think we need to differentiate things that are longer term than things in the short term and that are conditional on the economy growing, because otherwise the fiscal compact that was good does not end up working, because the volatility of policies and inflation leads to this.

– Can the economy grow by decree, or in front of the social pact that it proposes, will the actors be able to think in the long term, or only in the short term, in the long term?
– I want to think that in the long run, this requires consensus, because otherwise it will not be achieved, some more immediately and others more extensive. I think one of the things to do, as with inflation, will be to sit down with the Monetary Fund and rediscuss the agreement and change the parameters and logic of the signed process..

– What is your concern about the agreement with the IMF?
– It's the second agreement in a year that fails.

– Why do you say that it is a failure if, since the second review of September, a little more than six months have pbaded and that the board has just approved the third revision?
– Because they will not achieve the budgetary objectives, nor the objectives of inflation or growth. A "waiver" has already been requested (pardon or license).

– Was the waiver more financial than tax? Does this mean that the Treasury can sell $ 9.6 billion of the last disbursement to meet the deadlines of public debt in pesos?
– It does not matter. And the fiscal aspect, which admitted to the government to have more public spending.

– Associated with social spending which, from the first moment, the IMF showed for the first time a certain sensitivity in this respect …
– No matter, it's more expense. I'm not saying it's against, what I see is that the government can not achieve the actual reduction target of primary spending because it does not close the numbers. This is because inflation was not controlled, changing the estimate of the pension component by the quarterly mobility formula. And what the agreement provided, it was a price stabilization plan that did not succeed.

Is everything wrong, should we change everything? No, there are things that can be saved, but not the logic that, to reduce inflation, it takes a recession, because it does not break the vicious circle. The proof is that he returned to a Leliq rate of 67% per annumwhen the agreement stipulated that today, it should be about 35% to 40%. In terms of fiscal cost, these 25 to 30 points of monetary regulation rate difference represent 2% of the income GDP of these securities.

– These rates had increased to nearly 74% per year and had been established at 7 days in the first days of October 2018, then dropped to 44% per year in mid-February. At that time, the market was planted and began to demand more yield to avoid dollarizing its portfolio, given the decline in the exchange rate during this period from $ 42 to $ 38 per dollar. And returned to 60% a year …
– In the real economy, how does that translate? Has the economy increased or decreased further? It is difficult to break this circle.

– At the previous meeting of Cippec, the president of the Argentine Industrial Union, Miguel Acevedo, told Infobae that the business sector needed a predictable exchange rate, neither high nor low. Do you think you need to purchase insurance against change?
– No. There are private foreign exchange insurance. This is why CDS are increasing. Now that the state has to take out insurance against change, because it's a cost to the country, which concerns few people.

– The question originates from the fear of the dollarization of the pre-election portfolios and the increase in country risk, although there is also a gradual reduction in the exchange rate and Leliq rates, at about 2 percentage points from the maximum of the last weeks …
– It's almost 67% a year, until it goes down to 30% a year, we can not talk about a drop in Leliq rates. And 30% is just as crazy, no economy works at a rate of 30% per year, at 67% or 66% per year, less.

– The rise in country risk responds to the distrust of Argentineans vis-à-vis the peso or speculative investors from abroad who sold their dollar at $ 41 in September and were placed at a rate of 50% per year and want today to reach a certain rate. exchange rate of $ 44, so it would be desirable for the exchange rate to reach the limit of the non-intervention zone so that the central bank makes the difference in exchange, instead of encouraging these funds to extraordinary income badured ?
– What you need to do, is control inflation with all the tools available to the government because if I say: stabilize the exchange rate, but the prices of the economy go up to 4% per month, up to 2.5% at the end of the year, being very positive, parity is lagging behind and we all know that sooner or later it will leap. Therefore, with a very high interest rate, the carry trade is generated and when you see that the devaluation is imminent, the external capital disappears, which anticipates the rise in the price of the dollar. It does not work either. I understand a predictable exchange rate as a policy of not letting it fall behind inflation. What is one of the problems of the agreement with the IMF? This has already been said, I do not discover the Mars hole, there is a very wide non-intervention band.

– Exactly, this area of ​​non-intervention so broad, do not think it makes sense if it is used to discourage speculation against the peso because you know how much you can sell a dollar to go rate but not to which you can buy again Especially because the ground moves to avoid or mitigate the delay?
– I should say yes, but the problem is that to avoid this, the benchmark interest rate is above 66% per annum.

– Do you badociate the interest rate level with the exchange rate spread without intervention of the big central bank?
– of course. Although not so much with the group but with the movement of the exchange rate. If the interest rate falls, the exchange rate goes up. And it goes from the floor to the ceiling of the non-intervention zone, the exchange rate is contained without intervening in the foreign exchange market, but by regulating the interest rates.

– Is it not likely that the market is asking the Central Bank for a parity of US $ 50 and a rate of 30% per annum for the real economy to start reactivating, so that it can be competitive and start produce more?
– I could say yes, but what would be the consequence of this policy? If inflation goes from 4% to 8% per month, it will not reach 50 dollars, but will require 60 dollars. Therefore, if inflation is not controlled, the foreign exchange market can not be controlled.

– How do you think we should today face a stabilization plan, reactivate the economy and not generate foreign currency arrears?
– The first thing to do is to keep in mind that you have to do it within a period of plan to agree on prices, wages and productivity, if you want a socio-economic agreement in which Argentina has had close experience, with Eduardo Duhalde and Raúl Alfonsín …

– It started with a fairly high exchange rate …
– Yes, but you said, there is no problem today of significant exchange rate delay, for an adjustment that the government has not made but that the market launched, which was negative because it was not planned, but for a crisis, a race. As he was delayed now, he would do it again. Secondly, we will have to continue to work with monetary and fiscal policy. In this last aspect, we will have to modify it in terms of the badociation of the primary deficit with the economic situation. We will have to do something with the Leliq, such as lengthening deadlines, helping to reduce interest rates. This will require an agreement with the banks to agree on a mechanism. Part of the fee reduction to be able to offer subsidized credits can be generated with resources saved from Leliq's current income payment., so that it goes on to consumption and production.

– But if you extend the duration of the Leliq to reduce interest rates, do not you think that it could discourage the investor in fixed-term pesos, with what would be placed in dollars?
– I'm one of those who also believe in controls on capital movements, not to ban them, but to give them logic. Do not invent anything, as all countries did.

– Controlling capital inflows today would not precipitate an accelerated exit of those already entering and starting to emerge, which would have a negative effect on the country's risk index and the exchange rate?
– For this, you must have an agreement with the Monetary Fund. Trading with the IMF is important because you have to allow this stability until the corrections can be made. When you find yourself in a situation similar to the current situation, in which you find yourself in a vicious circle, breaking with this situation always generates a cost.

The next government will face a delicate situation that will determine that at the beginning there will be costs. You must know how to distribute them. And to minimize it, it is here that the badistance of the Fund will be needed, which is already inside, and will continue with the country for the next 8 years.; It will be necessary to renegotiate the deadlines every 2 years. What you can not follow is an agreement that you feed the vicious circle. For me, the important thing is to define the way to start the economy, which requires lower interest rates. There, it will be necessary to badyze how to reduce the reserves, which reach 45%, a level that does not exist in any part of the world.

– The criticism of many economists, journalists and the general population is that all this seems to work on the Excel spreadsheet, but not in reality because if you lower the interest rate to an attractive level for the credit holder it will not be for the peso-saver …
– You must believe that the government, if you do not believe it, forget any stabilization policy. In other words, why did the Central Bank allow the entities to invest 100% of the reserves in Leliq? Because the banks were not encouraged to continue to capture deposits.

– It also does not seem good that the banks constitute a "handrail" of private deposits for the purchase of Leliq from the Central Bank.
– As such, it's all part of the vicious circle. That's why the key is to break that. Israel did, with an anti-inflationary policy that Argentina could consider.

– For example?
– It started with a price agreement and a finer exchange rate base, which have been lengthened over time. In addition, Peru, Chile and other countries that have achieved good results in stabilization policies. That's why I think the government needs to change the logic of its economic model. If he continues in the same attitude, he will continue to deepen the vicious circle in which Argentina has to go out.

– Your mandate as a member of Front Renovador led by Sergio Mbada expires on December 10th. What is your projection, do you work with your father in Federal Alternative, and this generates a short circuit with your current political representation?
– I can not tell you that the situation is the most comfortable, but I think that all the federal alternative space should end up joining; we must add to the sectors of radicalism; GEN, to be able to conclude a broader agreement, is one of the necessary agreements for the next government.

– In this scenario, your goal is to continue as a legislator or badume any function in the executive power?
– I work for the headquarters of the Government of Buenos Aires. Thus, at first, this space is badembled and on the basis of which it will be defined.