Federico Poli: “Milei is in a trap like the one Sturzenegger put Macri in”

In dialogue with Diario RÍO NEGRO, The economist Federico Poli reviewed Milei’s management, and warned about the risks of exchange delay. Likewise, he was in favor of the Large Investment Incentive Regime (RIGI).

QUESTION: What do you observe regarding Javier Milei’s economy?
ANSWER:
The inheritance received is the worst since 2002 until now. A combination of multiple crises and imbalances in all macroeconomic balances, without a cushion of any kind to draw on to resolve the issues. When you receive an economy in this state, you have to prioritize what you attend to first and make policies based on that priority. The Government today finds itself in a trap that, in a sense, is similar to the one that Sturzenegger put Macri in in 2015. It is true that society’s demand is inflation, but believing that you are going to be able to collapse it in very short term and putting all the instruments and making the story based on that, is a trap that confronts you with dilemmas and problems. One is the exchange rate delay. The way out of this crisis should have been like that of 2002, based on a high exchange rate that boosts net exports and investment. I am aware that it is easy to say and complicated to do.

The Government today finds itself in a trap that, in a sense, is similar to the one in which Sturzenegger put Macri in 2015.

Federico Poli, economist.

Q: Do you think the exchange rate delay is a serious problem?
A:
I think it is the Achilles heel of the program, along with the depth of the recession, which is historic. The monetary and fiscal policies of Sturzeneger in the Macri and Milei era are different. But the two played with one of the anti-inflationary anchors being the exchange rate delay. In 2018 the economy fell due to macro inconsistency because you were precisely using the exchange rate anchor, with high interest rates. The current government deployed three price disciplinary elements. One is the recession, the other is the fiscal anchor and the third is the exchange rate anchor. The exchange rate is on a path of increasing backwardness, which is inconsistent with the needs of the economy today, which is like the Latin American economies of the mid-80s, restricted in the capital market and that have to have a surplus in the current account to amortize the capital owed abroad. What we Argentines know is that if you delay, you will have problems later.

The exchange rate delay is the Achilles heel of the program.

Federico Poli, economist.

Q: It is a dilemma for the Government…
A:
The economy is facing a series of trade offs. One is that, if the economy grows, you need more imports and it affects your external accounts. Today you have a strong trade surplus due to the deep recession. If you sustain the recession, you are better in the external accounts, you are better in inflation, but the fiscal surplus begins to eat you up. Later, if you improve the real exchange rate, it will hurt your inflation, but it will improve your external accounts. It is clear that the Government made a story that put the fight against inflation as an exclusive economic policy objective, and is making the behavior of the rest of the variables depend on that objective.

Q: Many economists point out the lack of a long-term stabilization plan, which is very short-term. What do you think?
A:
There is no stabilization plan with an income coordination policy. The Government has been testing a strong policy of containing public sector payments and a disorderly honesty of relative prices. The idea of ​​a shock release of the economy’s overall prices, without signaling in semi-regulated markets, such as prepaid medicine, was not the way. In fact, they are retracing that path. There are prices that merit dialogue and signaling on the part of the public sector. And then the removal of subsidies that is now beginning to slow down, in a scenario where you were left with old salaries with new prices. There is an issue that had to be managed and that it seems to me was not managed. Today 80% of the exchange improvement was consumed.

The Government made a story that put the fight against inflation as an exclusive objective, and is making the behavior of the rest of the variables depend on that objective.

Federico Poli, economist.

Q: The liquidation of foreign currencies from the gross harvest is slow due to the backward exchange rate, and that also complicates the possibility of lifting the exchange rate.
A:
The Central Bank is increasing its reserves because there are stocks that block the purchase of dollars. This reserve situation does not say anything about whether or not there is an exchange rate delay as some economists postulate. It would indicate that there is no delay if the exchange market were free. That, in the current situation, it is difficult for the Government to see how to get out of the exchange rate delay does not mean that you deny that there is an exchange rate delay, that you do not see that there is a problem there. In this situation you cannot get out of the trap. Perhaps a transition alternative is the exchange rate split as some postulate.

Q: What are your opinions regarding RIGI?
A:
The RIGI is, perhaps, the greatest success of the reforms proposed by the Government. Because Argentina needs a great investment shock to exploit its natural resources, and we have several problems. We do not have financing, we have a poor reputation, due to the regulatory disasters and lack of legal security of the last 20 years. And there is a window of opportunity of no more than 20 years for many of these productions, which mainly has to do with climate change and technological transformation. In the discussion that is taking place in Congress, instead of determining whether the benefits are excessive, Argentina’s problem is whether they are sufficient to attract the investment we need.

The RIGI is, perhaps, the greatest success of the reforms proposed by the Government.

Federico Poli, economist.

Q: Isn’t 100% free availability of export currency excessive?
A:
It could be discussed whether the criteria of the mining regime, which is the obligation to liquidate 30% of the currencies, are not applied with respect to the settlement of foreign currency. Now, we must take a finer look in comparison to the regimes that neighboring countries and countries that exploit minerals are applying. What we cannot do is remain in less favorable benefits than these others. The Uruguayan free zone allows you free entry and exit of foreign currency, for example. We have to be careful about making so many changes to the RIGI that it loses its forcefulness. It would be necessary to modify the possibility of entering used capital goods, to put national producers of capital goods on an equal footing with respect to imports, and study whether it is 70/30 in the settlement of foreign currency, but nothing more. . All the rest would be non-compulsive. When these companies are working, if there is an industrial policy, the Government can dialogue with them and ask them to get involved in a supplier development program and so on. But the investment has to be there, Argentina today is insignificant.

Q: Only large investments?
A:
No, I think that, together with the RIGI, a regime to encourage investment by SMEs should be proposed, like the project that we sent, in 2015, with Roberto Lavagna, from the Ministry of Economy and Production, which allowed automatic deduction of reinvested profits. Which, by the way, I remember that he had a half sanction in Deputies.

Instead of marking whether the benefits are excessive, Argentina’s problem is whether they are sufficient to attract the investment we need.

Federico Poli, economist.

PROFILE
Federico Poli


He was Executive Director for Argentina and Haiti at the Inter-American Development Bank (2018-20).
He was Director of the Economic Affairs Division of the Ibero-American General Secretariat (2006-14).
He was Chief Economist of the Argentine Industrial Union (1999-2002).
He was Chief of Staff of the Minister of Economy of Argentina (2002-03).
He was Undersecretary of SMEs and Regional Development of Argentina (2003-06).
He is a columnist in Perfil, La Nación, Clarin and El País (Spain).

 
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