Economic Policy Secretary Gabriel Rubinstein – the equivalent of Sergio Massa’s deputy minister – has decided to publish a weekly inflation index to demonstrate that it is clearly falling after the post-PASO peak occasioned by the devaluation imposed by the International Monetary Fund.
Rubinstein, 69, highlights the importance of the consensus implicit in all the political parties involved in the electoral race agreeing over fiscal balance or surplus. Highly optimistic as to the results of Massa’s latest measures to compensate for devaluation, he says they will not jeopardise the aim of meeting the targets agreed with the IMF – although he complains of the mean attitudes of both the multilateral lender and the United States Treasury.
You’ve been practically running the Economy Ministry for 13 months now because Massa is no economist … I remember your phrase to define inflation: “Given that we cannot agree over what spending to cut or what taxes to raise, we have to print to pay the fiscal deficit.” Does the lack of social consensus between all the political actors prevent the elimination of inflation?
Well yes, because sometimes you can defer inflation by running up debt or if you have plenty of reserves, but it’s like a family with insufficient income which cannot go on mortgaging forever. So you have to have the courage as a country to say that this can be done and this not and that we need a fiscal surplus. I’m convinced that a fiscal surplus sustained over time and not in one freak year is the key to start solving inflation and a whole bunch of problems because it is the key to some day being able to run up reasonable debts or roll them over, simply that. So it’s super-important.
I’ve known you for a long time but I would imagine that somebody who does not know you beyond being Massa’s deputy minister, within a government whose main partner in the ruling coalition is Cristina Fernández Kirchner, must be surprised on listening to you, because in the final analysis your discourse does not differ from the more orthodox discourse of opposition critics of the government. You have criticised the economic ideas of Néstor Kirchner and Cristina Fernández de Kirchner in the past. What are you doing in this government? How does Massa put up with you despite everything? Do you ever ask yourself: ‘What am I doing here and why did they choose me’?
Let’s take the example of a football player who is a Racing fan but his contract is with Boca or Independiente, he has to play for them. I’m an economist and I’ve helped many governments, some of them more visibly than others, but always collaborating. At various times I’ve collaborated in trying to avoid the hyperinflation of [Radical President Raúl] Alfonsín, with [former Central Bank governor] Pedro Pou to improve the Argentine financial system, with Radical programmes alongside [Javier] González Fraga and Ricardo Alfonsín. [Former vice-president Julio] Cobos asked me to help him. I’m so inclined and when I found Sergio Massa receptive to my ideas and my action plan, I said yes because I had no reason to say no. But at some point within the coalition there were those who said there had to be more fiscal deficit. When it was three [percent of gross domestic product], they wanted four but today the coalition is accepting fiscal improvements, even in such a tough year as this one with a dreadful drought, something difficult to achieve. So we have a promising situation where the political parties are competing in their recognition of Argentina’s need for fiscal balance or a surplus. Nobody today is saying that we have to have more deficit, that’s a good advance without falling in love with it.
We have presented a [2024] budget in line with the International Monetary Fund with a deficit of 0.9 [percent of GDP] but asking Congress to go for a surplus of one percent of GDP via a number of measures which can be taken, many of them related to tax incentives. Everything should be re-examined, what is the logic? Tierra del Fuego might need some start-up help for people to be installed there, etc. but not the assistance it is receiving today – it could be much less. And you have tax issues with personal assets, both rural and otherwise, with the entire Judiciary exempt from income tax – there is a lot of money in all that. There you have many items to be discussed. But nor is it about what you were saying about eliminating this or raising that because the truth is that democratic discussion is very important. When discussing, for example, the reduction of personal income tax, if Congress supports it and if it was something for which Sergio Massa has been battling for the past 10 years, you may discuss whether or not it is the best tax strategy or reform or if companies should pay more than people, all that.
From the technical side we try to let everybody have their opinion with the right to believe that something is better for whatever reason but it is very important to say that we have to agree over not having deficits. So I’m not a fanatic in saying that we must cut spending and not raise taxes because that includes some fallacies. Because if you say that spending must be cut, then subsidies must be reduced, which means increased utility billing, tantamount to taxing energy consumption. Words should not confuse us. The prime objective is to achieve a fiscal surplus and a second objective is to achieve this with the correct tax incentives and within democratic discussion. Sometimes there may be decisions which nobody likes or which please some and not others – that happens everywhere.
What does it mean that Sergio Massa chose you to be deputy Economy minister despite not being a fan of his team, to use your football terminology? What does it say about Massa that he nevertheless picked you?
Because he was in agreement after extended chats with [ex-economy minister] Roberto Lavagna on the importance of ordering fiscal accounts and moving towards fiscal balance as fast as possible. He also agreed with an advance in logical steps towards the correction of exchange rate problems which implied moving towards unification but not any old unification – we needed to accumulate reserves to be able to unify the exchange rate system or advance in that direction without high risks. So I saw that he accepted that, together, of course with all the questions of timing and the vicissitudes – not to mention the drought, which started off costing US$6 billion, then US$10 billion and then 15 and finally US$21 billion. We do not take in the full dimension of the gravity of this for Argentina because here in this city we do not suffer in general but it was a tremendous blow which would have caused any government a gigantic headache. So I noticed this positive orientation in this incredibly active leader who is also incredibly knowledgeable about what is going on in Argentina. I believe that he is a great economy minister who would make a great president because I never saw anybody who knew so much about Argentina’s political actors or who had so much dialogue and capacity of negotiation with them.
One of the discussions appearing in the debate is why Economy Minister Sergio Massa would be different as president. Many of the aims are a long way from being reached, both inflation and the exchange rate gap are on the rise. What would that person in charge of the economy today do differently as president or Cabinet chief for that matter?
I believe in giving value to the context because we only started a year ago and we’ve started to get on top of things a bit. One might discuss whether there was more or less gradualism but we were starting to have some results until the aggravation of certain problems made them unsustainable. The drought was not only the loss of US$20 billion or over three percent of GDP but also all the fiscal hassles from no longer having one percent of GDP in revenue. In any country in the world, even the International Monetary Fund would tell you that if you ran a deficit of 2,7 [percent of GDP] the year before and had a drought year as bad as that, in order to recover you should have more, not less deficit. And even with the current fiscal measures we’re going to have less deficit even if it’s not enough. The drought also brought supply shocks, beef prices increased 40 percent at one point and vegetables 30 to 40 percent with the loss of the tomato harvest. A series of situations which are not a question of crying all the way to the church, that is our context. One thing is being an economy minister starting out in that context and another is being president. Apart from that, all the ideas he has for a grand dialogue, a government of national unity, which was the idea of [Peronist caretaker president Eduardo] Duhalde among others, a very positive idea because we need more unison and not arguments over what one person or another thinks of the change in cycle. In that sense Massa could be president in a normal year – and both next year and 2025 are looking very good – because Argentina has so much potential that if you have a good government harnessing political support with the inclusion of Radicals, PRO and everybody with inclusive generosity, which would imply Cabinet posts, that would be very positive because we are all thinking of fiscal balance and surplus and we all agree that the exchange rate scheme needs to be placed on track.
Are we all in agreement, including Kirchnerism? You were originally very critical of Kirchnerism. Would you include Kirchnerites among those who believe that fiscal balance or surplus are needed or, on the contrary, do they believe that a fiscal deficit and inflation are needed to spur growth?
Yes, some think that the fiscal deficit is unimportant as the cause of inflation. Others who are not necessarily Kirchnerites but more liberal think that the cause of inflation is [not] the fiscal deficit. Roque Fernández and Carlos Rodríguez who are with [Javier] Milei and many others too think that and I believe them to be wrong. They think that the fiscal deficit is not the primary cause of inflation, a position which runs into difficulties but I see it as having much more acceptance today. And nor is it a question of finding self-criticism.
The question is whether there was a change in perception.
I have never spoken with Cristina [Fernández de Kirchner], I have spoken a couple of times to Axel [Kicillof] but there is a better understanding of the need for a solid fiscal situation because the other alternatives for financing have run out. You cannot cheerfully say: “It doesn’t matter, we’ll print more money” because every time we print a bit more, inflation flares up, And you cannot say: “Let’s use the reserves” if you don’t have reserves and you cannot run up debt eternally if bonds are worth US$30 [per 100]. So you reach a point where you have no options. It is true that we might not just have arrived for lack of fiscal options – the social learning process can sometimes be very complex.
Would you say that this terminal crisis and a decade of stagnation have left a learning process in society?
In some things, yes. I’m not a sociologist to say what is going on below the surface in society but at the political level I believe that there are three electoral options today, all advocating fiscal balance or surplus. That is novel and they all understand that Argentina has to undergo a process of solving its problems of capital controls and the exchange rate gap. They might then differ over the timing and the forms but that does not cease to be important.
The opposition always thought that way. The change would be that today the government also thinks that way.
More or less. You say the opposition but [Mauricio] Macri inherited an important deficit and increased it. Afterwards he blamed the Radicals or others elsewhere but it was fiscal irresponsibility, which included things [that were] difficult to understand because he paid the political cost of hefty increases in utility billing and instead of using that to eliminate the deficit, he expanded spending and investments into renewable energy with the idea of leaving a footprint, but it was fiscally irresponsible conduct.
Do you think that megalomanía might be the problem of Argentine politicians?
Yes, I believe that megalomanía has done us a very bad turn.
You recently linked the post-PASO devaluation to the triumph of Milei. How much can his triumph influence parallel dollar pressures and what would happen as from October 22 if he wins in the first round?
When Sergio called it [devaluation] an imposition of the IMF, that is because it was. At the time the question was no devaluation, no funds with no funds leading to arrears ending in default and that is very negative. So.there was no chance of not devaluing if we wanted to avoid a disaster. Now we kept talking with the IMF, some 50 times, firstly, because it was very diffícult to get them, although we did, to accept intervention in the markets of parallel dollars [CCL, MEP, etc] because Argentina had signed up on not being allowed to intervene. IMF acceptance was no mean achievement, important for Argentina, never mind the government. When it was accepted that there were no more dollars, they had to give additional support. And in my book the IMF and the United States Treasury, some of whose recent statements have bothered me, have been very mean. With this excuse of not aiding a government – when we explained to them that it was not about aiding the government of Sergio Massa or Alberto Fernández – they pushed for devaluation essentially to shrink the exchange rate gap. So you have to intervene the CCL (contado con liquidación) with fiscal policies from Day 1. So it was understood that we had to intervene when we had few dollars and then a black swan came along because on the Friday before the PASO [primary] the dollar was at 600 [pesos] and 720 on the Monday after for a 20 percent surge in the parallel dollar ahead of the devaluation. We decided to anticipate the devaluation by three or four days because the same thing was going to happen just the same – we saw that day as very negative and that it was going to be a lot worse in the next three or four days. But do you think that anybody in the IMF or the US Treasury called us up to see if we needed some more space to intervene in the presence of a black swan so that the parallel dollars did not escape all control? No, they criticised Argentina’s lack of ownership when their own lack of ownership was huge, letting us devalue when the objective was to lower the exchange rate gap and then disappearing when their help was needed.
Between the Friday before and the Monday after the PASO with Milei as the surprise winner, the unofficial dollars went up from under 600 to 720 [pesos] ahead of the devaluation, as you said, and the price markups were 20 percent . What do you think would happen on the morning of October 23 if Milei wins in the first round?
Firstly, I do not think that Milei is the black swan any longer because he is already very installed and he would not be the same type of surprise as it was that Monday, August 14. Then it depends on attitudes and conjecturing what does and does not suit him, what he would do and not do. Our responsibility, in any event, would be to seek an ordered transition. We are not going to devalue because Milei won, or whoever, no, we have already fixed a strategy whereby the [official] dollar stays at 350 [pesos] until November 15 and then a crawling peg of three percent as a general recommendation from which I would say we would not budge until we get the dollars to do something else. If you have no dollars, any devaluation or anything else you do will carry high risks. But I trust in the IMF, the US Treasury, the central countries, the World Bank, the BID [Inter-American Development Bank] and all the rest of them to support the new government in a sensible programme with the consensus we were talking about and would like to see more of...
So would the IMF attitude be different?
Yes, because we are saying that we want better performances than they want and we want a clear road map towards exchange rate unification but we need financial aid because if we wait for a more organic accumulation of hard currency than exports and imports, minus tourist spending, that can take a long time. And we’re not talking about big numbers – Argentina with US$10 billion could have enough for an exchange rate intervention and I would say that we could make a great advance towards exchange rate unification while with US$20 billion we could directly unify the markets. And when you achieve that, you do not need anything else because you dispassionately discuss with the opposition: “Che, achieving fiscal balance or a surplus and exchange rate unification and stability, don’t you think that with a couple more things inflation will eventually plunge like it did in the 1990s and between 2003 and 2005 when it was an annual five percent?” We don’t need anything else. And if you think that to be a requisite for dollarisation, for example, having those requisites is already sufficient with ending inflation a very important political decision – then the technical questions may come.
How do you end a year of inflation and fiscal deficit?
I don’t want to risk a number because things are happening. Revenue is doing much better than expected – there will be some other fiscal initiative between now and the end of the year. So we’ll be making a bigger effort to approximate the target to which we are committed and if there are detours, there will be detours – it’s not the end of the world.
But how much?
I’d prefer to leave it at that because it’s still a bit premature.
But you can at least share with the readership the percentage of the commitment.
It is 1.9 percent of primary deficit, very challenging at this stage.
How much was it last year?
In comparative terms it was 2.7 [percent of GDP], some will say 2.4 but I say comparatively because last year there were accountancy criteria which we decided to change this year.
Otherwise, 2.4 [percent].
But the comparison with 1.9 is 2.7. We’re talking about a year of recession, it would be hard to find any country in the world making a fiscal sacrifice of 0.9 percent. If we stray somewhat from the target, it’s not a “disaster.”
It’s always going to be less than last year.
We’re aiming at it being quite a bit less than last year.
And inflation?
It’s already had its run in large measure and I believe that this month will clearly see an important drop from September, a trend which may be consolidated in November and December.
Production: Melody Acosta Rizza and Sol Bacigalupo.
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