“Inflation will continue to fall, but not linearly”

2024-03-07 00:15:16

Guido Sandleris, former president of the Central Bank of the Argentine Republic (BCRA), projects inflation of 12% for February and 13% for March. Although he discounts that the current economic policy of Javier Milei’s government will lower the price increase even further, this fall will not be linear, but rather will follow a non-uniform path.

This Wednesday, the economist officially presented in this city the Ecosur foundation, which was born from combining his own consulting firm with the Economic Research Institute (IIE), of the Córdoba Stock Exchange, in an event that was headed by Governor Martín Llaryora .

Ecosur will be chaired by Sandleris and will have as main economists Francisco Ballester, as director of Analysis, and Fabio Ventre, as director of Consulting.

Within the framework of this presentation, Sandleris assured that the evolution of the economic program of La Libertad Avanza (LLA) might be reinforced if it implemented a policy of coordination of expectations and if it managed to “mobilize the dollars that are under the mattress, in the safe deposit boxes.” or abroad.”

In this framework, he highlighted The voice the keys to the economy that is coming.

–What differences does Ecosur have compared to the rest of the think thanks of the economy?

–Today there is none in Argentina think tanks that, from the productive interior of Argentina, contribute to the public discussion of the economy, with such a strong impulse from the productive private sector as Ecosur has. That makes it a novelty. The vision that it is a project from the inside, federal and that it is promoted by the private sector makes it different from what we usually see. Its main objective is to contribute to the public discussion of economic policy in Argentina and also to help governments optimize administration, making it more efficient and more transparent.

–Are you going to continue making the Reports on the Argentine Economy?

–Yes, because it is their “star” product, but it is going to be reformulated. In recent years, we have gone updating. Already last year it was presented in digital format, it sought to incorporate some projections and the idea is to continue doing so, because it is a very distinctive product, but continuing with its modernization, focused more than a strong space for summary and compilation of economic statistics and projections.

–How many people will Ecosur have working?

–Approximately 10 economists. There is a very important synergy between what the IIE did and what my consulting firm MindY-Economics did. The Institute had specialized in monitoring the situation, in more microeconomic issues and in consulting, with a strong emphasis on the public sector and sectoral studies. My consultant worked more on monitoring the macroeconomic and financial situation for the private sector. Working together allows us to empower ourselves. The team will be divided into two directions, one for economic analysis led by Francisco Ballester, who worked with me at the consulting firm, and a consulting area led by Fabio Ventre. They are going to work very well, together with a team of senior and junior economists.

–I take you to the economic situation. In your presentation, you projected inflation of 12% for February and 13% for March. How will it continue in the following months?

–First, I want to clarify that the direction the Government has taken is good. The jump in inflation in December to 25.5% and in January 20.6% has to do with the magnitude of the imbalances that the previous government had left. It was inevitable for any government to correct these imbalances in relative prices. In February and March we are going to the inflation levels prior to the exchange rate correction. In the long run, the economic program of fiscal balance and monetary order ends up lowering inflation.

–Then we are going quickly to single-digit inflation…

–What happens is that this takes time and is not linear. When the energy rate increase occurs in March or April, that will have a negative impact. It is necessary to make this increase, it is inevitable, due to the imbalances left by the previous government. But it has a negative impact on inflation. It is difficult for me to see a scenario where inflation decreases linearly every month by 25%, 20%, 15%, 10%, etc. That is not going to happen. The big issue ahead is how quickly it will come down and what the cost is in terms of economic activity and employment. This is how deep the recession is going to be for inflation to go down.

–Generates tension in the social scene.

–For this reason, I believe that the Government has to sustain this current popularity, so that this search to restore balance can continue over time. That is why it is key that inflation falls as quickly as possible, which is people’s main concern, and with little cost in terms of activity and employment.

–And how is that achieved?

–Implementing what is usually called an inflation stabilization plan. Add two elements: first, that it coordinates inflation expectations in some way, to make them fall faster; second, a certain income policy that allows you to soften the impact of the measures that are being taken.

–The problem is how to carry out an income policy in a framework of monetary restriction.

–There were many successful stabilization plans. The one that Israel implemented in the last century, the real plan in Brazil, convertibility in its beginnings, the Austral Plan. A mechanism was found that makes it easier, in two or three months, to bring inflation down sharply. That step, from an inflation of 10% to 2%, to occur only with what the Government announced, takes too long to be able to sustain popularity. Regarding income policy, a very special phenomenon is occurring at this time.

-Which?

–The Government received an economy with a very low real salary, where to be competitive it does not need the salary to continue falling. At other times, with an unsustainable real salary, the devaluation had to eat a little of that purchasing power. But that’s not what’s happening now. If price expectations and parity expectations might be coordinated, it would help this sharp fall in inflation. This is not making it more gradual, but rather it is coordinated or uncoordinated. It is to give the economy a little guidance, I think that is missing from the economic program.

–It happens that the lower capacity of salaries is one of the components that pushes inflation down.

–What happens, and this is not the fault of this Government, is that Argentina has a very important inflationary past. So, there is a very important inertia in that inflation and that is what people expect to happen. Companies continue to adjust prices just in case. Coordinating these expectations allows you to buy credibility. I believe that the fiscal direction is correct, the monetary order is necessary, deregulating this economy is fundamental and the devaluation was inevitable given the disaster that the previous government had left behind. But I think that the economic program, to make it less costly in terms of activity and employment, is missing something.

–What level of inflation are we going to have this year?

–I don’t dare to make an inflation forecast for this year. It’s very difficult at this point. Regarding activity, the recovery of agriculture plays in its favor, but in all sectors outside of agriculture a fall is observed.

–Does the plan lack a productive program to put the wheel of the economy in motion once more?

–I think there is a concern raised by the governor of Córdoba, Martín Llaryora, that is valid and that has to do with the fact that if we want the plan to be successful, it is not enough to achieve good results in one month; You have to be consistent over time. This is achieved with inflation falling faster and without as much decline in activity and employment. On the macroeconomic front, we must improve the coordination of expectations. And then I believe that there are measures that would help accelerate the recovery of certain productive sectors.

-For example?

–A money laundering that is fair to those who pay. The decline in inflation should not depend exclusively on there being a lot of recession. For me, it is key to mobilize the savings that Argentines have in dollars; We need the dollars that are under the mattress, in the safe deposit boxes and outside to be mobilized. All measures that help make this happen will make the decline in activity smoother.

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