July 29, 2014
Economy Minister Axel Kicillof hits out at Brito over devaluation remarks
Economy Minister Axel Kicillof hits out at banker Jorge Brito over devaluation remarks
With only two weeks to go before talks with the Paris Club group of creditor nations over Argentina’s debt formally begin, Economy Minister Axel Kicillof yesterday warned that the negotiations over an amount estimated at US$10 billion “will be a torturous process.” Back in January, when the minister travelled to the French capital to ignite talks with the group, Kicillof said the process would take months, but refrained from specifying details of Argentina’s proposal.
Only on March 15, the group formally invited talks to begin starting the week of May 26, that is, in two weeks’ time.
“This government has always paid its debts, even when it did not incurr them,” Kicillof said, speaking to Nacional Rock radio yesterday morning in an interview that covered the majority of the economy’s most pressing issues.
Argentina holds debt with 16 of the 19 countries in the group and most of the debt was taken on by the last military dictatorship, according to Kicillof. Germany is Argentina’s biggest Paris Club creditor with about 30 percent of the debt, followed by Japan with about 25 percent. Smaller holders include the Netherlands, Spain, Italy, the United States and Switzerland.
On September 2, 2008, President Cristina Fernández de Kirchner revealed the government would pay the Paris Club with cash using Central Bank reserves. A decree was published in the Official Gazette in which the President ordered former economy minister Carlos Fernández to “cancel the total debt with the Paris Club.” Nevertheless, the world economic crisis after Lehman Brothers’ bankruptcy meant that the order was never fulfilled.
In March, the president received explicit support from France in the face of negotiations ahead.
The European nation had also filed and amicus curiae brief, or friend-of-the-court brief, before of the US Supreme Court, in a show of support to Argentina in its separate long-standing battle against creditors that refused to accept the country’s debt swap.
“France wants Argentina to overcine its financial bustles,” French President François Hollande had said.
Kicillof vs. Brito
Kicillof lashed out at the powerful banker behind Macro, a bank, Jorge Brito, who said last week that the government’s measures so far this year and the peso’s devaluation have been “eroded by inflation and the hiking of interest rates.”
“They’re still not cutting public spending and the budget deficit is rising, which is the most important factor in halting inflation.”
To this, Kicillof retorted that “Brito was concerned not over his business but others,” adding that “the right has been obsessed in saying that when prices rise, public spending must be cut.”
“It’s perverse to make the government responsible for the movement of prices, and that makes people confront the state.”
The government ended 2013 with a 102.2 billion-peso budget deficit, according to the ASAP think tank, including a a 48-percent increase in subsidies during the first ten months of the year.”
“If we remove energy subsidies, prices will soar,” Kicillof reiterated, warning that “when a banker says a devaluation is coming, perhaps he is trying to provoke one” and calling for such sectors to “remove their masks and say what part of public spending they want reduced.”
Kicillof also rejected the notion of cutting subsidies as a viable deflationary policy, arguing that having tariffs multiply by five or 10 will “make prices soar” and deterioriate salaries.
“The phenomenon behind the movement of prices as far more complicated than the word ‘inflation,’ which is so often used and encompasses something isn’t happening,” the official continued.
Kicillof contended, instead, that “some prices rise, while others fall,” pointing to the dynamic of seasonality in determining product and service rate fluctuations.
“In the strictest sense, inflation implies a general rise in prices in the same proportion, that is, that everything rises the same, and that’s not true,” the Economy minister sentenced.
According to the INDEC national statistics bureau, reformed with IMF-friendly methodology in January, the average rise in prices during the first quarter of the year came in at 9.8 percent in the first three months of 2014, perilously close to the 10.4 percent estimated for the whole year in the 2014 Budget approved last year.
April’s Consumer Price Index (CPI) will be posted by INDEC on Thursday.
“Much work has been done by the opposition press and the opposition itself (to establish) the idea that inflation can only be brought to a halt with recessive and wide-reaching macroeconomic measures,” Kicillof added.
“It’s absolutely unjustifiable for the prices of cars produced in Argentina to move according to the exchange rate, because it only affects a part of the components. They dollarized prices when costs were not dollarized,” the official said regarding the recession currently gripping car sales and production.
Kicillof called for manufacturers and dealerships to lower prices, “because if they set more accessible prices, I am sure sales will improve.”
Although the hike to the luxury goods tax in January only directly affected the top bracket of cars in terms of price, auto-makers argue they had to proportionally readjust rates for lower-segment vehicles as well.
The Price Watch scheme, “has been fulfilled excellently despite the opposition and opposition media striving for it to fail,” Kicillof said with regard to the government-sponsored programme, largely focused on the food sector but also reaching the metallurgic and pharmaceutical sectors, among others.
Kicillof said compliance levels since the measure was implemented in January have clocked in at 73 percent for supermarkets, but complained that many infractions for “poor signposting, short supply and failing to uphold accorded prices” were left unpunished.
“The government cannot look after prices on its own,” he added, referring to President Cristina Fernández de Kirchner’s call on citizens to cooperate by filing complaints against infractions.
The scheme involves supermarkets and suppliers collaborating with the government in setting prices for a determined — and recently expanded — list of products, which is then subjected to quarterly review.
Herald with DyN, Télam