November 21, 2017

Mercedes Marcó del Pont, former Central Bank president

Sunday, August 17, 2014

‘I don’t rule out problems in companies and more layoffs’

By Fermín Koop
Herald Staff

August 28 1959, Buenos Aires City
Studies: Economy at University of Buenos Aires and Masters in International Economy and Development at Yale.
Position: Director at FIDE investigation centre.
Previous positions: Central Bank president, Banco Nación president and lawmaker.
Newspapers: Reads all local newspapers and some foreign ones, including Financial Times, The Wall Street Journal and The Guardian.
Currently reading:  El tango de la guardia vieja by Arturo Pérez Reverte.

Away from politics after leaving the governorship of the Central Bank Mercedes Marcó del Pont claims she holds no grudges but she still reveals differences with the government’s economic policies and warns economic problems are likely to continue in the second half of the year with more layoffs. Marcó del Pont looked relaxed and cheerful as she welcomed the Herald at her office in the FIDE investigation centre in Once, where she criticized business leaders who ask for a devaluation and backed the government’s strategy in the vulture funds case.

Do you agree with the government’s strategy on the holdouts case?

Not only do I agree with it but I’m also thankful that the government has chosen to go down that path. It could have paid the holdouts and ended the issue, boosting the economy in the short-term. But you can’t put the whole debt-restructuring process at risk just for short-term gains. We’ll eventually have to thank the government for trying to resolve the debt issue once and for all.

Is a deal between the government and vulture funds still possible?

The government has always been willing to reach a solution for all the holdouts but in order to keep negotiating a stay is needed. Now Griesa has the bondholders as hostages because he doesn’t allow them to receive the money sent by Argentina. The United States, should get involved in this issue that is deeply hurting bilateral relations.

Why do you think the Argentine private banks association’s (Adeba) plan to reach a deal with the holdouts failed?

The details of the plan remain unknown and several alternatives were mentioned. If they intended to use SEDESA guarantee funds in the negotiation, that would have implied the state getting involved in the negotiation and risking the triggering of the RUFO clause. The government wants to keep its own negotiations separate from those carried out in the private sector.

How do you evaluate Thomas Griesa’s performance as a judge?

Griesa has always responded to the interests of the vulture funds, whose lawyers are the ones that lead the judicial discussion. Griesa has a tremendous ignorance of his own decisions. I had to deal with the negative effect of his injunctions in the economy when I was at the Central Bank.

In your former role at the Central Bank, you harshly criticized credit-rating agencies, which now say the country has entered selective default. Do you agree with that rating?

I expected that rating but I don’t agree with it. Argentina signed a contract with its creditors that says there’s a default only when funds aren’t transferred. The money was sent. Years earlier when credit-rating agencies gave us a bad rating a deep crisis took place, and that hasn’t happened now. We can’t deny there are problems in the domestic economy but they aren’t related to what’s happening in the international markets.

What are those problems in the domestic economy?

I don’t rule out a second semester like the current one, with problems in companies and more layoffs. We have to highlight the state’s capacity to keep up the demand by using public resources. Argentina has insufficient dollars due to problems in its productive structure. This was supposed to be solved with key investments after the Paris Club and the Repsol deals but the holdouts case changed that perspective.

With that scenario in mind, does the Central Bank have enough foreign-currency reserves?

There’s no equilibrium level for reserves, it depends on the domestic and international scenario. The current level is sufficient to manage any tension that could take place in the exchange market.

A steep drop in foreign reserves took place while you were president of the Central Bank. Could that have been avoided?

Actions carried out by several economic agents coincided and that led to the drop. Some sectors decided to withhold their exports while others anticipated their imports. At the same time, some loans with foreign banks were paid off and companies started to take debt in the domestic market because it was cheaper. All of this happened with the expectations of a devaluation.

Why did you leave the Central Bank?

The President decided to focus all economic decisions in the Economy Ministry. I had significant discussions with several members of the government’s economic team about the reality and we had different ideas about what was best for the economy.

You were offered to be Argentina’s Ambassador in France. Why did you reject that post?

Because of my family and because I wanted to stay in Argentina. It’s an extraordinary moment for the country.

While you were in office there was a high level of inflation and you said many times that emitting cash doesn’t create inflation. How do you explain the steady rise in prices then?

I wanted to end with the orthodox vision that monetary emissions create inflation. The funds issued by the Central Bank to the Treasury are transformed into resources applied into public investment and social programmes. That leads to a higher demand, which some people link to the inflation. But inflation also has to be analyzed with supply since our productive system is very concentrated and that has an effect on prices.

Is a new devaluation needed?

Those who are seeking a devaluation have a short-term memory since there was one in January and competitiveness did not improve. Businessmen have to think about competitiveness from other perspectives. It’s true that a competitive exchange rate is needed so the country can develop its industrial sector but the government has kept it at a correct level.

Do you expect more changes in the interest rate after the drop registered this week?

High interest rates and the devaluation are responsible for the current economic drop. The government is trying to compensate that with countercyclical measures and interest rates are now being reduced. Monetary policies should coincide with fiscal policies.

Many people have been purchasing dollars for savings lately as well as the blue chip swap. Could that continue if an agreement with the holdouts isn’t reached?

I’ve seen some speculative tensions lately. The illegal dollar market can be affected quickly with only a few operations. The resiliency of exporters and some speculative actions in the illegal dollar market have led a small group of people to start buying dollars.

Why was the government’s plan to legalize undeclared cash through the Cedin certificates of deposit and the BAADE bonds unsuccessful?

It’s difficult to act on funds that left the country. I’m skeptical about these supposed opportunities to try to bring the savings of Argentines back to the country. Most of the funds that went away didn’t return. It all depends on expectations.

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