Domingo Cavallo’s recipe to overcome “a

Robert Collins

Global Courant 2023-05-14 08:12:28

The former Minister of Economy also expressed how he would know “the true value of the dollar.” He did not rule out “going for dollarization like the one Milei proposes.”

Domingo Cavallo revealed this Saturday what is, in his opinion, the best way to overcome “a critical moment” like the one Argentina is currently going through. Among his main observations, the former Economy Minister mentioned “a comprehensive reform of the economy” and “a new stabilization plan.” He did not even rule out “going for a dollarization like the one proposed by Javier Milei.”

“I think the country will be able to start to function more normally when a comprehensive reform of the economy is really announced, a new approach, and a new, well-designed stabilization plan is put into operation,” Cavallo said in an interview he gave to the program “What do we do with the pesos?” from A24.

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Those were the general considerations made by the economist who headed the convertibility plan in the 1990s. He then delved into the matter and provided more details.

“To reach that situation it will be necessary to plan a unification and a liberalization of the exchange market. This government could start doing it and it would help it reach the end of its term in a more orderly manner, ”he considered.

And he added: “I would limit the official market to strictly commercial transactions, with goods, exports and imports, which can be well controlled. The exchange rate in that commercial market should be adjusted as the Central Bank has been doing. The rate of 8 percent per month does not seem wrong to me. It is more or less in order with inflation.”

He also pointed out that perhaps “the interest rate should be a little higher than what the Central Bank has set” and that “exchange transactions for other types of uses than import payments would have to be derived from a truly free market.” , where operators can actually sell against buying dollars and the Central Bank should not intervene at all in that market”.

“There we would know what the true value of the dollar is,” Cavallo said.

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“I would limit the official market to strictly commercial transactions,” said Domingo Cavallo. Photo Javier Cortez

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In this direction, he indicated that “the way that the Central Bank would have to avoid that this exchange rate is excessively high, would be by managing the interest rate, as is done in economies that have free exchange markets.”

This panorama, he explained, could mutate “at some point” to the “unification of the exchange market”, but that it should take place in a “non-traumatic” way.

“In that double market, the free market, once good fiscal policies and economic reforms that create confidence are announced, the exchange rate in that official market would stabilize or could even appreciate and converge after a certain time with the commercial market”, he completed.

Domingo Cavallo: the “new convertibility” and the “dollarization of Milei”

Cavallo also stated that from the moment that “they begin to implement policies that make it possible to achieve this non-traumatic unification and liberalization of the exchange market, they will be in a position to decide how not only the exchange rate is managed, but also the amount of money, and how the monetary system is going to work”.

“And only then is it possible to think of a new convertibility, combined with allowing the dollar to also function as a currency, in a bi-monetary scheme. And if there are no possibilities of rescuing the peso, go for a dollarization like the one proposed by Milei and Emilio Ocampo, ”he said, bringing the presidential candidate of La Libertad Avanza to the scene.

How to achieve an orderly fiscal adjustment: “reprivatization” and “adjustment of public spending”

Cavallo proposed “planning in a credible way to eliminate the fiscal deficit or reduce spending.” “This should include the reprivatization of all the companies that were restatized and make a transition plan until they are in private hands so that they stop losing money and the government does not have to assist them,” he stated.

“There are a lot of shows that should be cut and revised. They should make a detailed plan to adjust spending and not come with tax increases that are already unbearable for the private sector”, he pointed out.

“There are a large number of programs that should be cut and reviewed,” said Domingo Cavallo.

And he added: “It is a program that does not mean that it must be implemented from day one, but it has to be well designed and supported by a realistic budget, approved by Congress, which allows visualizing that the fiscal deficit is going to be eliminated.”

“The problem with this government is that it set the economy in a completely wrong direction. The people who surround the vice president have different ideas, the president speaks as if he had no idea of ​​anything and the Minister of Economy is pulled, more than (Martín) Guzmán, to whom two by three they make statements that make life difficult for him Cavallo concluded.

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Domingo Cavallo’s recipe to overcome “a

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