José Luis Daza is the strongest candidate to succeed Joaquin Cottani as Luis Caputo’s new vice minister of Economy. He is one of the Wall Street executives with the greatest knowledge of Argentina in particular and emerging markets in general. He was a director of JP Morgan and Deutsche Bank and is founder and CIO of QFR Capital Management.
This 65-year-old Chilean economist (although he was born in Buenos Aires while his father was a diplomat), with a PhD in Economics from Georgetown University, spoke with Infobae about the first steps he took Javier Milei, the new government’s relationship with the market and the vision of the relationship between the country and the IMF, among other issues.
Daza said from New York that dollarization should not be a priority for the economic team he leads Luis Caputo and considered it wrong to compare Milei with the former North American president donald trump. The main definitions of it were the following:
“They have in common the style, the way of doing politics. But in substance they are different and their ideas in economics are diametrically opposed.”
“Trump has never read a book in his life. He was not even able to read his own book, written with a ghost writer. In economics he is protectionist, interventionist and likes to use the state to give benefits. He wants to direct the economy to sectors that he believes are important. He is fiscally expansionist, he does not care about the fiscal deficit.”
“It is obvious that he has read a lot. “He wants to open the economy to international trade and eliminate barriers to internal competition.”
“You may not like Milei’s ideas but it is obvious that she has read a lot. “She wants to open the economy to international trade and eliminate barriers to internal competition that protect the lucky few who get rich at the expense of the rest of the population.”
“It is exceptionally fiscally austere. Unlike Trump’s nationalism, he doesn’t have an iota of jingoistic nationalism.”
“Very good given the circumstances. The Argentine economy was like a plane in free fall about to crash and explode in a hyperinflationary ball. Central Bank bankrupt, Treasury bankrupt and debt payments imminent. “They took many ad hoc measures to close the monetary tap and try to avoid the inflationary explosion and default.”
“For the moment they managed to stabilize it and avoid the hyperinflationary explosion. The economic team understands that these measures are not sufficient, sustainable or desirable in the long term.”
“The Argentine economy was like a plane in free fall about to crash and explode in a hyperinflationary ball”
“That’s where the program comes in. Federico Sturzenegger which is exceptionally ambitious and positive. If an important part of the program is implemented, Argentina has an exceptionally positive future ahead of it.”
“The Government is trying to stabilize an economy indebted in dollars, without dollars in the Central Bank, without capital markets, with repressed inflation and with only one economic policy instrument: fiscal policy.”
“One problem is that markets will only see progress in eliminating the deficit for several more months. Meanwhile, Argentina has a quasi-fixed exchange rate regime, in a context where inflation quickly erodes the overshooting of depreciation. “No one knows what the equilibrium value of the currency is.”
“I believe that introducing greater and increasing flexibility to the exchange rate regime to reduce the probability of greater future jumps would reduce risks.”
“In the medium term, the biggest risk is political. Will Javier Milei be able to implement the program? Having been very transparent in the campaign regarding what he would do gives him strong political capital. He didn’t fool anyone. His instinct to go for everything that is needed also helps.”
“Unlike what I saw a couple of years ago, I think that an important part of Argentine society has changed. It was very impressive for me to see how the Argentine “center-right” opposed a substantial reduction in the size of the State and the opening to international trade. It was not just Kirchnerism or the left for whom it was not a priority. “It was the entire Argentine cultural, political and economic establishment.”
“But the failure of the Peronist/Kirchnerist model is similar to the failure of Soviet socialism that led to the fall of the Berlin Wall: absolutely undeniable and catastrophic. Paraphrasing Thatcher, the worst enemy of Peronism is not libertarian capitalism, it is reality.”
“The failure of the Peronist/Kirchnerist model is similar to the failure of Soviet socialism that led to the fall of the Berlin Wall: absolutely undeniable and catastrophic”
“Milei had the virtue, courage and communication talent to present an alternative narrative, a conceptual framework that explained the reasons for the catastrophic failure. The solution was not to better manage the model as sectors of Macriism wanted to do. “It had to be uprooted.”
“Milei’s personality and communication skills played a key role in this change. You needed someone histrionic, who attracted attention, with contempt for forms to clash against the embedded statist and protectionist culture of the establishment. A man with good manners, appealing to reason, would never have achieved it. “Milei’s communication style has made him an international icon.”
“Likewise, there will be brutal opposition to the change from interest groups that were born, grew and subsist protected by a regulatory tangle and fed by State resources.”
“It’s like that. The reputational damage of recent decades cannot be reversed with speeches nor in a couple of years. My advice to the authorities is to forget about Wall Street funds. Let them forget about financial investment and focus on creating conditions for real investment.”
“Reputation is reversed by keeping the word, executing the government program starting with the total elimination of the fiscal deficit so that it is sustainable over time.”
“If Argentina wants to show the world that it has definitively changed, it would emphasize trade opening to the world and the complete elimination of all protectionist programs, including the Tierra del Fuego regime.”
“If Argentina wants to show the world that it has definitively changed, it would emphasize trade opening to the world and the complete elimination of all protectionist programs.”
“The elimination of the Tierra del Fuego regime is a kind of litmus test to point out that Argentina really changed. Paradoxically, it is not a point that I see Argentine economists emphasize, very obsessed with short-term stabilization.”
“The ideas of Federico Sturzenegger They show the way to turn Argentina into the most dynamic and prosperous nation on the continent. But they must be implemented.”
“The Fund finds itself in a unique case in the world where the authorities with whom it negotiates are more ambitious in reducing the fiscal deficit than the IMF itself. That creates a very good environment for negotiation. From what I see in the press and statements from top IMF authorities, there is an excellent willingness in the fund to collaborate. If Argentina complies with what was agreed in these months, there will be a new agreement and fresh resources.”
“The IMF was created for a world that does not exist today, but it remains a useful instrument of geopolitics for its main shareholders. I find it very difficult for there to be substantive changes.”
“There is a problem of incentives. In short, to survive the IMF needs to lend. Their employees need countries to ask for loans, for there to be new programs. They have very good technicians but they are subject to strong political restrictions imposed by the main shareholders.”
“The Fund finds itself in a unique case in the world where the authorities with whom it negotiates are more ambitious in reducing the fiscal deficit than the IMF itself”
“Technicians have internal incentives to agree on programs even if their sustainability is questionable. If they do not work, the goals will be reviewed in the future. There are few cases of failures so resounding that they end careers within the institution. Argentina is one of them.”
“I don’t know what Milei thinks. I imagine that in her mind she maintains the option of dollarizing. “The clamor for dollarization is the population’s natural response to the inflationary trauma of the last fifty years.”
“But to make dollarization viable and lasting, the Government has to do things that if achieved, dollarization will no longer be necessary. As I said: sustainable surplus and flexibility of all markets and contracts.”
“From my point of view it is not the optimal path. Dollarization leaves you exposed to real shocks. If the dollar value of your agricultural exports falls, you need the dollar wages of all those involved in the production chain of those goods to fall.”
“If you can’t depreciate, then nominal wages and other prices established in contracts have to fall. For that you need appropriate regulation that does not exist today. The other problem is the instability of the banking system if you don’t have a lender of last resort.”
“To make dollarization viable and lasting, the Government has to do things that if achieved, dollarization will no longer be necessary”
“On the other hand, I believe that the costs of dollarizing are lower in Argentina than in most other countries. The cost of maintaining the possibility of conducting countercyclical monetary policy has been absolutely catastrophic in terms of inflation.”
“Except for the large fiscal deficit in the United States, I do not see large imbalances that are an immediate threat to emerging markets. We must get used to a world that grows more slowly with the political and conflict consequences that this entails.”
“We came out of the Covid pandemic with a cold war between China and the United States for now. China changed its economic model and returned to a centralized one, led by the state and the communist party. They are going to stagnate. What happened to Chile could happen to China, which stagnated before achieving well-being for the majority of the population, generating enormous frustration.”
“Latin America is irrelevant to the world beyond the prices of raw materials, soccer players and Mexican and Peruvian food. They see themselves as failed societies that in 75 years could not close the gap in income with that of developed countries. Asia did get it. As the difference in income will continue to increase, one day we are going to wake up and there will be 50 million Latinos at the border trying to enter the United States. There the United States is going to pay attention.”
“If Javier Milei manages to implement most of his program and if his ideas take root, Argentina will be the exception. It will be the most dynamic and prosperous country in the region. The most important thing is that if it is successful it will intellectually impact the entire continent. Others will follow their path.”
