Martino: Argentina needs a very competitive discussion

Gabriel Martino: I think the heaviest thing happened. The economy should start giving good news. June was better than May and July will be better than June. If you take quarterly, it will be better than the previous one. When you take the statistics from year to year, the months of July and August will give you better than last year that the numbers were very low. Go ahead Argentina needs a discussion about a very strong competitiveness and about the fact that the country is competitive to insert us into the world. I think you are on the right track with global agreements. Chile accounts for more than 90% of its GDP in global agreements and we have less than 10%. For Argentina, the only way out of where we are stuck is medium-term guidelines and insertion in the world. If we do not sell and generate real commercial dollars, we will unfortunately not succeed. That is why the agreement with the European Union and all that can be done intelligently is welcome.

Q :: For agreements, we must resolve structural competitiveness.

gm: Argentina has to solve crucial problems. First, the exchange rate, but it is not the most important. The country has serious infrastructure problems. Over the past three years, this has been well thought out, but since Menem, it has not been invested in infrastructure. You also have a regulatory problem to solve. Argentina, after many years of populism, has been deregulated by a regulated market. This is not a bad word. We must also reduce the tax burden, that is to say that Argentina still has 35% of the informal economy and we need to work harder. (Leandro) Cuccioli does a great job at AFIP, but it is more medium term. And we must lower taxes because Argentina remains an expensive country. These are the pillars on which you must start working.

Q: Is a financial bridge needed to advance tax reform?

gm: The formalization of the economy requires that all actors, including regulators and the public and private sectors, work together. This is not the same as formalizing the economy in a country growing in a country that does not grow. The tax reform started by the government seems to be on the right track, but we must move forward in areas as disruptive as gross revenue and provincial and municipal taxes. In the financial system, we pay more in gross income than in income tax. So the problem is that you are hurting the consumer, the saver who pays you less interest rate or the borrower who will charge you more interest rates for the loan. 39; absorb. cost Today, there is a unique federalism in Argentina because the provinces have a surplus. Second, provinces should work to reduce the tax burden and generate excess infrastructure, which will enable us to secure investments that create sustainable jobs. Look at provinces like Mendoza, where Cornejo has taken the province completely disorganized and now has fewer jobs in the public sector and more private investment. I always say this example, we finance the company Simplot which has invested 70% of its production in exports. In three years, it can export between 270 and 300 million dollars of potatoes, which fundamentally modifies the productive matrix of Mendoza. Then things can be done by working well between the public and private sectors. This is the only way we need to help the entrepreneur who generates risky investments to get a sustainable job. You must give them the necessary tools in terms of regulation, infrastructure and taxation.

P: During the election year, the dollar gets late. How to get out of the permanent cycle of delay and devaluation?

gm: In Argentina, unfortunately, we have a purely transactional financial system and we do not have a capital market, and Argentina's saving, which spares the same as the Latin American average, is outside the system. We must therefore generate savings in Argentina because the beginning of the economic cycle is characterized by the entry of dollars. For example, the Macri government, when it took office, had a deficit of 8 percentage points of GDP. How can I finance it, with dollars that I bring from the outside or with the small machine that we know it does not work? Companies need to invest and you can not access the local capital market because banks have limited lending capacity because the financial system is small. You must import foreign dollars to invest. The issuance of the dollar will be problematic until Argentines have the confidence to start saving. For years, Argentina has had negative rates: the only thing it has done is to hurt the saver. So there is no raw material for companies to take the money. Today, it is very difficult to determine whether the dollar is late or not. Last year, it rose from 20 to 40 dollars and it is not that exports have been multiplied by three. Argentina has a problem in its productive matrix, so we need to think long term, work together and be a normal country. What are you trying to do now. That's why I say that the dollar is one more tool and not the only one. Argentina can no longer live more in deficit because we do not keep the word and we are puzzles in series. We have a lot of work to do at home to reduce spending and reduce the weight of the state to reduce taxes.

Q: Is the stability of the dollar sustainable?

gm: The plant now has many tools, including the surprise factor. In other words, when you can intervene when and how you want, it is much more powerful. Sometimes it is better to have fewer weapons and use them than to have a lot of them and not to use them. The exchange rate should accompany inflation, it would be an unimportant mistake. More with this so high rate of return, inflation of 2.5% is still high and the exchange rate must continue.

P.: Positive rates for the saver and regain confidence, manage to develop the financial system?

gm: There are examples of how quickly trust is obtained. Today, there is a record of dollar deposits since convertibility. Last year, we had a record number of natural and legal persons investing in a pooled fund. Nobody claims that money laundering will bring people to Argentina because it is not necessary either, but if the flow of savings stays in the country. I think this type of trust comes quickly, which is why it is important to respect the institutions and respect the rules. It is important to respect the rules of the game and not close the market at a bad time and open it at the right time. Maintaining the rules of the game is an badet for Argentina.

Q: Should we regulate speculative capital?

gm: I think that one of the mistakes made by the Central Bank at the time was to give Lebac the freedom to let those outside the financial system buy it. That's why I think it's very good that the Lelic can not buy it beyond financial entities. The famous carry trade exists worldwide, in countries with open economy. There is a carry trade between the yen and the dollar, between the euro and the dollar, but when we see the story, the countries come out better when they are more open. Of course, you have to put rules on the carry trade, but that's not a bad word. The question is how you transport it, because as long as you do not generate trust and savings in the country, the carry trade can help you a lot.

Q: He said that the economy has already hit a floor, do we have to resign ourselves to cycles of ups and downs?

gm: As long as Argentina follows the path of normalcy, that is to say, cleverly interfering with the world, executing contracts, reducing the deficit and paying off debts, we can have sustained growth. We need to launch a program to make Argentina competitive, and that goes beyond the political cracks. We must make investments for the real economy. Until April 2018, before that sudden stopAs economists like to say, Argentina was investing 18 points of GDP, that's a high figure and you had to go to 90 to reach that level. As a society, we must decide which country we want, a normal country or not. And then agree basic conditions such as respect for institutions and the rules of the game. That's why I insist that President Macri maintains the financial rules of the game for four years. This is not a minor problem. This means that you have a history of dollar deposits because people know that it can take them from one day to the next. After the 2002 crisis, Argentina had a historic chance to be a different country. We had a default and said we were not paying anyone and we were starting from scratch, the international prices of all products had gone up and the Argentine state had been pretty small. I understand that the crisis generated poverty and that it had to be addressed, but a matrix of production and investment could have been created, in-dita. Now, you have the cycle again with favorable rates in the world and Argentina has five sectors that should start if we tackle competitiveness issues such as gas and oil, tourism, oil and gas. knowledge economy, agribusiness, mining and the pharmaceutical sector.

Q: Should we renegotiate the agreement with the IMF?

gm: The Monetary Fund is similar to the Central Bank of Banks, it is a lender of last resort when countries need help. In Argentina, the Fund was considered a bad word for bad practices that it had adopted in the past. But it must be emphasized that in 2015, we had one default and 8 GDP deficit points. In fact, avoiding a crisis is a great badet for President Macri. However, the Fund may have already had to work with Argentina well before being a lender of last resort, taking into account the 8-point GDP deficit and knowing that the machine does not constitute a means of work in the medium term. I think as long as Argentina will follow the path of normalcy, no matter who will govern, the Monetary Fund will work with Argentina to help it move forward.

Q: How do you badyze the inflation and rate curve?

gm: First, I always like to say that rates must be positive for the saver, otherwise the saver subsidizes the rest. The discussion must therefore focus on the positive nature of the fees. Inflation is down, I think part of the problem with inflation is that rates are now quite in line with what they should be. Inflation should then go down, but we should not be obsessed with reaching inflation in two minutes, but it will take time. If you doubt that inflation goes down and that rates must accompany it.

Q: Is Leliq's stock worrisome?

gm: The Leliq exist because it is a monetary policy tool. The financial system has contracted by more than 40% in real terms over the past 14 months and the money has to somehow be sterilized by the Central Bank. This is the liquidity tool needed to turn the Leliq into pesos when loans start to increase.

Q. Have you changed your outlook on the Fintech?

gm: No, as I still maintain Fintech, you must first let them grow and then regulate them. The discussion we can have now is whether the time has come to regulate them or not. In Argentina, we have a very transactional financial system and the loans to GDP are weak. In fact, if you regulate them today or next year, the system will be exactly the same.

Q: What are your economic projections at HSBC?

gm: It seems to me that there is so much political uncertainty that it can have an impact. There are a lot of things that can happen in the first 90 days of the next government with respect to the steps you can take to improve competitiveness, and any number given to you is relative. What Argentina needs is sustainable growth every year, not 6% a year. stop and go; we must grow at a pace necessary for the Argentine economy to generate more competitiveness than the countries to which we want to sell. Which is not surprising to think that the economy, without surprises, exceeds 3% in the last two quarters because last year was bad.

Q: Because of the situation, did HSBC have to change its business plan?

gm: HSBC is the only global bank that actually manufactures universal banking services in Argentina, and we are present in the medium term. HSBC needs to work on connectivity to support its customers around the world. I believe that Asia is Argentina's natural partner and we can help Argentinian SMEs look for work in Asia to sell and attract capital. The customer is our leitmotif.

Q: Why do you consider Asia as Argentina's natural partner?

gm: I agree that Argentina should be the supermarket of the world. If the country generates value-added products, the biggest buyer of this product is in Asia. We are not looking at the Asian market, we are looking at China for convenience for a while. However, Vietnam is one of the five largest trading partners of Argentina. There are many things we can do in Asia, and that is the goal of banks like ours. Do not look for short-term weight with Leliq, because HSBC does not build a structure similar to the one it has in Argentina.

Q: Is it an advantage or not to be a global bank?

gm: It has all the advantages and disadvantages in life. After all, we sell a commodityit is the same product that sells one bank and the other, and you have to differentiate some things and see what is your added value for each of your products. The first difference is capital, when you talk to a local bank, it's impossible to compare it. After that, you can offer connectivity and we are present in more than 60 countries. The example was with the Argentine trade delegation that visited Vietnam and India this year. The added value is that we could tell the Argentineans who is who in each country, with whom they can badociate, with whom they can generate more value and that all the banks can not do it. It also gives you the opportunity to have higher value-added products that are more responsive to customers around the world. We also have a difference in all that is investment banking, which for a local bank is more difficult to support the world's companies for debt investment, in that we are the number one bank. In short, you have more advantages than disadvantages.