An Argentine economist who is drafting recommendations for a more business-friendly government that could emerge from the 2023 elections has a message for foreign investors contemplating a possible regime change.
"We are not interested in 'hot money' in Argentina," Carlos Melconian, director of the IERAL think tank, said in an interview from his office in Buenos Aires. "A flow of capital that generates quick profits and is confused with the element of confidence, we are not interested."
Melconian, who previously headed the state-run Banco de la Nación Argentina, is drawing up an economic plan for the next government that would address the country's many problems, which range from 100 per cent inflation and a web of exchange controls to anti-business labour laws and poverty close to 40 per cent.
His plan would also attempt to avoid some of the early policy mistakes of the last market-oriented administration of Mauricio Macri, who lost the 2019 election to President Alberto Fernández after early reforms failed to avert a new crisis.
Although the specific details have not yet been made public, some key policies are laid out in Melconian's plan for the start of a new government. Setting inflation targets and a free-floating exchange rate – two policy pillars of Macri's early days in office in late 2015 – cannot happen after the next government takes the reins, Melconian says, calling such measures "inadequate."
He proposes that the new government force investors to hold Argentine assets for a certain period of time before selling them, to avoid the rapid fluctuations that helped fuel market volatility during the Macri government, or the "hot money" often associated with quick profits and speculation stemming from sharp currency movements. He did not define exactly how long investors should wait.
After initial success in stabilising the economy, reaching agreement with reluctant creditors, returning to global bond markets and removing onerous controls, Macri's government suffered a crisis of confidence midway through its four-year term and was forced to turn to the International Monetary Fund for a record US$56-billion bailout. After Macri was defeated in the 2019 primaries, he had to re-impose some controls as investors rapidly withdrew money from the country.
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It is worth clarifying that there is no "hot money" in Argentina at the moment due to strict exchange controls. During the pandemic, the Fernández government defaulted and then restructured its debt, but with current yields of around 20 percent on dollar bonds, the country is effectively shut out of international markets. Investor appetite to return to Argentine assets depends largely on the economic policies of the next government.
More broadly, Melconian sees a new economic era for crisis-prone Argentina after this election cycle.
"In politics it is said that a political cycle is ending because it is the end of populism," said Melconian. "We say that a cycle of economic organisation and format in the Argentine economy is coming to an end and that it is not going to last."
The end of the Fernández government and the current economic model will not be easy. Melconian forecasts annual inflation of 100 percent from January until at least the primaries in August, with more reasons to think it will rise than fall.
Along with what he estimates to be 60 to 70 key thinkers – economists, lawyers, tax experts – some of whom are also contenders for a future cabinet post, Melconian is one of the architects behind the plan he describes as "capitalist, western and progressive."
At first, "Argentina is not going to face what it does with the cepo," he argued, referring to currency controls. "Argentina also has to face up to what it is doing with the way it does business.
Melconian is often linked in the local press to Patricia Bullrich, the conservative leader of the opposition coalition who is expected to run for president. Buenos Aires City Mayor Horacio Rodríguez Larreta, considered more centrist than Bullrich, is also preparing his candidacy. Liberal economist Javier Milei, who presents himself as anti-establishment, also stands out in the latest polls.
Melconian insists that his plan is apolitical and not linked to any opposition candidate. But with Fernández's popularity falling and after Vice-President Cristina Fernández de Kirchner declared she will not be a candidate, the economist sees an opportunity for the opposition to win next year's elections.
"It's an opposition that absolutely still has a penalty kick without a goalkeeper," says Melconian.
by Patrick Gillespie & Juan Pablo Spinetto, Bloomberg