In a thread of 22 tweets, the former president of the Central Bank, Frederic Sturzenegger He responded this Wednesday to the Nobel Prize in Economics and mentor of Martín Guzmán, Joseph Stiglitzwho had spoken of aArgentine miracle from the recovery of the economy. “My feeling is that he hasn’t dared to ask the uncomfortable questions.”, affirmed the Argentine economist in the social network.
Sturzenegger responded in English, the same language in which Stiglitz published his article in the magazine Project Syndicate. Head of the Central Bank between 2015 and 2018, the former official criticized the reasoning of the American professor at Columbia University, defended the management of Cambiemos and questioned the Government’s discourse regarding the accumulation of debt in the previous period.
“You speak of a miracle but it’s biased to look at the recovery from one of the world’s scariest quarantines”, stated Sturzenegger in one of his first tweets. In that sense, he cited data from the IMF’s World Economic Outlook observatory. “According to WEO, Argentina will have one of the worst results between 21 and 24 years old. With bumper crops, such dismal performance is truly a miracle”, he added.
Sturzenegger, who is a professor at Harvard University (United States), the School of Higher Business Studies (HEC, France) and San Andrés (Argentina), completed his thread with a photo that was taken at the beginning of his term at the Central Bank in 2015 together with Joseph Stiglitz. The American had visited the facilities then together with the then unknown to the public Martin Guzman.
The Argentine economist did so when referring to the reserves of the Central Bank. In his message, he suggests asking about different elements regarding Argentine politics that, in his opinion, were not taken into account in the text published in Project Syndicate.
According to Sturzenegger, in the five years before Mauricio Macri took power “50,000 million dollars were looted” recorded in a strong criticism of the management of Cristina Kirchner. “When Macri came to power, the reserves in the central bank were negative. Asset reduction is a form of indebtedness,” he assessed.
In that context, he alluded to Stiglitz’s visit. “You can remember this because on December 17, 2015, the day we lifted exchange rate controls with negative net reserves, visited the Central Bank and praised the move. In fact, we had a celebratory lunch that day!” he recalled.
Sturzenegger shared the tweet from that day in which Sturzenegger is seen together with Stiglitz, Guzmán, and the then Central Vice President, Lucas Llach. “The day we opened the stocks, Joseph Stiglitz visited us. We took the opportunity to chat about anti-inflationary policy”, he had written on that occasion.
Debt
Stiglitz’s praise of restructuring with private creditors carried out by Martín Guzmán also deserved questioning by Sturzenegger. “The interest rate of the debt that was restructured was 5% according to the numbers of Martín Guzmán. With a historical nominal GDP growth of 4%, the debt was practically sustainable. With inflation in the US at 7% even more so,” he observed.
Sturzenegger elaborated on this point. “The problem with pursuing debt restructuring that is sustainable is that the government becomes unreliable. The country risk is now -after the “necessary” and “successful” restructuring- of 18% in dollars. I can’t see a benefit in that”, he asserted.
Sturzenegger asked him to raise various questions with the Government. “You can also ask why, if you are worried about debt, the government allowed inflation-indexed debt grew so fast”, he pointed out and assured: “It has grown 25% in value in dollars last year, adding only in 2021, an amount equivalent to almost half of the controversial IMF loan (and this is actually new real debt).”
However, he added with a hint of indignation. “By the way, the government says that inflation-indexed debt is not a problem. In fact, he claims that it does not exist! Can you ask why they say this?
The former Cambiemos official also noticed the loan of more than 44,000 million dollars with the IMF. This is one of the permanent arguments of the Frente de Todos, and that was rescued by Stiglitz in his article, pointing out that he “failed” in its implementation. Sturzenegger was still in charge of the Central Bank when the country turned to the credit agency in June 2018.
“It echoes the misconception that the IMF program increased debt. But debt levels in 2017 and 2018 are similar” retorted the Argentine economist along with an explanatory graph. “The program was a reinvestment with a cheaper creditor. I can’t see a harm in that. In fact, Martín Guzmán renews debt every day”, he added.
“Chills in the spine”
In another section, Sturzenegger criticized him for having talked about “innovation” in the Government of Alberto Fernández. “Maybe it was a joke”, he expressed. “High wealth taxes have produced a exodus of physical, business and human capital that Argentina had only seen during the dictatorships. This government has destroyed innovation in fintech, software, transportation, etc.”, he elaborated.
The defense of Mauricio Macri’s management occupied several of the tweets. Stiglitz had blamed the previous administration for the heavy burden with which the Frente de Todos took over. “Let us bear in mind that Argentina was already in a recession when the pandemic hit, due largely to the economic mismanagement of the previous president, Mauricio Macri”the Nobel Prize had claimed.
“forgot to ask some questions”, he recorded when referring to the “policies of the Macri administration” questioned. “For example, him primary deficit that Fernández inherited was barely 0.4% of GDP, and this year, despite the “miraculous” recovery, it will be 3.3% of GDP. I don’t see the improvement,” he emphasized.
In addition to the external debt, the famous financial bicycle and the policies of the government of Mauricio Macri, Sturzenegger took advantage of the message to question the delay in the purchase of 12 million Pfizer vaccines which, he stated, “sentenced between 20 or 30 thousand Argentines to premature death”. She asked him about it. “If you get an answer, let us know, the Argentines still owe you one,” she launched.
Also, as he had already done days before through social networks, questioned the impulse of Pre-Trip Program, through which the State reimburses 50% of tourist expenses. Sturzenegger linked it to the fiscal deficit. “You will find out, for example, that they are paying half of the vacation expenses of rich Argentines. When you pay for that with the inflation tax, you are giving to the rich and taking from the poor,” he elaborated.
The economist argued that sees nothing “in favor of the poor in financing public spending with the inflation tax”. And he asked her, in that sense, to verify the numbers of the December 2021 monetary issue. “They’ll send a chill down your spine” described Sturzenegger and added: “It is not surprising that poverty is now at 40.6% (Macri’s in 2017 was 25.7%)”.
On the other hand, he criticized the optimistic analysis regarding the increase in exports, since, at the same time, the withholdings are applied. “Why does the government tax exporters 50% of their cash flow and subsidize importers the same amount? Perhaps you can find some meaning in this that here, in Argentina, we are still trying to decipher”, he challenged him.
The restrictions on the sale of meat abroad were not far from the analysis in that sense. “If you manage to solve this, you can continue to wonder why they prohibit the export of some products, for example meat, reduce supply, increase prices and allow our markets to be lost, perhaps forever, to the smarter competition of our neighboring countries. “, Held.
carry trade
The argument of carry tradea sophisticated version of what became known as financial bicycle, was another of the points in Stiglitz’s text that Sturzenegger stopped to analyze regarding indebtedness. It is the sale of dollars to make investments in pesos and, with a positive return, convert the amount back into dollars. He asked him to be “careful” with that argument, considering that it may be behind a “scarecrow”.
“If you look at the data, you will find that portfolio flows destined for the carry trade were practically nil. Most of the portfolio flows were directed to public debt denominated in dollars and were not related to the carry trade,” explained the former Cambiemos official.
He added: “Carry trade is too dangerous with a floating rate, this limits its size. It has been one of the main criticisms of this government to the previous administration but it does not withstand the scrutiny of the data”. The Argentine professor suggested that he review a text you posted in the JSTOR digital library about it.
Critical spirit
At the end of the thread, Sturzenegger praised Stiglitz’s academic career and expressed his respect and admiration for it. “There is nothing you can say or write that will change our admiration for you.. His contributions to our understanding of public finance, labor, credit, and asset markets are unsurpassed. Your study of risk, simply mind-boggling,” he wrote.
And deepened: “You taught us to ask fun questions, to challenge our own viewsto see things from a different angle. I can think of no other economist (perhaps Robert Lucas?) who has made such an impression on so many generations of economists.”
However, she expressed a question about the ending. “I suggest you get some of your own spirit back“, he claimed. “Since you are the most respected economist in the Argentine government, I hope you have a more critical view. Helping them down the wrong path with false arguments is not the way to help”, he concluded.
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“Argentine miracle”: Sturzenegger questioned Stiglitz on Twitter and reminded him of an uncomfortable moment