2023-11-22 16:43:51
For Ortiz, the Argentine problem is a fiscal problem rather than an inflationary one and he compares it to what happened in Peru in the 1980s, when the country became over-indebted and spent beyond its collection capacities, which ended up generating high inflation and a devaluation of the currency.
Meanwhile, Perea pointed out that what is happening in Argentina makes us think of some parallels to what was done in Peru in the early 90s. Part of the success in reducing inflation at that time was stopping the excessive monetary issue that reflected the needs of government financing from the Central Bank.
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Banco Central
Among the axes of the aforementioned plan is the closure of the Central Bank of Argentina, solving the Leliq problem and the dollarization of the economy. All this, in order to reduce interannual inflation, which today reaches 142.7%.
We must know that the Leliq, or Central Bank Liquidity Letter, are payment promises issued by the Central Bank of the Argentine Republic (BCRA) to private banks in the short term. This only occurs between financial entities.
Thus, Ortiz stated that what Milei wants to do is to put an end to the Central Bank, but through the payment of those debts and thus truthize the value of the bank. However, the first thing you will have to do is find a way to pay those commitments that the BCRA has.
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“During the campaign [estuvo] Being very critical of Argentine monetary policy, his speech has been that these totally worthless assets are, in some way, inflating the price of the peso; That is, the BCRA has issued once morest a debt that it has created of leliq that has no value. If we sincere the leliq, we sincere this asset that is worth nothing, then the pesos are worth nothing,” Ortiz explained regarding what Milei was saying.
With this, he assured that what the president-elect has to do is choose between two scenarios: in the first, Milei can choose not to recognize the value of the peso, which would considerably raise the exchange rate and people would end up losing their wealth in favor of the State. This is something Milei has always opposed.
In the second scenario, Milei might recognize a higher value for the pesos; but she would have to have a greater debt with the Argentine people. In that case there is not a loss of wealth of the people, but rather a loss of wealth on the part of the Argentine State; that is, recognize more debts. “It is something that Milei has opposed because he considers, in his ideology, that debt is an immoral thing because you end up putting the chain of debt on future populations,” he added.
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Dollarization
Regarding dollarization, Perea considered that there are better options. “In the 90s, Peru opted for a strongly autonomous Central Bank, with important institutional and technical development and with the objective of price stability and for things to work well. It is better to have an independent monetary policy than not to have it,” he noted.
However, he added that the case of Argentina is difficult, because credibility has been eroded to such an extent that the only way the president-elect has found has been to eliminate the Central Bank.
For Ortiz, the “advantage” of dollarization is that it is very credible. “Somehow the BCRA disappears, it will no longer be able to generate inflation and issue and obtain resources. In some way, this means that credibility has an immediate impact. For people to believe that inflation is going to fall, unlike stabilization with a flexible exchange rate like Peru did, requires building trust that is a long-term effort,” he explained.
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However, by dollarizing, monetary policy is lost and it becomes the responsibility of the United States. The problem with this, Ortiz said, is that sometimes prices in the economy are capricious and do not react to some events as they should.
For the UP specialist, the main thing is a fiscal reform, obtaining resources through privatizations – this being the only way to obtain funds – and maintaining impeccable fiscal discipline if we want to operate under a total dollarization scheme.
“The determination of where Milei sets the exchange rate is going to be political in some way. No way out – whether through recognizing more debt, but with a serious and important fiscal program, or through a stronger devaluation by repurchasing pesos – is going to be pleasant for anyone,” she stated.
Finally, Perea highlighted that, if Milei moderates, maintaining the orientation of market policies, Argentina has great potential, even to reduce its inflation, but it must act quickly and implement orthodox policies.
“In Peru we went through it in the early 90s and it was a period that cost the vulnerable population a lot. But we were able to cope and then we saw the benefits,” he said.
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