The former Minister of Economy, Domingo Horse I affirm that “This is not the time” to face dollarization as proposed by deputy Javier Milei if other problems were not solved before, such as exchange rate traps and relative prices.
Cavallo made a dissertation on the experience of Convertibility Plan carried out in the government of Carlos Menem in the ’90s, within the framework of the RedNIE Conference Cycle, “Stabilization Plans in Argentina”.
According to Cavallo, a complete dollarization or convertibility regime that uses the dollar as a pattern and circulates the dollar can be done in a economy that tends to be very commercially open and has the capacity to move towards fiscal balance.
Cavallo criticized the “exchange management” and warned: “Devaluations do not solve any problem”
“It may be that a monetary regime helps to move rapidly towards fiscal balance, but on the other hand the initiation of full dollarization or convertibility requires starting from a structure of relative prices of the economy that are not distorted. Otherwise, the start of stabilization will not achieve a rapid reduction in inflation”, indicated the so-called “Father of Convertibility”.
Part of the initial success is that many prices were not far behind the exchange rate, he said. For the former official, convertibility with two currencies was more convenient than total dollarization because the starting point was a disorganized economy and with such low levels of productivity.
“It was feasible that with a well-organized economy, the rate of productivity growth would be higher than that of the country of the standard currency, the United States. That moment could have come in 1997, letting the currency float and the peso would have appreciated,” he said.
Javier Milei presented his plan for dollarization and reduction of public spending before “the red circle”
“That path was interrupted by a large inflow of capital that it was toxic because the banks felt they had excessive liquidity and sought to lend it in any way”, he affirmed. Cavallo added.
“That would have allowed better handle the situation that occurred from ’98 with the Russian crisis and the devaluation of the real”, he added.
The path towards the dollarization of the Argentine economy
The former Minister of Economy referred to the path that Argentina should follow to think about eventual convertibility or dollarization: “It should be considered how progress is made without too negative impacts on relative prices in the economy, towards a unification and liberalization of the exchange rate”, removing the existing “traps”.
“Then, if the economy continues to rely more on the dollar as a protector of savings and predict future values that in the local currency and considers how to stabilize the local currency with respect to the dollar, there it is necessary to think about what is the best way: a complete dollarization, a convertibility with a conversion box so that in the future that currency can float, or a inflation targeting with a unified market”, he stated.
For Cavallo, dollarization is not a one-way street, since it can be undone through a law, as occurred during the government of Eduardo Duhalde. But he clarified that the exit from that system would not have political support: “As wages are going to be paid in dollars, just talking about abandoning dollarization puts workers and economic activity actors against “.
LM / ED
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