In dialogue with Diario RÍO NEGRO, The economist Roberto Cachanosky analyzed the results and measures of Javier Milei’s economic management. Likewise, he stated which are the points in which, in his opinion, progress must be made to achieve the sustainability of both the fiscal surplus and the deceleration of inflation.
QUESTION: Do you think inflation will continue to decline?
ANSWER: Today we have the news that they are postponing the increase in public service rates. The Government is leaving the monetary base still, absorbing all the pesos issued by purchasing dollars from exporters. The CPI may trend downward if they postpone the increase in public service rates, if they continue to step on the exchange rate and liquefy public spending as they have been doing. The point is whether or not that is sustainable, if at some point the situation turns around, because the model is not sustainable. This has to do with the fiscal balance, which they are achieving based on the liquefaction of pensions, salaries of public employees, social plans and postponement of payments to Cammesa for energy subsidies. The question is how sustainable a model with these characteristics is. Furthermore, they released prices but did not release the rest of the economy, so they generated a very large recessionary process that caused revenue to drop. As revenue falls due to lower economic activity, it will be more difficult to sustain fiscal balance and reduce inflation in the medium and long term.
Inflation may trend downward if they postpone the increase in public service rates, if they continue to step on the exchange rate and liquefy public spending.
Roberto Cachanosky, economist.
Q: How is this sustainability achieved?
R: Contrary to what they proposed in the Omnibus Law and the DNU, which is to increase taxes. Milei went from saying that he would cut off his arm before increasing a tax to increasing the PAIS tax and wanting to extend it to all products, thereby further closing the economy, contrary to a liberal idea. He also wanted to increase export duties on soy derivatives and wants to increase the income tax again. He is obsessed with zero deficit when the problem is actually the level of spending plus the structural reforms that need to be made. What I would do is try to lower the fiscal pressure, and then I would send Congress a package of basic laws to get out of this stagnation and not seek to change all of Argentina at once. Point one, define a monetary rule, which today we do not know what it is. In my opinion, it would be first to remove the forced course of the peso. Point two, make a proposal for reform of the state, where it is going to be lowered, what is going to be lowered, etc. Point three, a tax reform proposal, how the tax system is going to be simplified and how taxes are going to be lowered. Point four, a labor reform that at least ends the trial industry. Point five, deregulate the economy but perhaps not do everything they did, but concentrate it on the most important areas. Point six, aim for an opening of the economy to the world. Point seven, end the social plans and provide unemployment benefits, and put together a training plan for quick job exit. If you achieve all this, you generate a change in expectations. Now, the problem I see is that he concentrates more on fighting than on solving the problems, and there the economy becomes more hindered and with more uncertainty. Being in the minority, you can’t act pretty.
He focuses more on fighting than on solving problems.
Roberto Cachanosky, about President Javier Milei.
Q: What is your reading of the Central Bank’s rate cut?
R: If the Central Bank lowers the rate it pays to the banks, the banks will pay less to their clients. So at some point there will surely be an impact on the exchange rate. The question that arises then is why they have the exchange rate fixed below the market level, adjusting it to 2% per month when you have very high inflation. I don’t understand that monetary and exchange rule they have, at some point the exchange rate is going to make you jump. The measure of lowering the interest rate for salaries seems good to me, but be careful, because that could lead to people withdrawing fixed-term deposits and looking for other investment options, such as the dollar.
This monetary and exchange rule will at some point make the exchange rate jump.
Roberto Cachanosky, economist.
Q: Are we in a position to go to a coin competition scheme?
R: It can be implemented now, immediately. Yes, the Central Bank is going to have a product called ‘weight merchandise’, which has to be of good quality because if not, people will get rid of it. Gresham’s law says that bad currency displaces good currency from the market, so the Central Bank must have good quality merchandise so that it is not displaced from the market.
The coin competition scheme can be implemented now.
Roberto Cachanosky, economist.
Q: Should the exit from the stocks also be done now?
R: It had to be done as soon as the new government took office. Now with more reason, we have the gap at 20%. As long as you have the exchange rate, you will not receive dollars, only those from exports. There you have another contradiction from Milei, because he says that the peso is excrement but if you export wheat and in Germany they give you dollars, Milei tells you ‘give the dollars to the Central Bank and I am going to give you these pesos that are excrement.’ And on top of that, at a dollar lower than the market rate. He has such a big contradiction between what he says and what he does that it is striking that people do not notice it.
PROFILE
Roberto Cachanosky
Roberto Cachanosky has a degree in Economics from the Argentine Catholic University.
He holds the position of professor of macroeconomic theory in the master’s degree in Economics and Business Administration at the Center for Business Studies and Training in the city of Rosario, and of applied economics in the master’s degree in Economics and Administration at the University Institute.
He was a columnist on economic issues in the newspapers La Prensa (from 1985 to 1992), El Cronista (from 1992 to 2001), and La Nueva Provincia – from the city of Bahía Blanca – (from 1992 to 1998). He is currently a columnist for the newspaper news.
He hosted the TV program “El Informe Economía”, winner of the Santa Clara de Asís Prize in 2006. He currently works as an economic consultant.