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Domingo Cavallo: "The Government is in a blind alley with inflation"

2023-03-15T14:37:22.012Z


After the rate of 6.6% in February, the former Minister of Economy maintains that the spiral in prices aggravated the adjustment on retirement and the social field. The risk of a political crisis and why, despite the crisis, he still does not see a runaway inflation.


One day after the 6.6% inflation figure for February was known, former Economy Minister Domingo Cavallo spoke with Clarín about the consequences and prospects of the inflationary acceleration unleashed in recent months.

The rate in February increased compared to January (6%), the annual rate exceeded 100% (102.5%) and is already the highest since October 1991, precisely when Cavallo was minister and had already launched the Convertibility Plan .

"I'm in Córdoba going to a meeting," Cavallo started.

"Let's talk now that I'm on top of a car." 

- As we are doing and after knowing the 6.6% inflation data for February yesterday, which showed a higher level than expected by the Government and private economists, can the inflationary acceleration end in a major economic crisis?

- Not necessarily.

I predicted what we are seeing today, that we were going to have an average inflation rate of more than 6%, that is, 100% per year, throughout the year.

We may have a month closer to 6% or above 7%.

But we will be there.

For there to be uncontrolled inflation like the Rodrigazo, things have to happen like the government confirming a devaluation jump or liberalizing it without unifying the exchange market, or failing that, it is forced to do so.

But the Government will not do something like this unless the people, companies, etc., do not abide by the regulations and controls of the BCRA, then the operations are carried out outside the law and in that case the authority has no other option but to act.

But as long as the Government and the BCRA have some power and issue the rules, inflation could be 6% per month or 7%,

- If Peronism sees that it will not govern in 2023 and has no more incentives to set these limits and rules that you mention, could the economic crisis worsen?

- The Peronism that has no chance of even forming the next government will always prefer that the next president has to come clean about prices to correct the distortions accumulated in this period.

Because once that task is faced there will be an inflationary acceleration.

- How can the political crisis of the Frente de Todo affect the dynamics of inflation in the coming months?

- If Alberto Fernández for some reason did not continue to lead the Government and Cristina Kirchner was forced to take over the administration, there would be a political crisis that could give rise to immediate inflationary uncontrol.

But I don't think that will happen except for the President's health and that's why I don't want to speculate.

- How would you explain the impact on inflation of such a scenario?

what is the technical argument?

- The position of Cristina Kirchner and La Cámpora on defaulting the IMF would scare everyone and any promise made by the Government to honor the debt in pesos or dollars would remain without effect.

Then they would be forced to issue to face the State payments, the unions would ask for more increases and inflation could accelerate even more as a result of this political crisis that I am raising.

The hyper that happened to Raúl Alfonsín was more from the political crisis than from economic mismanagement.

When Eduardo Angeloz asked Alfonsín to replace Juan Sourrouille with another Minister of Economy, inflation began to get out of control.

Today, for the moment, the Government is avoiding this lack of control.

- What can Massa do from the Ministry of Economy?

- That the inflation rate be maintained at 6%-7% per month and not get out of control.

It was foolish of you to say that you were going to lower the rate to 3% per month.

Until now, he has shown himself to be a kind of magician for having handled this situation in a government with such different visions.

- The IMF asks for more adjustment, is there room to do so?

There are economists from Kirchnerism who maintain that it is not.

- It could increase the electricity rates that since last year the Government has been delaying for customers with greater purchasing power and I don't know why they don't.

On the other hand, the adjustment is being made by inflation because retirees are paid less since the formula is adjusted by rising prices but is always behind.

The government is in a kind of impasse with inflation and the IMF.

- Could the Fund lend more money due to the drought?

- If the Government had a minimum of international credibility, Argentina would be in a position to argue in favor of requesting special support for the drought.

Mauricio Macri was approved for US$ 54,000 million in aid from the IMF and they gave him US$ 44,000 million, he never left for the remaining credit.

It could then be argued that this credit was approved to receive fresh money and thus offset the drop in exports due to the drought.

It would require political support from the US as Macri got it from Trump.

The Government is not in a position to make that statement because its speech is very contradictory as a result of the fact that they are a bag of cats in terms of economic policy.

But even so, if it even got along with Washington, Argentina could get the support of the US.

- If inflation is 102.5% per year stepping on the dollar and tariffs, how much would it go when those prices are clear and then a true stabilization begins?

- You can't estimate that number.

It all depends on the adjustment sequence, the degree of credibility of who does it and what is the starting situation.

It is not the same to speak today as on December 10, 2023. The next government will know that.

It is difficult to make forecasts at this time.

Source: clarin

All business articles on 2023-03-15

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