Juntos por el Cambio (JxC) presidential candidate Horacio Rodríguez Larreta aims to eliminate currency controls and sign a new deal with the International Monetary Fund (IMF) after passing a wide-ranging law package in Congress, according to his economic advisor Martín Redrado.

On Tuesday morning, Redrado shared Larreta’s economic perspective and proposals in a virtual dialogue with Wilson Center’s Latin America Program, as a part of their Argentina Elige series, where the main candidates’ economic advisors will be participating in upcoming digital events.

The Wilson Center is a think tank that showcases non-partisan and federal perspectives about Argentina. Benjamin Gedan is the director of the Latin American Program.

“Argentina is in a crisis of confidence that can be reversed by laws backed by a vast majority in Congress,” Redrado said. “The only way to make them sustainable is to have a majority that goes beyond JxC.”

Larreta would immediately present a package of six laws in Congress and call for special sessions during the summer recess in order to approve these laws quickly.

Larreta’s law package

1. Independence of the Central Bank from the government, meaning that the financial entity would be able make autonomous decisions regarding issuing money. “It should be independent in practice,” Redrado said.

2. Public sector reform to move towards zero deficit in their first year of government. Larreta wants to reduce the number of ministries, committing to having no more than 10 ministries, Redrado said. They would also streamline state-owned enterprises, asking them to have a zero-waste budget. “Income and expenditure should match. We don’t expect them to provide profit to the government, but we expect equilibrium,” Redrado said.

3. Modernization of tax and labor systems. “We need to fight against informality,” the economist said. “In order to reach zero deficit, we need to streamline and cut costs in the public sector but also broaden the tax base,” he added. According to Redrado, 50% of workers are informal workers, “mostly because of heavy taxation, a lot of tax overlapping.”

4. Eliminate export duties for 200 products in general, and all regional and agricultural products. Larreta’s economic team also aims to establish by law that there can’t be any more quantitative restrictions. “No more cupos” — meaning a specific amount of certain products being allowed to be exported. “If any undersecretary wants to do that, they will have to go through Congress first,” Redrado said. 

5. Infrastructure law. “Argentina needs to lower its logistics costs. Therefore, we need to single out the key infrastructure in terms of roads, trains, and ports. If we improve our logistics, Argentina will be financed by multilateral institutions.”

6. Specific law for energy and mining, which would provide companies free access to the foreign exchange market, legal security that would protect the conditions of export treaties with other countries, tax simplicity to assure that no taxes would be increased during the duration of the concession, and accelerated amortization.

Currency controls

If Larreta wins, he would lift currency controls — known as cepo in Argentina — as soon as possible, Redrado said. “We don’t want to give a certain date because we are responsible.”

Larreta has distanced himself from his JxC contender Patricia Bullrich’s approach to the same measures — she says she wants to eliminate currency controls and export duties immediately if she wins the elections — but Redrado said “there is no room for gradualism in Argentina,” and they would aim to make these changes “as soon as possible” to “tackle all the problems at the same time.”

Redrado, who was the Central Bank’s president from 2004, during Néstor and Cristina Kirchner’s presidential terms, said that during that time not only was there no cepo and only one type of exchange rate — something Larreta’s economic team aims to achieve.

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IMF

“We will have to discuss a new program with the IMF as soon as possible,” Redrado said but added that they will wait until Congress approves their law package beforehand, eliminating the cepo and reaching a single exchange rate.

“Unfortunately, none of the targets of the IMF program have been achieved. Once those things are achieved, we will be very strong to have a single exchange rate,” he said.

While Redrado said it is necessary to reach a renegotiation of the IMF program, he said it should be designed by Argentines, and not by economic teams in Washington.

He also distanced Larreta’s IMF proposals from Bullrich’s. “In Larreta’s team, we don’t think that we need to ask for more money from the IMF. What we have asked for is enough.” 

Bullrich said she would get another loan from the International Monetary Fund (IMF) if elected president. “Under a new program — an agreement — with the IMF that would shield us with US dollars, we will end the cepo [the tight currency controls currently in force] as soon as possible,” she said in an interview with La Nación+ in July.

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Shock therapy

“Not a single expert in JxC is going to tell you that we can apply gradualism,” Redrado said. “We need shock therapy in terms of what we need to do.”

Redrado said Larreta’s team expects to reach agreements with other sectors of politics to apply their economic measures, and also more social acceptance. “The severity of the crisis and the acceleration we’ve had in inflation allows for politicians to come together.”

“Society was not as prepared for shock therapy in 2015” — during JxC’s first term with Mauricio Macri as president— “as they are now. Today, we don’t need to explain that we are in a crisis”.
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