I think this is awakening soaring anxiety among Argentines who are quite concerned and have been waiting for a solution for long or at least that the measures be announced so that we can hope for a converge of price stability while abandoning currency board. This would be the expectations of today along with the fact whether we can withdraw deposits from banks or not.

Do you have any idea of how the measures will be implemented?

Savers will not be affected according to what I have just spoken with some officials but each will be allowed to withdraw their savings in dollars though not now but based on a payment schedule that may be of six months for deposits of up to 10 to 20 thousand dollars –I still do not know the cap- and to a longer terms for larger deposits of 50 to 100 thousand dollars so that there would not be large transfers of income from one sector to another.

Debt payment will be ‘pesified’ switching from dollars into pesos leaving a difference banks will have to cover through some bond granted by the Central Bank and then the utilities fares which are in dollars will also be pesified and so they would not increase as the dollar trading will. This would be the guidelines of the devaluation with some changes in contracts that may derive in complaints against the State due to the change in the rules of the game set when privatized companies made investments. So many measures must still be taken for instance what will happen to a company that owes dollars abroad and will not be able to pesify anything, its turnover is in local currency that will be affected by inflation and depreciate, so how will they pay abroad. There are still many questions and of course abandoning currency board is something that the different Economy Ministers after Cavallo’s departure or even himself when analyzing the consequences discarded or preferred to continue with convertibility. Now we dare make this change but we will experience tough times.

How does Argentina today resemble Russia and Ecuador of yesterday?

Well, it is different because I think those countries did not have any time. They were in a situation similar to the one we experienced a week ago, ‘governmentless’. But I think now the government gathers some approval. It may be said to be stronger or weaker but it is leading a road that had always been fixed on another side in the same line and also there will be an agreement with the Fund since next Saturday Remes Lenicov will be traveling to Washington to outline the Plan in detail, explain it and in turn request a 15 billion dollar aid that could be arriving in 30 to 45 days and so come up with a balanced solution as happened with Mexico or Brazil.

Our situation looks like the Mexican tequila effect of 1995 or the Brazilian financial woes of 1999 rather than the Russian debacle. The Mexican problem was quite complex because banks were also in bad shape and found it difficult to pay deposits and then many were nationalized and so the situation compounded for many banks. The case of Brazil was not so serious because the country’s banks were not experiencing problems. I would not compare it to the Russian situation where there was nothing and everything floated on the air, neither is it similar to Ecuador which tried to dollarize and so the real economy had to make a big adjustment for two years –this year they are already adjusted and reporting an almost 1% growth of the GDP after the dollarization of two years ago.

An issue you mentioned at the beginning of the interview was inflation. Just as many of your colleagues such as Roque Fernandez or Carlos Ruckaif have recently dismissed the possibility for inflation to emerge as long as the short market liquidity prevails. How do you think this will unfold?

To see what will happen with inflation it is essential to figure out the fiscal deficit size. If deficits will be covered by issuing money –as was usual before the implementation of currency board- then liquidity will emerge to introduce price hikes. If there is no liquidity, prices will not increase as nobody will afford them due to recession. But I understand that the fiscal deficit of the past months is quite large. According to estimates, tax collection decreased 33% in December and that decline must be covered. In time it will be covered by issuing money so that is monetized deficit allows inflation to move on.

Unless export duties are placed on agro products –as also happened in the past, when devaluation occurred it was offset. So instead of commodities increasing at the pace of the dollar, the export duties make a difference in the local market for they must give the State a 15 to 20% tax that will serve to finance the treasury and also controls price hikes. I am not for placing export duties but in the light of the current situation I think this measure could be adopted ( I’m predicting, not proposing it) and smooth the impact of price hikes.

I do not think the idea is to affect farmers but sometimes when there is no solution there is no other way out and this measure could temper commodities price increases and at the same time grant the State some funds. For another thing, we estimate that real salary will drop by at least 10% in real terms in 2002. Added demand will also decrease for there will be no considerable investments and in terms of exports prospects are not encouraging because the world is in recession so it is hard to sell more.

What should the economic strategy be in Argentina once we walk out of this turmoil?

I think rather than an economic strategy it is important to devise a view of the country to build in the mid-term, let’s say 10 years. Analyze how they world is moving, estimate which are the best economic values to foster those economic models; see what is the best education scheme to emulate in the world; what the best cultural system is to implement it in Argentina and so the different aspects that make national life have a country view of a new Argentina.

The scheme we have is obviously unsuccessful. Then we must translate this view into numbered goals to fulfill and foster strategic plans in the political, economic, tax, industrial, technological, demographical fields at provincial and regional levels. In other words, identify the Argentine positive values we should foster.

I think that once the turmoil is over, we should make a deeper reconsideration of the mid-term as Spain did two or three decades ago leading it to join the European Community and they made a great effort to fulfill that view. Also other countries such as Ireland that made big strategic changes encouraged by a country management that aimed at fulfilling goals in five, ten and even three years.

We should not forget that in the early years of the XX century and until 1940, Argentina had the same per capita income as Canada and Australia and 10% less than the United States. Today we report one third of the average of those countries. This means the nations has been mismanaged by politicians, decision-makers, businesspeople and leaders of non-governmental organizations who have not done the right thing or ignored the risks when they were emerging.

Anyway, Argentina must have a new political leadership oriented to the global average and give up making weird experiments swimming against the tides. Following worldwide trends would be enough to be good.