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Cavallo criticized the monetary plan: "Sandleris will be worse prepared by Sturzenegger to face the currency exchange"

Former Minister of Economy Domingo Cavallo questioned the policy of the Central Bank applied by its current president, Guido Sandleris, and his predecessor, Federico Sturzenegger.

In him personal blog, also a former chairman of the Central Bank, said that "if strictly observed the type of monetary management announcements, Sandleris will be worse off which Sturzenager would face rate of exchange"

"In both cases, the one of SturenGeger from December 2015 to June 2018, as well as in Sandleris from October 1, 2018, almost dogmatic attachment to pure flotation, approved in both cases by the IMF, is a source of vulnerability in the event of an exchange crisis, even greater than fiscal weakness, "he said.

Cavallo stressed that "in the case of Sandleris, the way you deal with the exchange of interventions, because the exchange rate pierced on the floor of "an area of ​​non-intervention exchange", it shows he prefers to intervene very little, in line with the quantitative boundaries imposed by the IMF, so that in reality all this exercise of the supposed exchange groups is nothing but masking system of pure flotation ".

But the former minister believes that "this." very limited intervention "to avoid enlargement monetary base "is a very bad signal for the future, "because according to him, if" isThe exchange rate will perforate the roof the field of non-intervention, the selling currency the Central Bank I would be limited quantitative, as it seems to the IMF. "

"In that case, it will happen to Sandleris what happened to Sturzenegger, that intervenes in puchitos and do not pose a kind of change as a goalfinished the race can not be stopped will change, "Cavallo warned, who did not rule out a serious political crisis in this economic context." I'm afraid that it will be put to the whole Government. I hope it will never happen! "He said.

About Cavallo, "on the interest rate is a much more powerful tool to fight inflation against quantitative control, "although he believes that"effectiveness Much will change if they are combined interest rate and aggregates monetary ".

On the other hand, the economist noted that to raise bank reserves That's a lot less expensive for BCRA to issue LELIQ, and although "you can not normally control both the amount of money and the interest rate"in the Argentine case"Yes, that's possible, because there is a third instrument of monetary policy which is a bank reserve. "

He criticized that "the Central Bank is ready pay $ 4 billion a year to banks so that two tools of the monetary policy, the monetary base and the interest rate will be enabled. "But, according to him, does not focus on the exchange rate, The monetary entity is obliged "Incorrect error" on not taking into account "the possibility that people choose between local currencies and dollars, or between dollars and goods, "which leaves the economy"very vulnerable to currency exchange"even" more than what was at the time of the Sturenegger. "


"On The monetary base is not the best guide to quantify inflation. My goal is to help prevent the monetary crisis before the elections, "the former head of the finance ministry said during the chairmanship Carlos Menem and Fernando de la Rúa.

"In short, the economy of 160 billion dollars is likely to be at the cost of profitability of the bank, but given how much they are which suffer from non-bank, large, medium and small companies, it does not seem very fair that some victims also make the banks, "Cavallo added, in a note posted on the personal blog.

He considered that "the definition used for the monetary base is not conceptually very adequate." In all the banking systems of the world, including ours at the time of convertibility, The monetary base is a sum of all monetary liabilities the Central Bank ".

"How in general, at Central banks do not issue debt in the form of securities or bonds, the monetary base is a set of banknotes and coins held by the public (monetary circulation) plus banks' reserves (bank notes and coins from banks, plus deposits from banks in the Central Bank). Always in local currency, of course, "he explained.

In this connection, he added: "How Central Bank (Argentina) to issue public titles (formerly LEBEK, now on LELIQ), the monetary base should include the rates of LEKEK and LELIK, as well as the state of the transactions with the financial entities. "

"The argument that LEBAK and LELIC are paid monetary obligations the Central Bank and therefore they are excluded, is not valid. Much of the lace from the banks in the Central Bank, they are also paid off they are rewarded for the cost of recording deposits of the banks, "he said.

He warned that "this problem with the definition of a monetary base is not just a semantic issue. economic effects on the deficit fiscal ".

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