Carlos Melconian: "More than fighting it, the Government has become a partner of inflation"

- Is Massa's buyback plan a currency intervention disguised as a debt buyback?

- Yes. It is an indirect mechanism of intervention in the dollar counted with liquidation.

Also, I hope you don't think that it is a mechanism of permanent use.

- How?

r what?

- The IMF already frowned upon the intervention of the Central Bank and the ANSeS.

Economy cannot return to the methodology of the Central of selling 200 million per month, although what they have done is partially different from that.

It is an unrepeatable mechanism.

And of course, what is being done has nothing to do with trying to lower the country risk to facilitate the Government and companies to the capital market.

I insist, it is a shot at once.

I would put it within the set of inefficiencies of economic policy.

- In your opinion, what is the government looking for with this type of announcement?

- It is one more announcement in a process that started in August 2022, when Massa took office.

They seek to find miracles to stabilize the fragile economic situation and now they are also looking for how to get to August 2023 this time. Cristina Kirchner gave Massa silent support to take neoclassical adjustment measures aimed at avoiding the dollar soaring and inflationary acceleration, since it was thought that since they were at the exit of the Guzman-Batakis duo they would not reach December 2023. The reformatting was political and economic.

- And what have you achieved so far?

- The priority was to stabilize, but we are far from going for other claims.

The stabilization is always the current comparison against how we were in August 2022. And no more.

Macroeconomically, this excludes having eradicated the suspicion of an exchange rate jump ahead and an inflationary acceleration.

Politically, the 100% alignment of the political alliance that won in 2019 has not been achieved. And competitively, it has not yet managed to project itself as a winning or competitive candidate in the presidential elections. They have put away the specter of mega-devaluation and spiralization, for now.

But not much else.

- Can we expect a drop in inflation from these levels?

- We have a problem there.

Lowering inflation today, under these conditions, is nothing more than postponing it.

And this is a problem about which I want to alert the next administration.

Current inflation cannot drop much further if the essence of monetary and fiscal policy is not modified.

And again, I want to warn about the need that what is not done now is going to have to be done by the next government.

- What do you mean by postponing it?

- The tariffs continue to be stepped on beyond the cut in subsidies to the households that earn the most.

The dollar continues to be depressed with evident exchange restrictions.

Spending on subsidies and social spending is not clear.

And the nominality of public spending continues.

They are leaving a problem for the next government.

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- Seen this way, it is an electoral and political anecdote.

It is an expression of wishes said in terms of sustainability of a process.

It's hard for me to look at just that topic because they're going to monitor the supermarkets...

- This week it was reported that the fiscal deficit dropped to 2.4%, less than that required by the IMF.

Finally, as Guillermo Calvo said, is Peronism the only one that can make an adjustment without social upheaval?

- Here's a question.

This is not a genuinely closing fiscal deficit.

The Government, more than fighting it, has become a partner of inflation and this goes against society as a whole.

Inflation of almost 100% liquefies spending, which nevertheless continues to be highly nominal.

This is not the political will to close the fiscal deficit.

It is the liquefaction of the expense that everyone pays.

Because that three-digit inflation is what is liquefying pension and social spending.

It is unsustainable over time.

- Why?

- Here I want to distinguish between the liquefaction exercise only to reach spending and the genuine intention of lowering the deficit without making everyone pay 100% inflation.

You have to tell the truth to society in terms of the future.

We are in an ascending nominality in spending that requires more and more continuity of the inflation rate to lower it.

We cannot accept that thanks to 100% inflation the deficit is attacked.

The whole society pays for it.

Regarding the deficit, we must demand that this government deliver a balanced fiscal situation, like the one it received in 2019.

- Massa also says that he does not ask the Central Bank for pesos to finance the deficit.

Is it so?

- This deserves an explanation.

There are those who say that the Central Bank cut the issuance to finance the deficit.

This is not real.

A distinction must be made between direct monetary issuance and a phenomenal indirect issuance in two ways, the repurchase of bonds in the secondary market and a whole set of implicit modifications in reserve requirements that gives the system loanable capacity to be able to buy Treasury bonds.

Direct monetary issuance is “calm”, but monetary aggregates fly.

- What is the problem that you see in this way of reducing the deficit?

- It is that it will encourage the question of whether another Remes Lenicov or another Erman González will be necessary to solve everything in one fell swoop.

The problems will persist.

This is the moment to warn society that the problem that this administration is leaving is very big.

Valid for public spending, for the placement of debt in pesos, for the liabilities of the Central Bank.

Someone has to tell Argentine society.

The difference between Martín Guzmán and Sergio Massa is not the nominal drop in spending, but its liquefaction.

The nominal increase continued, but Massa needed more inflation to liquefy it.

It is a poison like medicine.

- Is the debt in pesos going to be a problem, is there a minefield ahead, or can it be solved in a non-traumatic way?

In current pesos, this administration started with a debt of 3 trillion pesos, equivalent to 14% of GDP.

Three years later, it has 20 trillion pesos in debt, which represents 24 points of GDP.

It should be noted that this is the government that has indebted the country the most in three years.

And from now on, the discussion of whether it is better to borrow in pesos than in dollars is over.

85% of the debt in pesos is adjustable for inflation or the exchange rate.

- So far the description of the problem.

And your resolution?

- It is one of the serious problems.

Between July and September we will have monthly maturities of three trillion pesos per month.

It is true that half is in the hands of public funds, but the private sector has refinanced, receiving more and more interest in exchange.

As long as the tap on spending and the deficit is not cut, anything that is done is to pass the problem on to the next government.

This should be very clear to Argentine society: you cannot talk about an agreement with the next administration to negotiate the debt without simultaneously talking about cutting the rennet of the deficit.

Because one feeds the other.

- But how do you attack the problem?

Starting, first of all, the development of a comprehensive plan for regime change and modification of how the economic organization works is required.

All issues of debt in pesos and monetary liabilities of the Central are included in the comprehensive economic program, and have a textbook ABC, which is to abruptly cut the fiscal deficit.

When one cuts the deficit dry, it cuts off what is called the flow of increase of what is a posteriori public debt or liabilities of the Central Bank.

From now on, we must move forward with the cut in subsidies that this government has already started.

- Badly or well, the deficit was reduced.

But it was done in a non-electoral year.

Will it continue this year?

It is a challenge.

The Government fell asleep between November 2021 and August 2022. Massa had no choice but to face it.

Now he must continue it.

- The election year is important because the possible candidate is Massa.

Will the Minister of Economy want to be a candidate?

How would it impact the performance of the economy?

- Massa is a person who since he is in politics wants to be president.

As he is, I imagine that he will decide one minute before the lists close.

Assuming that everything passes in peace and balance, it is necessary to see if the level of competitiveness makes him a candidate with chances or by discarding.

Massa does not want to be a discard candidate.

He will look at the results of it.

It remains to be seen if the results are enough to save the PJ, and what happened to the economy until the day the lists closed.

Massa must be thinking about how to get competitive.

But wanting to stabilize the economy, improve electoral chances, and also win the election sounds a lot like a miracle.

But we have to wait, "a lot" is missing.

- How do you imagine that the next government has to administer the inheritance?

- It will be necessary to have an alignment of variables to launch a stability program that is credible and sustainable, that does not need inflation to liquefy spending.

That is where it is necessary to alert society and the ruling class.

With a fiscal deficit and relative price misalignment, a stability plan cannot be requested.

That's impossible.

All the time you have to tell people insistently.

- How should exchange rate unification, the exit of the stocks and the lifting of the import stocks be achieved?

- Regardless of how the end of the year is reached, 2022 showed very high prices of raw materials and that was not enough.

There was some major expense in energy and the super stocks continued.

However, the Central Bank had to appeal to stepping on imports for 8 or 9 billion dollars.

And also the Government had to remove the soybean dollar 1 and 2, which was not free.

Liquidations were brought forward and now we are going to see what happens between now and August.

We have to see if the drought costs us between 8 and 14 billion dollars.

It is not a minor issue.

Every time primary exports have fallen, the external sector suffered, either due to a drop in imports, a loss of reserves, an exchange rate jump, or a combination of the three factors.

You also have to look at the rest of industrial exports, not only because they have declined in the last two months,

but because every time primary exports suffered, they drag down the rest.

The other side of all this has always been the level of activity and more inflation.

So inflation and the blow to the external sector are a challenge.

To this we add the payments that must be made for the first time net to the IMF, to other organizations, to the Paris Club and to the bondholders, which add up to a total of 11,000 million dollars this year in principal and interest.

- But what exchange regime do you imagine from the start?

- The bi-monetary regime that society has already adopted must be respected, this is coexistence rather than currency competition.

But it is also clear what is not going to come initially.

We are not going to have a dollarization scheme or a free and floating exchange rate.

At best, the free, floating exchange rate with full market access is a point of arrival, by no means a point of departure.

- How can the result of the PASO in August have an impact?

- Today it is established that in 2024 there will be a new administration.

But the result of the August primary is very important, in terms of defining whether it definitively confirms that, the opposite happens, or whether it maintains uncertainty until October.

It is clear to the markets that the latter is the worst outcome.

In the same way, I suppose that in the face of a victory for the opposition, the market will probably pretend to see to believe.

- In other words, if the opposition wins, there won't be much initial credit either.

- I didn't say that.

I have said that a program will have to be put on the table and there is a high probability of “seeing is believing”.

But I insist on a theme.

We must not repeat the strategic error of assuming that the current imbalances could occur asymptomatically as in 2015. Society must be alerted that even if what comes next is neither hyper nor corralito, it is of great macroeconomic imbalance.

And another important thing.

The executor of the economic policy will have to convince the political class from the outset that it is a mistake to finance current spending with indebtedness.

It always ends badly.

The change of economic regime will be without financing.

- Does that mean that a strong initial adjustment is inevitable, with an exchange rate jump and an inflationary flash, as the economists say?

- We have all this year to continue gathering common sense in the ruling class, those who have the vision of a statesman and who think of themselves not as presidential candidates in 2023 but in the next 20 or 30 years.

You have to avoid the verbiage of saying that you have to come to management with an ax in your hand or enter into discussions about flashes, gradualism and other emotionalities.

- But is there an alternative path?

- If this government does not collaborate in improving and laundering what it leaves behind, it will have to be told to society.

I insist.

Never believe again that since there is no hyperinflationary catastrophe there is nothing to do.

- Will the next government have to face the task forgetting about wanting to win in 2027?

- The best government will be the one that is willing to not look at 2025 and win 2027. I choose a positive, optimistic outlook.

For a country with the potential of Argentina, allow me a soccer allegory, now that we are world champions and Racing has just won another cup: with majority possession of the ball and playing well, goals come.

You have to have patience and conviction.

In addition, going to the concrete, we have to go in the simultaneous search for macro balance with reactivation of the economy.

What cannot happen is adjustment for adjustment's sake.

- Opposition economists often talk about economic regime change.

Do you agree?.

- From now on.

A new macroeconomic organization is needed.

I see it like this: the 2024 transition to that new regime and the 2025 start-up.

For this reason, I would not be so skeptical electorally with 2025 and 2027.

- Today there is talk that it is essential to take to the field the dollars that everyone has saved.

how is it done?

- A new monetary regime must be designed.

Society is already working on its own bi-monetary regime. That people can opt for the currency they want.

In practical terms: If Mrs. Rosa wants to pay for the bread with dollars, she should do it.

The most important thing is to generate the necessary credit so that the anti-cyclical fund that the private company has in Argentina is launched.

- Over the years a corporatist Argentina was consolidated, with each sector bidding to obtain facilities or particular agreements.

Is it urgent to dismantle that logic?

- You have to work with all sectors but with clear rules.

You have to whitewash all situations, listen to everyone agreed on what corresponds.

If there are regimes that started from nothing and took on an important magnitude, they must be studied.

You have to be pragmatic and flexible but with limits.

But you can't confuse that with maintaining the status quo.

And it must also be clear that the power groups must refrain from taking advantage of a weak government like this to achieve issues that become acquired rights.

It is very important to end this now.

The punctual questions of partial equilibrium do not go any further.

that is why it is important that society understands.

stability, the rules of the game and the new regime are in favor of society.

Those who must get used to living with stability,

- Does this also include the opening of the economy?

Of course.

Argentina cannot continue so closed.

Trade is exporting more and buying more.

That does not mean that some sector has to break and lower the blinds.

But the adaptation to the rules of the game where Argentina can have a competitive local product against an imported one, and another exportable product has to be the rule and not the exception.

Of course, the public sector must collaborate.

And there the structural reforms.

The private sector cannot be required to be competitive with a public sector that hinders and stifles it.