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Martín Guzmán responded to Cristina Kirchner for bimonetarism and questioned Javier Milei’s fiscal adjustment

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“It would be good if we stopped acting misunderstanding,” he said. Guzman about decisions that were endorsed by the main figures of the Frente de Todos government and of which, as he assured, the former vice president had full knowledge.

The former minister clarified some data and “false information” that Cristina gave in her document days ago. He pointed out that while it is true that external restriction is an obstacle to growth, “it is also necessary to put public accounts in order and sustain them.”

For Guzmán, it is essential to build “confidence in our own currency” to avoid recurring shutdowns in the Argentine economy. In his vision, bimonetarism, one of the axes that Cristina Kirchner focuses on in the document, would be fueled by fiscal unsustainability.

The question of the deficit for Martín Guzmán

“If the State spends more than the income it generates from its taxes, or sometimes from selling assets, then one of the following situations does occur: (i) it goes into debt, or (ii) it issues money to finance its deficit, or (iii) a combination of the two above. There is not an ounce of ideology here”, he noted. “Is it bad that the State has a deficit? Not necessarily. The point is that if there is a deficit, it has to be financed somehow,” express.

In a passage that condenses the core of the conceptual tension with Kirchnerism, Guzman He pointed out the inconvenience of considering the fiscal deficit as part of the permanent scenario: “Fiscal sustainability does not require that a State must always have a surplus or fiscal balance. Not at all. What it requires is not to have deficits perceived as structural.”

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Guzmán returned to one of the issues that generated the most confrontation within Alberto Fernández’s government, subsidies for public services, which he called “pro-rrico.”

He gave an account of the ideas that guided economic policy during the pandemic that began in 2020, and also of the decision that when the emergency began to subside, lower the fiscal deficit “as quickly as possible to reduce the levels of monetary emission, and mark from policy a path of credible order, which would help first to contain and then to strengthen the demand for the national currency.”

He recalled the letter published by Cristina Fernández de Kirchner on the day the budget bill for 2022 was presented, in which she suggested that the legislative elections had been lost because he was carrying out an adjustment, “and that he should increase plus the expense.” “Maintaining that the Argentine economy is bimonetary and at the same time asking for a more expansive public spending policy financed by monetary emission is not coherent,” he snapped.

Agreement with the IMF: what Martín Guzmán said

The former minister said that “being indebted to the IMF is a real screw-up for the country” and He denied that information was hidden about the negotiation for the new agreement with the IMF, something that the former vice president demands of him. “Absolutely every line of the agreement with the IMF and its subsequent review constitutes public information,” he said, and tried to refute assessments about the signed agreement that he considers incorrect.

In the 33-page document released on February 14the former president had pointed out that “during the pandemic the government (by Alberto Fernández) “He restructured the external debt with private bondholders contracted during the government of Mauricio Macri but without interest reduction and little capital reduction.”

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Guzmán assured that this is “false information.” “The restructuring of the aforementioned debt led to a reduction in the average interest rate from 7% in dollars to 3.07% in dollars, along with a reduction in the capital owed of 1.9%,” he explained. This meant a relief from scheduled debt payments of $34.8 billion in the period 2020-2030 with respect to the payments stipulated by the bonds that were restructured.”

Sergio Massa, reserves and exchange rates: what Martín Guzmán said

The person who was Minister of Economy between 2019 and 2022 pointed out against decisions made by the person who succeeded him and was the presidential candidate of Peronism in last year’s elections. Sergio Massa, that would have generated more inflation. He questioned the interest rate increase and also the preferential exchange rate given to the soy sector, the “soy dollar.”

“What is the criticism of the interest rate policy that was included in the agreement with the IMF?” “Why, after having forced my departure from the Government, was such an increase in interest rates supported under the management of a minister who did have political support? Can we ever discuss these issues seriously?”

In another dart against Guzmanthe former vice president said that during the first years of the Unión por la Patria administration “the government did not achieve the necessary strength in terms of reserves due to poor administration of the dollars obtained,” despite obtaining very important trade surpluses.

Within the framework of a broader argument in which he responds to this accusation, the former minister spoke about the intention he had to advance with a formal splitting of the exchange market. “The proposal was rubbish and its implementation would have generated rejection by companies indebted in dollars. But all the alternatives were rubbish; “Once again it was time to choose between rubbish.”

Luis Caputo Javier Milei

As detailed, the then Minister of Productive Development, Matías Kulfas He was the only person in the Government who supported his initiative. “Interestingly, he is also accused of being responsible for the fact that international reserves have not been recovered despite the trade surplus.”

According to his argument, having advanced in another direction meant that reserves could not be accumulated and he pointed out four people responsible: Alberto Fernández, Cristina Fernández de Kirchner, Miguel Pesce and himself. “It would be good if we stopped acting oblivious,” He launched.

The adjustment and policies of Javier Milei: what Guzmán said

For the former minister, the policies of Javier Milei They pursue two objectives: dollarization and maximizing bond prices. “The ongoing plan will generate an increase in poverty, inequality and miserygiving rise to a more insecure and distressed society, which devolves.”

“Making the currency disappear from circulation does not solve the weaknesses that its poor health generates. What it does is suppress the defense mechanisms that are already so weak that this bimonetary economy has,” the former minister explained today.

In his ten proposals going forward, Guzmán included the I propose modification of the Organic Charter of the BCRA, reversing in an orderly manner the 2012 reform that expanded the BCRA’s capacity to finance the Treasury “on an exceptional basis and if the situation or prospects of the national or international economy so justify.” The Executive Branch should request approval from Congress for the BCRA to provide additional financing.


Outside the Cristina-Milei crack: what Martín Guzmán proposes

Between the two extremes of the rift between Cristina Kirchner and Javier Milei, Martín Guzmán proposes a series of points in his vision of the economy to escape the confinement of “the two models”:

  • To strengthen the currency, “today it is a necessary condition to accumulate reserves and reduce the fiscal deficit. The reduction of the deficit should be progressive (this occurred in 2021, although it would have been desirable for the reduction to be greater mainly from the reduction of energy subsidies). If “we are going to resort to calling deficit reduction adjustment, let’s call this proposal “progressive adjustment“”.
  • Public spending: the share of economic subsidies must be “reduced and the share of investment in digital and physical public infrastructure, in knowledge and in industrial policy increased.” Within economic subsidies “there should be a certain level of subsidy for public transportation, but almost no subsidy for energy consumption”
  • The architecture of the public sector “has to be reorganized.” To do this, it requires “a second generation Financial Administration law”, considered Guzmán.
  • Resolving the problem of State trust funds that is being discussed today would also be attacked by such an update of the legal framework. The organization of the State also requires a more adequate framework for the allocation of public works and the control and supervision of resources transferred between the national government and the provinces and municipalities.
  • The architecture of fiscal federalism requires a framework that prevents provinces and municipalities from issuing public securities in foreign currencysince the potential consequences on exchange rate instability that these decisions generate are transmitted to the rest of the provinces, and each province does not internalize these negative externalities when making such external public debt decisions.
  • Monetary policy should aim at a real interest rate that encourages demand for assets in pesos, which should almost always be positive, except if real rates in the world are very negative and Argentine risk is already lower.
  • The aim should be to eliminate the exchange rate, for which it is necessary to previously accumulate a certain level of reserves, and when the exchange market is unified, capital-financial account regulations should be adopted based on principles similar to those that were prevailing in the 2005-2011 scheme.
  • Post-exchange unification, the exchange rate policy must aim for a certain time at a real one that is more competitive than the free market result, which occurs if the BCRA intervenes by purchasing reserves in a managed floating scheme.

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