President Milei represents a disruptive outlook for many. Not for the Argentine liberals, who for years promoted the policies that reside in power today. Agustín Etchebarne is a reference in that space, and he analyzed Milei’s first days in government for Pulso.
QUESTION: How do you analyze Milei’s first five months?
ANSWER: The truth is that after 20 years of total disasters, we now have a president who wants to fix things. Of course, a super complicated situation, a very deep recession. But above all we see a government very committed to eliminating the fiscal deficit and eliminating inflation. On the negative side, I think there is a lack of support from the political class. It is a government that, in almost six months, has still not managed to pass any law. And that reveals that the majority of the political class does not want to make the change that the population requested through the vote.
Q: When might growth return?
A: I think the economy will begin to reactivate in the second half of the year. It will depend a lot on what the political class does. If the Bases Law comes out, I estimate that the recovery will be faster. If the Base Law does not come out, obviously the recovery will come, but it will be smaller. The recovery is already observed in the countryside, in energy, in mining. There is going to begin to be a recovery at the credit level, which boosts, for example, the construction sector. The repeal of the rental law has significantly improved the offer but also improved the entire real estate sector. Of course, we’re still underwater, right? That is to say, it is improving compared to the floor, which was in March-April, but it is still complicated, and I estimate that next year, yes, we are going to see more solid growth close to 5%.
Q: What outlook do you see regarding prices?
A: Inflation was 25% in December, then it dropped to 20%, then to 13%, to 11%, to 8.8% in April. We expect something below 5% for May, so it is still going down. And that is going to imply a rebound in the second half of the year in consumption as well because, among other things, when inflation is low, pensions begin to recover ground of what they have lost. And so we are going to see several sectors that are going to continue improving.
In any country in the world you can withdraw what you are going to invest, if not, why are you going to invest? It’s stupid. Of course you have to take 100% of the profits, it’s ridiculous that you can’t.
Q: Is this downward inflation path sustainable?
A: What I look at is the balance sheet of the Central Bank. What I saw in December is that we were going towards hypermarket, because the liabilities of the Central Bank were equivalent to almost three times the amount of physical notes, that is, you had three Monetary Bases in liabilities of the Central Bank, that if you paid them you would go to hyper, and those liabilities paid 282% annual interest rate. Today those Central Bank liabilities have been reduced by around a third, we have recovered reserves, because the Central Bank bought 16,000 million dollars, and in addition the interest rates that were at 282% annually fell to 49% effective annually.
Q: Is it an unfulfilled promise that Cepo continues to exist?
A: I estimate that this year will end without stocks. It is not possible to provide absolute freedom from day one, and they are not doing it. They have maintained the trap but with a big difference. The Massa stock lost US$27 billion, the current stock recovered reserves of US$16 billion. The policy difference is abysmal. What changed is the fiscal policy, the adjustment, which then causes an improvement in the balance.
Q: What do you think of RIGI?
A: The RIGI consists of the rules of the game to launch key investments for Argentina. On the same Andes Mountains, Chile is the world’s leading exporter of minerals, and Argentina does not even appear. It turns out that due to ideological problems, we do not exploit the copper, gold, zinc, silver of Chubut. You could build six or seven new cities with mining, with an investment that in copper would be US$30 billion. Another US$30 billion you could invest in Vaca Muerta.
Every time Argentina is doing well and begins to have a healthy currency, the chorus of devaluationists appears to talk about exchange rate backwardness. Argentina is expensive in dollars, because we have infinite taxes, so the formula is not to devalue.
Q: The controversy is the 100% free availability of foreign currency…
A: In any country in the world you can withdraw what you are going to invest, if not, why are you going to invest? It’s stupid. Of course you have to keep 100% of the profits, it’s ridiculous that you can’t. In any serious country there is absolute freedom of currency to enter and leave. There is free mobility of capital throughout Europe, for example. Those who believe there is nothing left do not understand how the scheme works.
Q: Can the government keep sending funds to the provinces on hold for much longer?
A: The provinces have to make the adjustment, which is in fact a smaller adjustment than what the federal government is making. The federal government is showing how they robbed us with food, they robbed us with social programs. They continue to rob us with disability pensions. It is not true that there are 2,100,000 disabled people, there are a lot of people who receive pensions and are not disabled, it is a job. All of those jobs in the provinces and municipalities are as big or bigger than in the nation. The provinces also have to start making that effort.
Q: Is there an exchange delay?
A: Every time Argentina is doing well and begins to have a healthy currency, the chorus of devaluationists appears to talk about exchange rate backwardness. Argentina is expensive in dollars, because we have infinite taxes, so the formula is not to devalue. I am totally against devaluation. What we have to do is lower taxes, have a fiscal surplus and lower taxes. This reduction in taxes will generate a greater fiscal surplus so that you can lower more taxes.
Profile
Agustín Etchebarne has a Bachelor’s degree in Economics (UBA) and a Master’s degree in Economic Development (ISVE, Italy).
He is a professor of economics at the University of Belgrano and at ESEADE.
Executive Director of the Libertad y Progreso Foundation, the largest center of liberal thought in Argentina.
He is the author of the book “The key is freedom, the path from poverty to abundance.”
