-One of the lessons learnt from Argentina relates to the political difficulties that may arise when a country is faced with the need to make tough decisions. Especially in cases like currency board, when none of the options is favored by people. In Argentina, preserving convertibility entailed making economic and political decisions that were unpopular but abandoning it caused the same effect as well.

The government of De la Rúa, who was politically weak, along with minister Cavallo had attempted to abandon Convertibility. Do you think that move was right considering the government’s political weakness?

-The government faced a tough situation and none of the options was good. Looking back, the major problem was that the government’s first choices were neither clearly abandon currency board nor clearly preserve it. It was a mid-way solution that failed to solve the major problem of monetary and exchange rate policy of the country. That ‘undecided decision’ only worsened the feeling of uncertainty plaguing the country and markets. I believe a more resolute and determined decision –either abandoning currency board or committing strongly to it- would have been better for the country. Last year or two years ago uncertainty was the worst feeling that could exist, however, government fed uncertainty over the future of the exchange rate policy.

Now Argentina has undertaken the challenge of flotation. What is your view on this question?

-The bright side of a floating exchange rate policy is that it is more flexible not only in terms of exchange rate but also for the Argentines who have experienced competition problems in international markets, especially in Brazil and the Mercosur. This flexibility will offer Argentine producers an easier access to these markets. The problem or threat is that same flexibility may send inflation soaring, leading the country to hyperinflation again. So the major challenge is to build on that flexibility to increase Argentine producers’ competitiveness taming inflation. It is an economic challenge but closely relates to the perceptions and legitimacy of government. The success of flotation depends on whether monetary and exchange obligations are reliable for the people and markets. It is a tough task because as the history of Argentina and that of other countries shows, a mistake in terms of greater flexibility than required means the return of inflation while a mistake in terms of less flexibility entails competition problems for national producers. The problem will be to find a flexible path for exchange rate controlling inflation.

What is your view on Argentina’s dollarization?

-Currency board had a relevant goal in 1991: kill hyperinflation. The Argentine problem now is not hyperinflation anymore –and we hope it won’t be. Dollarization in a country like Argentina would be useful if the country faced hyperinflation once again. Dollarization has proved successful in countries deeply integrated to the American economy such as Guatemala and Panama or more recently El Salvador, which have a considerable financial and trade integration with the United States. Argentina is not of this kind: it has a wide network of economic relations that is not totally oriented to the United States. That was one of the hurdles of currency board within the framework of the dollar hike in the ‘90s. So in my view, dollarization would cause serious problems for Argentina in terms of trade and financial relations with the rest of the world. And its positive effect –to kill inflation- is not necessary for now.

'The success of flotation depends on whether monetary and exchange
rate obligations are reliable for the people and markets'

What stance would the United States take in view of an eventual dollarization of Argentina? Argentina’s economy is much bigger than that of the two countries we mention.

-At present the United States would neither favor nor reject a dollarization in Argentina. From the American perspective, it shares important economic and geopolitical relations with Caribbean countries and that is why there is the debate that integrating them more into the US economy serves the country’s interests. But in the case of Argentina, political and economic relations are more complex and I think that now dollarization is neither viewed as a solution nor as an obstacle by the United States. American politicians are quite ‘agnostic’ about dollarization. Now, some businesspeople favor dollarization because of course many interests of the banking sector and investors would be benefited from it. But from the foreign policy view, the decision will not entail a definite American stance.

Would the United States get some monetary gain?

-There would be some gain but not significant from the American monetary policy view. The major implications in the case of the United States for the private sector would be: those sectors with stakes in Argentina that would be benefited by dollarization. In my view, from the perspective of the US economic and political interests, it is a marginal decision that has no considerable economic or political relevance. The decision to dollarize or not is actually important for Argentines and not for Americans.

A last question. Several press articles, some public opinion sectors and many sectors of Argentina usually blame the ‘neoliberal’ model for the Argentine crisis. What is your opinion about it?

-I believe that currency board, which was the keynote of decisions and disagreements over Argentina’s economic policy, is not ‘neoliberal’. Some people support neoliberal ideas that were in full disagreement with currency board and others did not support them and favored the system. Then I think the criticism to convertibility and the crisis emerged two years ago in this monetary system is not necessarily a criticism to neoliberalism. Now, there is a relationship between the trade and financial integration of the Argentine economy and the crisis but I think this integration and openness are not related to currency board. I believe the Argentine economy would open up with or without currency board. That is why I think criticism to currency board should not be confused with the question of economic integration, since currency board was a monetary policy specific of Argentina.