-Was the arrival of Javier Milei to the presidency a relief for the IMF?
-That a president arrives who campaigned with the objective of restoring macroeconomic balances in Argentina, transforming the economy into a market one, trying to open it to international competition and internally generating an environment much more conducive to competition and business activity. private sector is clearly a relief for the Fund.
In the organization they believe in a market economy, with a thriving private sector, but also with clear areas of intervention by the public sector and in that aspect they differ from President Milei's view.
But Argentina's problem today is a level of brutal state interference, through public spending, regulations, permits and authorizations: it will probably take a fan of free markets and deregulation to move the country to a more sensible place.
Furthermore, Milei is an atypical politician, who gives the impression of being more interested in doing what he believes is right for the Argentine economy than in that fine calculation of what benefits him politically.
All of this makes this president a very good counterpart for the Fund.
In that sense there are many expectations and the big question is the political capacity that he will have to move forward with that.
- It is also unusual for a president to win in Argentina with the speech of strong adjustment. Rather they do it once they are in Government.
-You're right.
I think Milei was very honest in that and clearly has a mandate.
On the other hand, there is the need to move very quickly because part of this support is probably going to erode given the difficulty that the population is going to face due to a difficult economic situation if we look at the numbers that the Fund published: a contraction of 2.8 % of the economy this year, but the contraction of the non-agricultural economy is more than 5%.
-The seventh review report was harsh on the previous program. Do you think the IMF was too lax with Alberto Fernández's government?
-Given the dilemma of whether or not to do a program with that government, I believe that the decision to go forward and have a program was correct.
For Argentina, it was less bad that the Fund was there than if it had not been there.
For the IMF it was also good because it was not to blame for any of Argentina's problems and it could not be used politically in as aggressive a way as it would have been if it abandoned the country.
However, I think managing director Kristalina Georgieva could have been much harsher.
She believed that the Fernández government was going to be better, she implicitly made many concessions and that put her in a position of weakness when negotiating a program late in the mandate and when the authorities were very little interested in implementing it.
Then, with Minister Sergio Massa as a candidate, came the cynicism of ending an excessive fiscal expansion, with changes in the tax structure for a purely electoral purpose.
I don't think anyone imagined that extreme.
- What Milei proposes is much more than what the Fund used to ask for regarding the goals. Were you surprised by his position?
-Everyone expected that the incoming government's program was going to be much stronger than the one with the Fund.
However, the size of the adjustment that Milei announced, the speed with which she wants to implement it and the simultaneous agenda of very deep structural reform surprised everyone.
I don't know if he is the best or not, but I think he sent a very clear signal of what he wants his government to be and to make the most of the political capital he will have in these first 6 months to stabilize, but also transform the economy. Argentina and open it.
-Are the goals for fiscal adjustment and reserves really achievable?
-I think so because we see the president's conviction.
The Government is going to have very significant surplus income that it will decide how to allocate and has the negotiating power to achieve this objective.
Throughout the first semester, the Government will have the responsibility of providing much more clarity.
I think it is necessary for there to be an environment for coordinating inflation expectations on income policies, salary adjustments, and having guidelines for how inflation will go down.
There is no one who is giving any signal about where the system is going.
-The Fund projected that inflation will continue to rise until mid-year and then it will decrease and close to the end of the year it will close at 150% annually. Do you agree with that perspective?
-I care more about what the inflation will be in the last 4 months.
If in the end, for example, we have 20% in December, 20 in January and 20 in February (because gas and electricity are also adjusted) and then we have 18 in March, there we already accumulate 60% inflation.
If then in the rest of the months we go to an average inflation of 12% or 10, we are at 150%.
But if in the last 4 months we have an average annualized inflation of 60%, Argentina starts in 2025 with high inflation, but having already made all the adjustments and within the levels of which economies like Colombia, Chile or Mexico achieved stabilize.
I believe that this is viable, but it is important that at the end of the first quarter and the second we see a monetary policy.
In addition, the economic authorities need to communicate a little more about what they are doing to guide expectations after this shock.
What the exchange rate policy will be will also be key because a movement of 2% of the official dollar will be eaten up very quickly by inflation.
If they want to continue accumulating reserves, an exchange rate is needed that does not lose competitiveness in three months.
-Is it possible to radically cut the fiscal deficit in one year without having a tremendous social impact?
-It is very important that social spending items are increasing and schemes are being designed not only to serve and compensate the people who were already receiving programs but also the population that is fragile and above the poverty line. but that most likely in the next three quarters they will fall into poverty.
-It is understood that the IMF talks about protecting the most vulnerable. But how can we also cushion the strong impact on the middle class, which is already hit hard?
- The Government has to emphasize the lower middle class.
This sector is at a level of fragility that can fall to levels close to poverty and that must be addressed.
Obviously, the social cabinet has to have new elements.
Not only by expanding the amount of the previous programs will it be possible to reach “the new poor” or the transitory poor for four quarters, which is how long in theory it will take to get out of this.
Politically and socially, I believe that there is a responsibility to serve them.
-What happens if the fiscal package of the omnibus law, which has already been removed, is not finally approved? Minister Luis Caputo says that the goals are still achieved, but is this possible?
-Many people have mentioned the fuel tax and some modifications to the foreign trade tax.
The Government has also said that it can reduce transfers that are not associated with federal co-participating revenue.
They can do that by decree because the budget gives them that power.
It is true that the adjustment has to be designed in a way where everyone contributes and does not fall only on the provinces or the federation.
But perhaps the provinces today are in a better situation than the federation.
It is going to be a very difficult negotiation but it is also important that it be done quickly: if the fiscal adjustment begins to lose elements, the credibility of the stabilization program begins to weaken very quickly.
- The Fund always talks about the importance of consensus on reforms.
- Sure, because you can do it by decree, but when the president's popularity falls to 40%, the weakness of the executive will be there.
But I hope that the responsibility of this new configuration of the center, center-right and Libertad Avanza parties can reach an agreement that achieves the adjustment that President Milei has announced and that it is done in a way that has a lot of consensus. broader than the executive and I think that eventually that will be achieved.
-The Fund extended the term of the current program until the end of the year to give time for reforms. Do you think that the Government and the IMF may already be negotiating a new program or will this be after the current one?
-Due to Massa's crude management, what the Fund believed was going to be done in 2023 now has to happen in 2024 and even more profoundly.
So it makes sense to give Milei more time to finish the original schedule that had been negotiated.
To make a new one today and put more resources on the table, the IMF would like to see that political consensus is being achieved.
I don't think a new program is being negotiated, but I think it's in everyone's mind that if this program progresses well there will be a new one.
It can even be negotiated and announced before the current program ends.
There the repayment terms of disbursements to the Fernández government could be extended again, but another objective for Argentina would be fresh money.
If Argentina wants to remove the stocks, it needs a significant level of reserves.
- If Milei sought to implement dollarization, could the Fund provide the money for reserves?
The new program would have more fresh resources to accumulate reserves and postpone repayments to the Fund for later, regardless of the exchange rate regime.
That would be the focus of the negotiation and obviously the entire policy scheme that would support that.
If the Milei government also proposes dollarizing, I think it will be an even more difficult negotiation.
But given the Argentine situation, perhaps in the end Milei and his team manage to convince the Fund that it is the way to move forward.
Are you optimistic today with Argentina?
With a 4-year presidential term, midterm elections in 20 months, it is difficult.
On the other hand, having a president like Milei so convinced of the things that need to be done is a good sign.
Having started as it began maximizes the chances of success, but it is also true that in front of it there is a political environment and the private sector that protect their income and will be waiting for Milei's moment of weakness to try to recover its profitability and its share of the cake, which can deteriorate the probability of success of the program.
But I think that, given the difficulty of the challenge, Milei has started well, although I myself differ in some aspects on the extremes of liberalism.
But to move Argentina to a more market economy you need a fanatic and I think the president is convinced of what needs to be done.
Confessions of a former IMF about Argentina and its society
Alejandro Werner is a fundamental protagonist of the great battles that the International Monetary Fund had with Argentina, the country where he was born, although at the age of 10, in 1977 and in the midst of the dictatorship, his family had to go into exile and settle in Mexico City.
This economist, with a doctorate from MIT, was vice minister of Economy and official of the Central Bank of Mexico and then settled permanently in Washington with a position with which he had a strong impact on Latin America and our country: director of the Department of the Western Hemisphere of the International Monetary Fund.
During the 9 years that his management in the organization lasted, Werner negotiated with the governments of Cristina Kirchner, Mauricio Macri and Alberto Fernández different issues such as motions of censure over statistics, agreements and programs, a journey that he captured in his book “La Argentina in the Background”, which he wrote together with the journalist Martin Kanenguiser.
Werner received criticism from both sides of “the crack”: Macriism accused him of having been too “harsh” in the program agreed with Mauricio Macri in 2018 by not allowing the intervention of the Central Bank to stop the dollar and Kirchnerism insists on considering it. an accomplice to a capital flight.
Even, already retired from the organization, he was targeted on Twitter by the then vice president when she told him that it had been “unreasonable” to have given “a political loan for US $ 45,000 million to the government of Mauricio Macri so that he would win the elections.”
Today, formally further away from the vicissitudes of the organization, he is director of the Institute of the Americas at Georgetown University, a platform for dialogue and research into the challenges for Latin America and the hemisphere.
- We are still paying the 2018 loan. Is there any mea culpa from the IMF or yourself about how it was granted and how the successive renegotiations were handled? What could the Fund have done to prevent the program from failing?
- I believe that the Fund is hostage to the fiscal dysfunction of Argentine society.
Maybe capital controls should have been put in place sooner, maybe it should have been designed somewhat differently in some aspects.
I am also convinced that these changes would hardly have had a significant effect on the result.
Wanting to create a stabilization program so close to the election, with a political alternative as uninterested in correcting Argentina's imbalances as the Fernández-Fernández formula was, was very difficult.
It was difficult that in 18 months the Macri government could have been in a competitive economic situation to win the elections when it had had 3 years of economic contraction and high inflation.
In addition, Cristina Fernández put Alberto in and Macri was a little out of square.
I don't know if the design of the program would have prevented that electoral result.
I believe that 85% of the Argentine problem is Argentine and the remaining 15% is the Fund and the international community.
- Would Argentina be better or worse without the Fund?
- There are people who believe that Argentina would be better off without the Fund, but I think not.
Macri at least finished his term, there were elections and he was the first non-Peronist president to finish his term.
I don't know what would have happened if the Fund had not supported Macri's government, because we were very close to the election.
But programs similar to those in Argentina worked in Colombia, Peru, Brazil or Mexico and they no longer have to resort to the Fund.
The problem is that Argentina cannot establish a social contract that allows greater stability.