Horse: "The best the government could do is unfreeze rates"

Former Economy Minister Domingo Cavallo affirmed that the Government will only be able to lower the inflation rate if it maintains fiscal and monetary discipline in the first quarter of the year.

In dialogue with Infobae from the United States, the former president of the Central Bank, former chancellor and former head of the Palacio de Hacienda affirmed that, beyond the global supply problems that exist to obtain vaccines, “the government’s management is very bad” in this matter. On the other hand, he suggested that with the resources originated in the increase in the price of exports, the Government pay the debt with the Paris Club and thus allow the private sector to go back into debt so that the economy can grow again.

Cavallo gave himself a great pleasure days ago for having offered a distance class for the students of the National University of Córdoba, for the first time. “I had not had the opportunity to teach again at my alma mater, the Faculty of Economic Sciences of the National University of Córdoba. I joined as a student in March 1963, I graduated from Public Accountant in 1967, I was a representative of the students on the Faculty Board of Directors in 1965 until the intervention of the universities and the elimination of the student co-government in July 1966. I graduated from Graduated in Economics in 1968 and Ph.D. in Economics in 1970. I was successively a student assistant, teaching assistant, adjunct professor and full professor until 1982 with the sole interruption during the three years of my doctoral studies in economics at Harvard, between 1974 and 1977. I have beautiful memories of this entire period of my life ”, he recalled, happy for this dialogue with the students.

What do you think about the current inflation rate?

– The monthly rate of inflation is determined by the increase in nominal spending, which in turn depends on fiscal and monetary expansion. Rate freezes and price controls do not help lower the inflation rate. The relatively contained spending due to price controls is always offset by the increase in spending on free price items. A smaller increase in controlled prices will correspond to larger increases in free prices and the gap between the two will widen more and more. When the price distortion becomes unsustainable, there may be a violent adjustment, especially if the exchange rate is between the controlled prices and the gap with the free had increased long before the moment of adjustment.

– And what actions should the Government take in the face of this problem?

– The best the government could do is remove controls and unfreeze rates, maintaining fiscal and monetary discipline in the first quarter. Although in this recent period there was discipline in this regard, the fiscal and monetary discipline of the first quarter was preceded by much indiscipline in the previous quarters. And since monetary policy always lags behind, this current rate of inflation responds to what was done last year.

Cavallo asked to maintain fiscal and monetary discipline in the first quarter to lower inflation (EFE)

– If you unfreeze prices there will be no more inflation?

– When people have to spend more on services or goods whose prices were controlled, they have less income left to spend on all the other goods and services that they had and still have free prices. Therefore, the larger increase in controlled prices will be offset by a smaller increase in free prices. And the inflation rate will be predetermined by monetary and fiscal policy; so if these variables are kept under control as in the first quarter, inflation should go down.

– Is the lack of vaccines due to a global supply problem, as the Government argues, or were there also bad decisions at the local level?

– It is true that vaccine supply problems are observed in several countries of the world, but the government’s management of vaccines has been very bad. It is enough to compare it with neighboring countries that are having a greater number of vaccines and therefore can advance much faster with vaccination. Unfortunately, this government is not characterized by good management.

– How should the Government take advantage of the benefit of the rise in the price of raw materials?

– The improvement in the international prices of raw materials that Argentina exports is an opportunity for the country’s growth. It should serve in the negotiation with the IMF, but it is absurd that the Paris Club is not paid, as well as not allowing companies that have foreign debts to pay them. They should pay the debt with the Paris Club and allow the provinces that have not yet restructured their debts to do so ”But, instead of taking advantage of the context, they fight with everyone, inside and outside the country.

– In this sense, what do you think about the government’s request for the G7 countries to redistribute more IMF resources among emerging countries such as Argentina?

– The entry of additional SDRs from the IMF is good news and it may be that in the future the central countries will accept their relocation, but it is not such a relevant issue. I insist: the Government has to take advantage of the good prices to normalize payments abroad, especially so that the private sector can regain access to credit.

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