The Argentine-Mexican economist Alejando Werner (Buenos Aires, 1967) led the International Monetary Fund team during negotiations with the conservative Government of Mauricio Macri when a huge rescue package for Argentina was approved – with the approval of the Trump Administration – It ended in failure, the return of inflation and a sharp rise in debt. After the resignation of Christine Lagarde and the arrival of Kristalina Georgieva to the IMF leadership, Werner left the fund in 2021, when another program was negotiated with the Government of Alberto Fernández. That program did not give results either and the current situation is critical: a deep crisis of high inflation, the depletion of foreign currency and the danger of another suspension of payments. Werner maintains close relations with the powerful financial institution from his office at the prestigious Peterson Institute in Washington. He tells the dramatic story of the IMF and Argentina in the book La Argentina en el Fondo (Edhasa), written with Argentine journalist Martin Kanenguiser.
In this interview, held a few days ago at the Villa Magna hotel in Madrid, Werner expresses support that may be surprising for Javier Milei, the controversial libertarian candidate of the hard right.
What is your assessment of Milei?
Given the Argentine context, I subscribe to a high percentage of Javier Milei's economic program. Argentina needs to open up and liberalize. I am not a libertarian and I believe that state intervention is necessary in certain sectors. But Argentina is over-intervened. Someone needs to arrive with a big push to open the economy and liberalize it. And Javier Milei has that program. He has a very clear intention to reduce the size of the State.
Dollarization too?
I do not share Milei's monetary program (dollarization) but I think the discussion is very valid. In other words, there is a debate about whether Argentina should try to rebuild its currency or directly abandon it and use the dollar. I, personally, believe that weight should not be abandoned. But it is a very valid question.
Is it valid to propose eliminating the Central Bank?
Maybe that's rhetoric. There are countries that have the dollar and maintain the central bank, which regulates the payment system, etc... In any case, there is something to keep in mind: one should not dollarize in the absence of hyperinflation (Argentina is technically not yet in hyperinflation, according to the IMF, which applies that term based on an annual inflation of 500%; now Argentina's is around 140%). It's not possible. So the sequence of Milei's program should be: first a fiscal adjustment, along with structural reforms and the opening of the economy; and this would generate the conditions to potentially carry out dollarization later if desired. I would not support dollarization, but the whole part of liberalizing, fiscal adjustment, opening the private sector is good.
His speech is a strange mixture of ultraliberalism and right-wing populism.
The previous definition of populism by Rudi Dornbusch, (the famous economist at the Massachusetts Institute of Technology) is an irresponsible government that creates large deficits, price controls, etc... But now comes a new, more political definition, which defines a populist not because of his economic program but because of the vision of a society divided between a “good people” and bad elites. In that sense, Milei's vision of caste is populist but his economic program is not.
There will be significant union resistance because ultimately, the recurring crises in Argentina are a distribution conflict in which workers have achieved more than in other Latin American countries. It is not like this?
The question is whether Milei has political capacity, given what is effectively a distributional conflict. We need a great politician, a great leader. Milei is a new figure and does not have the support of political groups, big businessmen, big unions, picketers. Argentina tries to maintain higher salaries than should exist and generate transfers to certain sectors of the population so that they consume more. This generates a demand for foreign currency higher than the capacity to generate foreign currency because, artificially, the public sector and certain sectors of the population are being made to feel that they are richer than they are.
That is, should we cut social spending, salaries and lower taxes?
The underlying problem is that in the social area the Argentine Government spends more than 40% of GDP (due to public spending). Spend ten points of GDP on pensions. They are European spending levels. But you cannot apply European taxes.
Because?
Because Argentina needs a level of taxes that does not suffocate the private sector. People do not want to invest in Argentina because it is not profitable. Adding personal assets, wealth taxes amount to almost 5% for large fortunes. That's why people hide their money in other parts of the world.
Is 5% a very high tax rate for those who are wealthy?
Yes, it's huge. Note that it is a 5% tax on wealth, not income. If you have $20 million in assets, you pay one dollar per year. In twenty years you have nothing left! Due to high taxes and differential exchange rates, investments in soybeans, for example, will go to Paraguay, Uruguay or Brazil even though the land in Argentina is better. Once this is corrected, the price of the dollar will be appropriate and Argentina will be able to develop the full potential of soybeans, lithium and gas. This will allow the country to take off and thus generate foreign exchange.
When presidential candidate and Minister of Economy Sergio Masa said that the latest wave of inflation is the consequence of pressure from the IMF in favor of depreciating the currency, what is your response?
It is difficult to decide what is the biggest stupidity that Minister Massa says but that is one of them. It is hypocritical to say that a 20% devaluation was the cause of inflation. The cause is poor fiscal management of the economy, lack of access to capital markets.
Ecuador dollarized and is close to insolvency.
It is true that Ecuador, the second country with the highest IMF debt after Argentina, has a high debt level for a dollarized economy. It is undoubtedly a very delicate moment after the elections. But it doesn't have to be insolvent. Politics has contaminated the economy and bonds, but with the current price of oil and with good fiscal and financial work, Ecuador can manage the situation. Now it's a matter of seeing what kind of big political deals the new president can make.
Is there a danger of a debt crisis in Latin America as interest rates in the US rise?
I don't think so. Apart from Argentina and Ecuador and some small countries like El Salvador, the situation is under control. There is a challenge but there is no scenario of a debt crisis in the next 24 months. Colombia had problems at the beginning of the Petro Government, when debt interest rates in local currency rose a lot due to a lack of coordination within the Government. But that has already been resolved. Brazil has a high debt/GDP ratio but progress has been made in tax reform and future expectations are for a stable fiscal situation.
