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Reforms Needed Urgently INTERVIEW Photo: nonnnononoonono Reforms needed urgently The Brazilian Economy—The US Roberto Lavagna Supreme Court ruling on Argentina’s Former Minister of Economy of Argentina payment of creditors has produced international support for but also Solange Monteiro criticism of Argentina. What is your AFTER ARGENTINA DEFAULTED IN 2001, Roberto Lavagna, its economy opinion? minister (2002–05), successfully negotiated the restructuring of Argentine debt as of January 14, 2005. The recent judgment of the Supreme Court Roberto Lavagna—We need to put of the United States in favor of creditors who opted out of the debt the ruling in the context of the enor- restructuring in 2005 has put Argentina back in the international spotlight. mous influence that certain financial Today, he says, Argentina is held back by two issues: reforms of the sectors have on the rules that move international finance system to prevent interpretations of debt contracts that create uncertainties in the sovereign debt market; and changes to its world finances. As a consequence economic policy to fight inflation and resume growth.L avagna is critical of of deregulation in the 1980s and the current government’s management of the economy and now supports 1990s, we ended up in a huge global the Renewal Front party, whose candidate for president, Congressman crisis in 2008. After deregulation, we Sergio Massa, is ahead in the opinion polls. Lavagna argues that Brazil thought new rules were necessary, as well as Argentina needs to address its domestic problems to promote competitiveness and growth. “We are limiting ourselves when interest but the financial sector managed rates rise in Brazil, or policy controls are imposed in Argentina,” he says. to delay some, weaken some, and 36 July 2014 The Brazilian Economy INTERVIEW to some extent nullify them. In the current renegotiation proposal negotiated in 2005 said case the influence of the financial sector was clearly that the estimated 75% reduction in the able to use courts to change the criterion of debt assumed that Argentina would not seek equal treatment for all creditors. The new funding in international markets until December interpretation now is that some creditors can 31, 2014—10 years from the agreement. Of be treated differently. Thus, it course, this policy decision gives the 2% of lenders who did not please bankers, who are litigating against Argen- “It is clear that there could have lent to Argentina tina a position of privilege at and even today are offering the expense of the more than have been changes, credit. The decision was made 90% that renegotiated their they have been so that Argentina would not claims. The governments of negative, and they enter into another borrowing countries like the USA, France, may have affected binge. Our position was to go Brazil, and the Group of 77— not only creditors but to the markets only to manage and even The Financial Times, our debt: If US$1 billion in debt a spokesman for international also the Argentine matured, we would issue US$1 finance—consider this deci- population.” billion in debt; and if we had sion excessive. debt with a 5-year maturity This is not to ignore the fact and we could change it to a that for years the Argentine government has 10-year maturity, we would do it. The goal was neglected its debt problems. Indeed, changes in to achieve a debt-to-GDP ratio of 30%. economic policy since 2007 have put these issues Debt management had caused much trouble aside, which was a mistake. But such domestic for Argentina in the past, and opting for an error has to be put in the more worrying context easy borrowing policy was out of the question. of international finance today. The International On the other hand, at that time Argentina had Monetary Fund has also expressed concern fiscal surplus of 4.5 points—a mass of available about how to interpret the changes, and it is resources. clear that the international financial system needs additional reforms. The negative impact How may the economic imbalances have of this decision is obvious, Christine Lagarde, affected how creditors assessed the health of managing director of the International Monetary the Argentine economy? Fund, has made it very clear that sovereign debt I’m critical of macroeconomic policy since restructurings will become more complex if this 2007. There have been serious macroeconomic interpretation holds. errors, and they primarily relate to domestic issues—not to international creditors but to Do you think Argentina was correct to focus our own situation. Since the crisis of 2001 there on deficit reduction without seeking the help have been three very different periods: From of the international financial system? mid-2002 to 2006, the country grew 9% per Here my opinion is straightforward: The debt year, with a primary fiscal surplus of 4.5% of July 2014 The Brazilian Economy 37 INTERVIEW GD P, an external current account balance of how to manage macroeconomic policy. When 3.5% of GDP, and annual inflation of 9% to 11%. I left the ministry two important measures Then there were economic policy changes in had been submitted to Congress but were 2007. In the second period, from 2007 to 2011, abandoned. One was a major tax cut. The other growth was cut in half, to 4.5%, and in the was creation of a countercyclical fund. At that third, from 2012 to 2014, growth sank to about time Argentina was running a fiscal surplus of 1%, annual inflation shot up to between 35% 4.5% of GDP, so it would have been possible and 38%, the fiscal deficit rose to build a reserve fund for to 3% of GDP, and the precar- when the times became less ious external current account “Countries like favorable. Chile established a balance was dealt with only countercyclical fund in 2007, Uruguay, Peru, Chile, by the imposition of exchange and in a few years the fund controls in 2011. and Colombia live totaled over US$20 billion. The results are obvious to in the same world In Argentina, the tax cut did anyone. It is clear that there but are in better not occur, and taxes have have been changes, they have condition. We need surged since 2007, affecting been negative, and they may the private sector, especially have affected not only creditors to acknowledge small and medium businesses, but also the Argentine popula- that there are local which are less able to cope tion. I say “may” because since problems in how with it. Economic growth has 2005 the country has fulfilled its economic policy is declined. In the current situa- debt obligations. I believe that, being managed.” tion in Argentina, it would be like Brazil, we will be making interesting to think about a a big mistake if we blame the tax cut in order to spur invest- international context [for our ment and create jobs, and problems]. Close to us, countries like Uruguay, about creating a countercyclical fund. Peru, Chile, and Colombia live in the same world but are in better condition. We need to How do you think the country will be affected acknowledge that there are local problems by the presidential election in 2015? in how economic policy is being managed. It How will the transition work? It’s hard to say. My would be too easy to blame the world outside. feeling is that inflation will continue to be high— we will not be able to reduce inflation by more What advice would you give to the next than 1.8–2% monthly—investment will be low, economy minister? and very few jobs will be created. This situation Here it is best to talk about the facts. From is complicated because Argentina’s main trading mid-2002 to early 2006, economic and social partner is Brazil, where growth has been low for policy produced real results. Of course every- several years. It seems that what awaits us is no thing has to be adapted to the context of the large open crisis, but continuing low growth. moment, but I think there are guidelines for We have improved official price indices to some 38 July 2014 The Brazilian Economy INTERVIEW extent, but there are still important differences Do you agree that the Mercosur customs union between private and government estimates. is bankrupt and that it is necessary to reestab- This means that as yet there is no credibility to lish the bloc as a free trade area? encourage private sector activity. I do not think that is the way to go. Mercosur has to address many things; it has to negotiate What alternatives does the country have to trade agreements with countries of both the attract foreign exchange, besides exports and Pacific Alliance and the European Union. To reducing controls on imports? do this, however, Brazil and Currently Argentina’s number Argentina have to address one task is to avoid capital flight. their own lack of competitive- Due to distrust of economic “In the current ness—it is not sufficient to policies, manipulation of price situation in support negotiation in other indexes, and low economic Argentina, it would areas. Both countries have to growth, there is flight, and not be interesting to make domestic adjustments. just of foreign capital. Of course think about a tax it is good to attract foreign How could Brazil and Argen- investment, but the country cut in order to spur tina help each other to do this? cannot do so without giving investment and Argentina’s growth potential assurances to its own people. create jobs, and is huge. So is Brazil’s.
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