By Mercedes Colombres, Media Director, Libertad y Progreso (original)
Economist Aldo Abram, the invited speaker for an exclusive breakfast for members of Libertad y Progreso, hosted at the Feirs Park Hotel with support from the Naumann Foundation, envisioned a difficult path for the coming months, including a possible hardening of currency controls, problems complying with debt obligations, and a potential disorderly dollarization, all occurring perhaps before December.
“Whoever the next President is elected on October 28 he should state clearly what he intends to do, and renegotiate with the Fund,” Abram predicted before an audience of about 80 people. “I think Argentina is going to have dollarization in a disorderly way, with possible hyperinflation beforehand. Now we have to be clear that dollarization gives monetary stability, but it doesn’t correct everything. There are dollarized countries that are progressing and there are poor dollarized countries,” Abram said.
Abram also stressed that he sees a possible hardening of currency controls, and that the only way to regain credibility is to apply the “Freedom and Progress Reform combo” (see below).
Below are some of the main points from Abram’s talk:
1) Reprofiling: “This is a selective default, even if we say ‘reprofiling.’ Some bonds are not being paid as originally promised.”
2) Alberto, in the center: “Here the problem for the market is what [likely winner] Alberto Fernández thinks, not what [treasury minister] Lacunza or [incumbent president] Macri think.”
3) The laws: “It would be very important, to avoid entering a crisis in the very short term, that the laws that were sent to Congress with explicit support from Alberto Fernández and his party be passed. That is no guarantee that we will not go to a crisis but the picture improves.”
4) December headache: “Making the accounts of the reserves and the due dates, probably in October funds will be insufficient. December is going to be a headache for whoever governs. It will be difficult to get there without a major crisis.”
5) Astronomical debt: “Already in the STEP [primary elections] we had a difficult situation with the debt. Already in August, it was clear that anyone who won was going to have to face the renegotiation, with debt at 87% of GDP.”
6) The BCRA, guilty: “Why did the house of cards fall in 2018? Because of the lousy handling of the BCRA [central bank]. There was a very strong shock of confidence when the government took office. We all believed that the BCRA was going to do things well. In terms of capital controls, better than expected. The problem is that the BCRA was there to support gradualism / immobility. It issued debt to finance the Government and recently did so again. Thus, between the brilliant idea of the financial income tax and the tremor worldwide, we had crises again in 2018, with disastrous management of the BCRA. There we ran to ask the Fund for help. By October 2018 it was shown that small measures did not work.”
7) Peso in freefall: “The demand for pesos is collapsing, we are clearly going in a bad way and on top of that the BCRA is issuing debt at more than 2% per month. Having a BCRA issuing with the demand for pesos falling is having a fireman throwing gasoline on the fire. I would ask the BCRA why if the demand for pesos is strong they implemented currency controls.”
8) Stronger currency controls: “The currency controls are going to have to be tighter and getting stronger. Every time we are going to have to look more at the informal dollar. A large part of the market that moves in dollars was transformed into pesos, as in the case of professionals who provide services abroad or retirees who draw pensions in other countries.”
9) The AF team: “I think that in the beginning, Alberto Fernández is probably going to rely on the PJ [Justicialist Party, Peronist] and the figures of [former CBRA director] Matías Kulfas, [leftwing economist] Cecilia Todesca, [former deputy economy minister] Alvarez Agis. There he will not do well and he will have to call the people like [former finance minister] Guillermo Nielsen. Cristina can hardly run things or do the Great Chacho Alvarez [i.e., gather power as vice-president] because she is in danger of having her whole family go to jail. I also believe that a government headed by him will have the BCRA taking small steps.”
10) Trust, key: “How is the only way to restore credibility? With a serious program of strong reforms. There are no miracles.”
The essential reforms:
Next, Manuel Solanet took the microphone and explained the combo of reforms proposed by Libertad y Progreso since its founding, and which is explained in the volumes “Progress in Freedom” (2014 and 2016), “The Reforms Needed to Grow in Freedom “(2019) and “La Clave es la Libertad” (2019). To acquire these volumes click here and here. Among the measures set forth by Solanet, there are labor reform, state reform, commercial opening and tax reform. For more details on the proposals click here.