Redrado, about a possible common currency with Brazil: "It's an empty idea of ​​content"

Martin Redrado he was president of the Central Bank of the Argentine Republic between 2004 and 2010 and vice-chancellor of Argentina between 2002 and 2004. It is for the latter that one can add to his economic and monetary knowledge his experience in bilateral relations with Brazil.

On this basis, PROFILE He asked him what possibilities he had attributed to the idea of ​​the single currency between our country and the Brazilian state, which circulated yesterday. And Redrado considered it unsustainable, at least in the short term: "It's still an empty idea of ​​content because it is necessary to chart a path towards convergence of fiscal, monetary, public spending and regulatory policies. If the technical teams had started to work on this convergence, we could say that the road was opened. But this is nothing more than a coffee conversation, which shows good intentions but which, until now, is empty of content. "

What should be agreed in advance?

– One of the bases of the single currency is perhaps the mechanism we created in 2009 with Henrique Meirelles, between the two central banks, which allows trade between Argentina and Brazil in pesos and reals without going through the dollar. In other words, Argentine exporters pay in pesos and Brazilian exporters in reais. And use pesos and reales in foreign trade. This process can be deepened, with greater guarantees from the Central Bank. This path could already be covered, but it should be deepened. But none of this has been mentioned yet. I think it was just a conversation in the air.

Does the Central Bank of Brazil have greater independence?

– In general, one could say that Brazil has stronger institutions, not just a central bank. His institutional system is much stronger. Its tax institutions, its legal institutions, the independence of the judiciary. We have seen in the specific actions of Judge Moro against corruption. It is a country with much stronger institutions than Argentina, which of course has a stronger central bank and a trajectory that has already had an annual inflation rate of 3%. This already shows the difference between one country and another.

Is it more Argentina that has to do its homework?

– Yes, but we must also propose convergence in tax matters. And there is work for Brazil and Argentina, namely that if both countries were really willing to use a single currency, the tax rates should be the same. For example, at the national, provincial and municipal levels and indicate what Brazil is. The Nobel Prize winner Robert Mundell was writing in an article that talks about what is an optimal currency area. To achieve this, you must have the same regulations, the same taxes and the same regulations. Also the same banking regulations. Therefore, if you want to follow this path, there are jobs in both Argentina and Brazil. Of course, in our case, we must stabilize our main misalignment, namely the rate of inflation. But if you want to advance in a common currency process, you have to chart the way back and forth.

– What should be the priorities of the bilateral relationship in economic terms, beyond this question of money?

– I would put it first in the physical integration, in the infrastructure integration. When we consider economic integration, we need energy integration. And in this sense, President Jair Bolsonaro spoke of the need to build a new dam such as that of Garabí. It is also important to remove regulatory barriers to the free movement of goods. We still do not have a common internal market, products still face regulatory hurdles. We do not have the same sanitary and phytosanitary standards. We should have a Senasa in common, for example. A common mechanism also for drug approval. That is, institutions that are common and make us an integrated market between Argentina and Brazil and not an imperfect common market.

– Is this a problem in Mercosur?

– The good intentions must be accompanied by facts and a good work program and that is what is currently missing at Mercosur. I think we need to think seriously about whether we really want a common market where the free movement of goods and people is ensured. As is happening in the European Union. We are still very far from that. We have an imperfect tariff agreement and, for many products, we do not have a common external tariff. There is a lot to do in terms of business integration, physical integration, institutional integration, integration of standards for the free movement of products. And then, if you want a common currency, you have to consider a way of convergence of the main macroeconomic policies. I am talking about fiscal policy, monetary policy and tax policy. It's a process that can take decades.

– What is your reading of the statements of yesterday?

– According to the statement made yesterday by the presidents of yesterday, the wishes expressed are positive, which is positive. When Bolsonaro took office, the continuity of Mercosur was questioned and we instead found a willingness to seek better channels of integration. But you must seriously consider what is achievable in the short term.

JPA EA