“This country needs someone to tell it what to do. It is time to become a mature country.”He says Lawrence “Larry” Kotlikoff, An American economist who lives and teaches in Boston, but has a strange connection to Argentina. The link is former Minister Domingo Cavallo, with whom he had a friendship decades ago. When they shared classrooms and hallways at Harvard Along with other well-known names, Like former Chilean President Sebastian Piñera.
“He’s a great friend” Kotlikov says: Nationduring his last trip to Buenos Aires, where in addition to its preservation Meetings with officials from the National Economic Team and academics from study centers such as CEMA and UTDTHe met frequently with Cavallo, with whom he had a personal relationship They were unified in the 2002 episode. It was in May of that year, when Kotlikov promoted a request for support for the former Argentine minister, who had been arrested for his involvement in a case of arms trafficking and aggravated smuggling. Head of the Department of Economics at Boston University (USA) at the time The memorandum, which was published in the New York Times and signed by 75 international academics, was promotedincluding five Nobel Prize winners in economics, such as Robert Lucas, Franco Modigliani, Robert Mundell, Paul Samuelson and Robert SolowIn addition to former Federal Reserve Chairman Paul Volcker and Piñera himself.
“The problem with Argentina is that it encourages reforms, but they last for two weeks. “What I am proposing is to use modern technology and global institutions to make it work forever,” says Kotlikov, who insists the country has “transitioned” from being an “advanced” to a developing economy. The economist, who ran for president of his country in 2016, insists that “the problem was bad policies.” He specializes in public finance, taxation and macroeconomics, describes himself as a nonpartisan academic, and is critical of colleagues who openly express an ideological viewpoint. Belonging or Politics: “There are many ideological economists who seek to reward this belonging. In my opinion, anyone with a party affiliation should give up their title. From there, you lose your ability to be an economist.”
In his view, Argentina’s decline is due to “a century of economic blunders” in managing its fiscal, monetary, and exchange rate policy. Although he praises the government for balancing public accounts, he proposes “fundamental” reforms to “preserve the tremendous achievements that should not be underestimated, such as reducing inflation.” In addition to the idea of dollarization, it is proposed to reform the pension system so that the World Bank is the one who manages and invests these capital and tax changes. The most radical proposal, which brought together Luis Caputo and José Luis Daza, is to change the banking system, for a model “free from the risk of deposit runs”, in a kind of local experiment with an unprecedented theoretical scheme that has not yet been applied in any other country.
-What is your vision for Javier Miley’s government?
There are achievements that should not be underestimated, such as low inflation. A certain degree of growth and broad social support for the changing economic trajectories has also been restored. Political support is important. A century of economic blunders had left the country in an unbelievable situation, and better policies were what was needed to reverse it. What I am proposing are the measures and reforms needed to support these achievements – simple measures that everyone can understand – to demonstrate to Argentines and international investors, who remain skeptical, that the country has not achieved success in the short term, but will continue over time.
-In what fields?
The history of Argentina is the history of a country that printed currency to pay for what the government spent, or to maintain and deal with financial panic. If there is a fear that the treasury does not have expenses payable, this leads to the bankruptcy of the central bank. The only way to change is to change policies in an appropriate way so that expectations change, so that the future looks different from the past. And also because the financial sector in Argentina is small, because no one believes in the financial system, and they are afraid that the money will come but they may not be able to get it back. This happened the last time I was here, in 2002, and it ended with high inflation and low activity. Then came the populist government. The key is to generate something sustainable.
– What do you suggest to change banks?
-It creates a banking system that never fails and is never subject to withdrawal. I’ve proposed it in the United States and around the world, but no one has embraced it. Argentina is perfect to be first. Essentially, banks today ask for money or take money from their savers, and invest it or lend it to potentially risky projects. But if people wanted their money back, a run could occur, forcing the country to issue, and generating problems such as too much inflation. The solution I suggest is limited purpose banking, where you can only invest in real assets.
-Why do you do that in Argentina?
The financial system here is small relative to GDP. It is an ideal country to do this. When there are periods of crisis, the country exports money, and the poor end up bailing out the rich, the owners of the crisis. The idea is to eliminate this scheme, and not have to print pesos to bail out the banks, the pesos that end up generating hyperinflation. Another reason why countries print money is that they face fiscal problems, because the provinces or national government are spending more than the country’s tax base can bear. When you don’t have the possibility to borrow, the only way is to issue. That’s why President Milley took out the chainsaw and cut spending by five points of GDP. What he wants is for his reforms to last for 100 years, not just his re-election. That’s why we also have to look at the pension system, which is not sustainable.
-What do you think about dollarization?
-The best thing is to have a lender of last resort, which allows banks to be bailed out. But if you don’t have a failing banking system, this isn’t necessary. Currency can be exchanged. I think this means importing inflation in the US, which has been high recently, but that is much better than living with inflation in Argentina. There are advantages and disadvantages to dollarization. Not having control over your own money supply is not an ideal situation, and it’s an advantage if you can control yourself, but this country has a century-long history of not being able to control itself when it comes to printing money. Trump wants to dollarize the world and would love to do so.
-But how would that be possible? Argentina does not have the dollars needed for this.
-You can consider US involvement and foreign assistance. The Treasury could provide about US$30,000 million, which would be used to buy all pesos and put an end to the central bank’s issuance of pesos. It can be a no-cost agreement, but on the condition that the level of spending is maintained. There will be a penalty for the state if it fails to comply. If Argentina fails to comply and spends more, this agreement turns into a loan that must be repaid very quickly. It will be a mechanism to keep the country on side. If the country is able to transform into a more advanced country, in terms of per capita GDP, which is the level that investors want to achieve, it will have the necessary conditions to leave the dollar and return to the peso again, with two currencies coexisting, as is the case in Uruguay or Peru. But I think it would be better now to have Ecuador rather than Argentina with its currency.
-You talked about the retirement system, what do you suggest?
What must be done is to stop adding people to the current system, who will continue to pay dues over time, and the amounts will decrease. Add the involvement of the World Bank, not in the form of providing free money to Argentina, but acting as a bank. Each Argentine provides 10% of his income, even including the unregistered, whose income can be identified through the use of QR codes and other digital mechanisms, and this money is placed in an account guarded and managed by the World Bank. For low-income sectors, or if you are disabled or unemployed, the government adds additional support in the Financial Solidarity Scheme. Every dollar the World Bank receives is invested in the global market, and everyone can see how this market is developing. This will be without any cost to the residents of Argentina, and at the time of retirement, it will be matched by a certain amount depending on the years of contribution. The important thing is that the government could not take that money, because it is under the custody of the World Bank. You only pay the designated beneficiary. It will be a secure system.
-Why invest Argentine money abroad?
-Argentina represents 1% of the global GDP. The allocation of savings here will not be very diversified, and involves greater risks. What we are looking for is investment abroad, and for foreigners to invest here. When these reforms are implemented, the country can roll over its debt at a lower cost, because hard solutions are adopted, and money from abroad begins to arrive. They are the policies that will take the country to where it should be, which is to have one of the highest GDPs per capita in the world.
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