Global Courant
“If I say that he gets out of the stocks in one day, it is in one day, do you understand me?”
Mauricio Macri raised his voice before trying breakfast. It was March 18, 2015 and he, a candidate for President for the Pro (later Let’s Change). His main promise was to stop overnight the restrictions on buying and selling dollars that Amado Boudou, the former Kirchnerist Economy Minister, had announced in 2011.
That morning Macri was visibly upset. This is how some of those present at breakfast at the Buenos Aires government headquarters on Avenida de Mayo remember it. Among them were Gabriela Michetti, Esteban Bullrich, Guillermo Dietrich and Francisco Cabrera, his officials in the City and who would later go to the Nation. Some today remember that episode; others, more vaguely. They immediately connect with the fact that the afternoon before Macri’s morning discharge, one of the economists who worked next to him, had challenged him in public. Carlos Melconian had said on the radio that the promise to lift the stocks in one day was “just a title, do you know what it takes to change a disorder of twelve years? December 11 is a title, but not to be copied like that. On the radio you have two minutes to speak and Macri needed a degree in economics, do you think that ten months before you are going to be defining the measures of December 10 at night with precision?
“With me the dollars will be left over!” Macri jumped in the morning when he read about ‘Melco’ in the newspapers. “As of December 11 there is no stocks.”
Macri’s position challenged warnings that, curiously, arose in his own space, about this strategy to follow.
The former Minister of Economy of Chile Andrés Velasco had declared, just a few hours earlier —at an event organized by Banco Ciudad itself— that “it would be foolish to liberalize the dollar in 24 hours. It is not necessary to disarm any populist scaffolding, it is necessary to understand that countries do not start from scratch. You have to hope for the best at the start of a government but one must be prepared for the worst.
A few months later, in a meeting at the offices of Mario Quintana, from the Pegasus fund, (Quintana would be one of Macri’s main advisers in the Cabinet Office), the economists Miguel Kiguel and Guillermo Calvo warned in front of Federico Sturzenegger, defender of a quick exit from the stocks at that time and with a view to December of this year, that carrying out something like this would trigger inflation and increase the risks of ending up appreciating the exchange rate to ‘anchor’ expectations, if others were not corrected beforehand relative prices. Kiguel and Calvo proposed unfolding the exchange rate as a transition scheme until the dollar was unified.
The proposals of Velasco, Kiguel and Calvo lacked enough ‘muscle’ to twist a decision made and that Macri was enthusiastic about. Sturzenegger was the president of the Central Bank.
Eight years later, when not, the same thing is being talked about again in Argentina and in the PRO.
The presidential candidate of that space, the right-wing leader Patricia Bullrich, promises like Macri to get out of the stocks quickly (“We do not believe in the policy of getting out of the stocks little by little because nobody will make decisions with the stocks, we will only postpone the start of the stocks ”, he said two months ago in front of businessmen).
And Horario Rodríguez Larreta, head of the City of Buenos Aires, a rival of Bullrich and with more center-right ideas, answered. “You can remove the stocks in one day but you are going to look for the dollar at $500 and poverty would explode.”
As if that were not enough, this week the former Minister of Economy Domingo Cavallo appeared. And what did he say? Something more similar to what Larreta expresses and even, to what Kiguel-Calvo had mentioned in 2015. Said in Creole, for the former minister today what Macri did cannot be applied.
Because?
“Because the imbalances in the relative prices of goods and services accumulated today drag a much more important delay than the delay that is registered in the price of the dollar. So if there is an immediate exit from the stocks and the exchange rate increases, the prices of the rates, which were already behind, would be much more behind and on top of that there will be more inflation, not less, due to expectations and inertia,” Cavallo explained in a seminar of the Fiel Foundation.
“Unifying and liberalizing the exchange market,” the economist continued later, who was only interrupted when his wife Sonia Cavallo corrected him live for a date on which he had been wrong, “means removing all controls from the exchange market, including those that prevent the repatriation of capital and the sending of dividends. Because in order to stabilize, conditions have to be created so that the price of the dollar attracts the entry of foreign currency to the country and that this greater offer helps to lower its price. But it cannot be done at the beginning of the next management”.
The “step by step” of the minister to get out of the stocks and apply a stabilization plan would be like this: “First there must be a reorganization of the economy and that it be well explained to the public, go to zero total fiscal deficit for a long time and an opening of the economy”.
“Thinking of balancing the fiscal accounts with a big inflationary shock like in 2002 is a mistake because it would be reversible in the future.”
“An unfolding of the exchange market could help today. Some exchange rate fixing at the beginning will be necessary because this economy is bi-currency.”
Thus, applying a stabilization plan could only take place in 2025, according to Cavallo.
And this time? Which side will prevail in the PRO? Will Bullrich listen to the advice that Cavallo gives to the economists who advise her?
