It is a totally unnecessary measure adopted by someone who does not understand the bank and monetary system. I hope the Supreme Court finally declares it unconstitutional, it would do a big favor to Congress. Secondly, the exchange rate control proves totally unmanageable. Foreign trade was totally paralyzed for a month and a half also contributing to the paralysis. In other words, we should not say this mega-recession has been inherited. It derives from the measures exclusively adopted by this government. Now people expect to change to a single market. The importance lies on the fact that in a single market all exchange rate controls should be eliminated, it should be a totally free market, otherwise, this will not work either.

This situation could derive into hyperinflation as the one we experienced in 1989?

Absolutely not. This situation features hyper-liquidity and hyper-recession so under these conditions the exchange rate gets normal immediately. Of course, then we must keep working on the budget and all of the other things. The exchange rate foresight – there is a precedent in 1959 with Frondizi, in 1962 with Guido- shows that when the exchange rate is freed it soars first and then begins to drop and the perspective is it should not be above 1.40 pesos because there is little import demand, little tourism abroad, no liquidity to buy dollars (besides those who have liquidity bought dollars a long time ago) and there is a major retained potential export supply.

This tends to stabilize the market and government has no other choice but to ‘dive into the pool’ because by saying he wants to wait for an IMF aid, Remes Lenicov is ignoring the situation. The Fund will not support the budget being outlined because it is unreal. We are heading for an inordinate deficit of 10 billion and more so the IMF will take a hard stance toward the budget discussion. It will be a complex debate and the exchange rate market should be freed now, they cannot wait anymore.

According to the papers the IMF praises the work of the economic team but warns at the same time that it is essential to free the financial corralito because it has brought up many social problems in Argentina…

When the IMF speaks in public it uses political terms. The Fund has been created to help trouble-stricken countries such as Argentina, that is its mission and it intends to help us. But the IMF is limited to help us if we fail to show a serious budget for it has already been harshly criticized at world level for the generosity offered last year to De la Rúa’s administration which proved pointless.

Right now people are concerned about the so-called ‘dirty dollar flotation’. What does this mean in economic terms?

There are many types of dirty flotation. One is the free floating dollar that the Central Bank sells or buys without pre-established rules. The other is regulated dirty flotation and there are two systems: one is by setting limits which is a bit risky because of the pressure it awakens. The other is by means of a system that simply establishes the purchase and sale when the short-term variation in one day for one and in one week for another, exceeds certain limits and this is done to avert the exchange rate volatility which may be done because it is an automatic system.

As to the many hypotheses emerging, one holds debt ‘pesofication’, the term ‘dollarization’ is being heard again and the dollar is expected to shoot and spark an ever worse crisis. How do you think this situation will end?

I do not know how it will end. Amid doubts, I would have adopted dollarization and I think that in the end we will dollarize because the Argentine society simply rejects the peso. Argentines do not trust a currency managed by Argentine politicians so they prefer dollars, a supranational currency. But anyway, I would have preserved deposits in dollars, would have implemented free market. The one holding a debt in dollars knew he was at risk.

Is there any chance to return to currency board?

No chances at all because it would not be credible. Today we are dealing with the issue of pesos and one day we will end with a question of dollars. Currency board was adopted in a moment when total dollarization was the issue. It was a way of rescuing the peso, something witty Cavallo did at that moment and that actually reedited the peso as a currency. But that can be done once, the second time people will say ‘I won’t buy that one’.

What are the real chances of freeing the financial corralito?

The so-called ‘Corralito 1’ –compulsory banking- will have to stay for sometime. It is impossible to eliminate it plus it does not bother because it ultimately means forcing people to use ways of payment like the ones used in the United States (checks, cards or electronic payment), which works well for adaptation has been successful.

The ‘Corralito 2’ –frozen deposits- must be immediately eliminated for it has no sense at all. Besides, the Court may rule it unconstitutional, which is for it affects basic property rights. I really don’t understand this government because through this measure it has turned the whole small middle-class against it, the entire small bourgeoisie who have their savings trapped. Government thought only some rich would be affected but it was not so because it affected the whole population: 80% of bank accounts were of less than 30,000 dollars and so government fueled a popular unprecedented revolt that groups unemployed, leftist activists and the bourgeoisie.

Rosendo Fraga speaks of an ‘unprecedented social coalition’ in Argentina...

A coalition fueled by government. If government allows people to access their deposits then problems would vanish. Besides, now the economic team wants to do something illogical because they want to lift the frozen cash case by case considering each situation in particular: sick relatives, to pay taxes, to buy some real estate….so banks will receive thousands and thousands of claims with infinite paperwork requirements. This is not manageable. Exchange rate control is not manageable either.

This situation has almost totally damaged the Argentine banking system. Do you think it will recover in the future even if the corralito is eliminated?

If they maintain ‘corralito 1’ then the system changes (and has already changed) and there is an interesting point: of course, the system loses voluntary savings, which is quite serious, but it will gather more compulsory saving due to the system of payments. Because if people pay with check or card they must make a previous deposit and considering bank statistics there was a strong increase in current and savings accounts deposits and a steep slump in fixed-term deposits. That is to say, anyway we will have a smaller bank system and that is why some banks intend to leave the country. But we can heal that smaller system.

What do you think foreign investors will do?

Apparently, this policy undermines investments. Fortunately, Argentina can live from 3 to 5 years with little extra investments. What we actually need is working capital and the problem is that government has destroyed the working capital of the economy. We need banking credit from here, from abroad to operate, to oil the wheels of the economy. The economy is totally demonetized and this is so recessive that we can even experience a 10% GDP slump in the first quarter, possibly rising during the course of the year.

In terms of the region, do you think the Argentine crisis will affect neighboring countries?

It already affects them. Our mega-recession affects Brazil which sells less and not only the exchange rate but also due to the absence of market.

Interview by Norma Domínguez