January 17, 2018

Daniel Marx

Sunday, September 15, 2013

‘The dollar situation will have to be corrected'

By Santiago Del Carril
Herald Staff

April 16 1953, Paysandú, Uruguay
Education: Economics degree from University of Buenos Aires; Masters in Economics from UCEMA
Hobbies: Biking and taking road trips to the provinces and national parks.
Lives in: Martínez, Buenos Aires province
Previous government positions: Secretary of Finance, Central Bank Director, Chief Debt Negotiator
Administrations served under: Former Presidents Raúl Alfonsin, Carlos Menem and Fernando de la Rúa
Current job: Executive Director of Financial Advisory firm Quantum Finanzas
Article Publications: Sovereign Debt and Debt Crisis in Emerging Countries, A debt analysis of companies in Argentina, Restructuring sovereign debt: the next step for Argentina.

Daniel Marx played a major role in the stewardship of Argentina’s economy during the country’s two largest economic crisis in the past quarter century. He was Chief Debt Negotiator in the 1989 debt restructuring and Finance Secretary in the 1999-2001 meltdown. He has served and continues to serve as a consultant for many organizations such as the IDB, the Argentine government and major private and public corporations. Now, in the private sector for more than 10 years, Marx talked to the Herald last week from his spacious office in the Buenos Aires city downtown area, where he shared his insights on the country's economy.

What is your opinion of the reopening Argentina's debt exchange for the third time?

I think there was a contradiction on Argentina's position — on the one hand it said it wanted to pay the holdouts but at the same time there wasn't a mechanism that allowed this to happen. This was pointed out by judges in different courts and made Argentina seem like it was definitively rejecting paying back the debt. The reopening of the exchange corrects this perception a little.

Do you think a high proportion of holdouts will enter the new debt exchange?

I think it’s unlikely, but the important thing is the perception of the US judicial authorities. It indicates to the judges that this possibility exists. Some may take it and some may not, but it's there.

What would be the consequences if Argentina were to enter a technical default?

I think it depends on the circumstances, how much is restructured and the continuation of the default. In the worst of circumstances there could be consequences particularly over commercial financing. And because there already are difficulties to access financing, it would be harder to justify foreign investment in Argentina.

There has been some talk that US courts could authorize seizing assets held by state-controlled Argentine companies abroad, like YPF — could this actually happen?

The US judges have always differentiated between companies and actions of sovereign states. I think it would be difficult for embargoes of YPF to materialize but I don't rule out the possibility. But they would have to expand the definition of who the debtor is because YPF is a separate legal entity and has other shareholders. There could be confusion … but I don't think YPF fulfills that condition. Still, it is something that must be examined more carefully.

Do you think the ruling could affect the possibilities for companies like YPF to access financing?

Yes, we have already seen the effect on the possibility to access financing abroad. But there are other factors that also affect it besides this one.

What do you foresee happening to the official and blue market exchange rate? Will the spread continue to widen?

It will have to be corrected, the question is when.

What do you think of the government's efforts to modify the INDEC?

The INDEC project has been announced many times, but no details have been given on how it will be implemented. We'll have to wait and see.

How can Argentina remain competitive? Is devaluation the only option?

Many sectors of the economy have a competitiveness problem, in part because the devaluation has not kept up with the increase in prices. I think there are evident tensions on the exchange markets that are manifested in the multiplicity of exchanges. There are other ways competitiveness could improve but they involve more structural problems and more long-term solutions.

So you think a quicker devaluation is needed? How much devaluation is needed before Argentina is competitive?

I don’t know the number. And I'm not sure what we’d be comparing it to. There is a 5.7 exchange rate that is slowly increasing and another (the so-called “blue” rate) that is 9. It is very difficult to predict, because it also depends on how they establish the exchange rate regime and all the rest, including how inflation evolves.

Do you think there will be dramatic changes to economic policy after the October elections?

I think they will do something. I believe the dollar will become more expensive for several activities, until they figure out how to decrease the amount of money spent on subsidies.

If you could eliminate one economic problem from Argentina what would it be?

In the current situation, there isn't a magic solution; there isn't a silver bullet that could fix everything. But inflation is a major issue.

Would you ever return to work in the public sector?

I'm not looking for it and I think I already had the experience. I am happy where I am.

Is there a political party or leader that you believe has good ideas for the Argentine economy?

I don’t think we know this yet. No one has said what they want to do, we will only know after the elections really.

What do you think of Income tax reform modifications and how they will finance it?

There are various things here. The advance of inflation has generated the erosion of the real purchasing power of salaries that existed and, on the other hand, in the way it was authorized they took a greater portion of the income tax because the scale had been frozen nominally. So there existed this double bite. And all of this is part of a fiscal scheme, where the expenditure of the public sector has increased substantially. The problem with the ever growing needs of financing the public sector is that it sacrifices the development of other parts of the economy. I think the income tax modification has its logic but how they plan to finance it is insufficient.

Do you think the real estate sector will experience a price correction in the near future?

The value of the real estate has to do with location. If the economy does well, and the country becomes an attractive place, the price will go up. I think it will become attractive in the future.

What recommendation would you give to a middle class Argentine trying to save in a context of high inflation and devaluation?

I think it’s complicated but there are still some opportunities. In the long term things will get better, so, if someone is willing to withstand the volatility, risky investments is a possibility such as some types of bonds and stocks. There aren’t any other real alternatives.

Argentines are famous for holding money in dollars – how can this change?

That can only happen if Argentina can recuperate its currency’s prestige and stops it from depreciating due to inflation. And then, with time, Argentina can demonstrate it’s an attractive place to invest by respecting contractual obligations. Only then can things be fixed. This has been happening in many countries in the region, such as Brazil, Chile, Peru and Colombia.


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