Argentine Candidate Javier Milei Claims Government Took on Debt to Finance Run on Peso

The presidential candidate spoke to Bloomberg Línea ten days ahead of the country’s primary elections, also referring to the possibility of a sharp devaluation of the peso this month

Foto: Maria Amasanti/Bloomberg
August 07, 2023 | 02:00 AM

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Buenos Aires — Libertarian presidential candidate Javier Milei told Bloomberg Línea that the use of the the Argentine central bank’s currency swap with China to intervene parallel exchange rates in recent weeks equated to “financing a run [on the peso] with debt.”

In an interview conducted 10 days before the Primary, Open, Simultaneous and Mandatory (PASO) elections, the libertarian candidate also played down any willingness on the part of Economy Minister, Sergio Massa, to devalue the currency after Argentines take to the polls on August 13th vote, whatever the electoral result may be.

“He will try to do everything he can to avoid it. That’s what his political career depends on, so he will try,” he argued. The economist and current lawmaker believes that dollarizing the Argentine economy is “absolutely feasible,” even starting out from current macroeconomic conditions, and insists that he would not seek dialogue at Congress, and would rather govern by means of referendums.

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The following conversation was edited for length and clarity.


How relevant do you think polls are, considering that some have assigned you 15% and others up to 30% of the vote?

The political caste has several components. On the one hand there are the thieving politicians, the business leaders, the trade unionists who betray the workers, bribed journalists and also other professionals who are part of the system. Just as there are economists who, like hired assassins, perform tasks in favor of thieving politicians. Many pollsters do this type of dirty work to try to influence political opinion, and the Argentine case is scandalous, so I am not surprised at all. But we press on, and on August 13 we will see the results of all this work we have been doing. In a way, ours must be one of the most austere electoral campaigns in history.

In the last weeks and months there has been a lot of noise about the funding of your campaign. What is your main source of funding?

Such noise ended up being a boomerang for the political caste, right? Because in the end, those who cannot explain how they finance their monstrous campaigns are the conventional politicians, who use State resources to finance their own political adventures. The financing is what we contribute in terms of our efforts. The other day I went to a shopping mall at six in the evening, and it took me two hours to walk 50 meters, in a context where obviously people surrounded me and asked me for selfies. Well, how much do you think I spent? Our campaign works like this, look at our social media. While everyone is advertising all the time, we don’t advertise at all. And we put up with the attacks our publications receive. For example, while we were presenting our government program to about 15,000 people online, we received the attack of the government of the Buenos Aires City government, which has a pack of haters to attack my social media. And yet, that speech has more than one million reproductions. We cost tax payers not a single peso, while the others cannot say the same.

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What about private companies that are behind your campaign?

I mean, when the final accounting comes in, you will see them. It’s strange to see the thieves chasing the cops. Someone should ask themselves why the honest ones are being persecuted, those who do not use tax payers’ money. In fact I’ll ask you, because that’s the question you’re starting with.


In my case I would ask everybody that same question.

Well, I hope to hear it. To put the honest ones in the eye of the storm and not to say anything about the thieves, it seems complicated to me, to say the least.

How many votes do you think you are going to get in the primaries?

I am a follower of [former Argentina national team coach and world champion Carlos] Bilardo. I care about the results, so it doesn’t matter how what I believe, let’s see how much we get. We are only a few days away.

What would be a good election for you in the primaries? What percentage?

We will see what happens, there are already a lot of factors that affect this result. Whether people go to vote or not on the day, there are a lot of issues. So, anxiety is not a problem for me. It wasn’t in the previous election and it isn’t in this one either.

What are the main characteristics that your Economy Minister would have, if you cannot provide a specific name?

My Minister is hyper orthodox, he is as orthodox as I am.


And can you give me a name?

No, no. I will give the name of the Minister of Economy on the day they have to take office.

Let’s suppose a scenario in which La Libertad Avanza reaches 30 Lower House representatives. In that case, you would still be far away from having a strong presence at Congress. Why would that not represent a challenge for the governability of your government?

We are going to present the bills and the rest of the legislators will have to explain why they do not want to pass reforms that have been endorsed by the people, and that are supported by economic theory. They will have to explain why they want the same model that has been sinking us for 100 years. In other words, the question is the other way around.

If your initiatives stumble, would you consider a more dialogue-based approach to reach agreements?

No. The structural reforms that they do not allow us to pass will be the ones that we put up for referendum. So, we want to carry out the monetary reform that will eventually shut down the Central Bank. If the politicians do not want to give up the theft that constitutes the Central Bank, which in the last twenty years stole US$280 billion from the Argentine people, which as inflation increases is stealing more from them, and in fact this last government would be close to US$90 billion in four years, well then we will put to the people’s choice whether they want the politicians to continue stealing US$25 billion per year or not. And if the people decide that they don’t mind that, well, as I have a commitment to lower inflation, so I will double down on fiscal adjustment in depth and speed.


Do you imagine a scenario of massive protests in the streets, in case of moving forward with massive public sector layoffs and labor reform?

When did I talk about massive public sector layoffs?

In your government platform that you presented the day before yesterday.

Career public workers cannot be touched. Only those who are functional to thieving politicians.

And would that not be a massive number?

No, it does not necessarily have to be massive. Now, the question is, then, are you telling me that we should endorse that a group of criminals steal from the good Argentines? Well, for me that is wrong.

But how would you deal with such a situation on the streets?

The question is, OK, do you want to continue with the same old model? We are going to become be a slum. If you don’t change it, what you are telling me is that I have to give in to extortion. And if there are people who break the law, they will pay the consequences of breaking the law, because we also have a security proposal, and we are the promoters of a new doctrine in the field of justice; he who does it pays for it. And what is more, we are designing a strategy where both the Ministry of Internal Security and National Defense are going to work in a coordinated way, and also with the intelligence system.


What lessons do you take from the experience of Mauricio Macri’s government on this point?

Look, he wanted to pass the [pension reform] law, and the law passed. The problem of Macri’s government wasn’t that, it was the series of unfortunate events that took place after December 28, 2017, when Macri’s Chief of Staff, Marcos Peña, together with Nicolás Dujovne and “Toto” Caputo, undermined the independence of the Central Bank and took down Federico Sturzenegger. And that is where the debacle of Macri’s government began.

If Horacio Rodríguez Larreta were to win the internal election in Juntos por el Cambio, do you think you could capture most of Bullrich’s vote in October?

The votes belong to the people and the people decide, it’s their issue. I have to spend time on doing my job and convince Argentines that our proposal is the best one.

Supposing you don’t make a run-off, do you think your votes are more likely to go to Massa, Larreta or to Bullrich?

I do not know and it does not concern me because the votes belong to the people. As a liberal I do not have that authoritarian vision that the people of Juntos por el Cambio or the people of Unión por la Patria have, who believe they are the owners of the people’s votes. They will make the decision they think is right.


How do you see the conditions today to dollarize the Argentine economy?

It is absolutely feasible, and we have several alternatives. There are basic ones, which are much easier to do, and others that are more sophisticated. In principle, dollarization implies rescuing the Central Bank’s liabilities, which are around US$40 billion. That is US$10 billion of monetary base and US$30 billion of Leliqs. Rescuing the balance sheet costs US$40 billion. On the assets side you have reserves and government bonds. The reserves, when you take the gold position, the BIS position, when you take the SEDESA position, the Fund position, you have about US$10 billion. With that you could clean up the monetary base. And then, to redeem the US$30 billion Leliqs, you have government securities for US$90 billion. It is clear that this is at face value, that these are securities that are not liquid today, but this is included in the intertemporal solvency account and in the determinants of the Argentine macroeconomy. Then, if you dollarize those securities, they will then fall under New York law, they will have certain characteristics, and would appreciate. Therefore, you would have enough to redeem the Leliqs. When you look at Argentina’s risks, the most important one is the currency risk, and you would be eliminating it. At the same time, the key for a stabilization program to be successful, to lower inflation and be expansionary, is to be credible. You need reputation, trust. If you have a reputation and a consistent program, trust is generated and it is successful. As the reform is irreversible, it makes you skip the whole problem of reputation and becoming credible. This generates an expansive effect that makes the Argentine credit risk lower. By lowering the country risk, the rate risk also goes down, and in this context those securities will have a huge capital gain. If this is also accompanied by a set of structural reforms such as the ones we are planning to carry out, it is a huge cash cow. So it can be done, yes. The cash cow is going to be monstrously big. Therefore, there are people who want to participate in this operation, because it is clear that it can end up being a 100 or 200 percent profit in a very short time. That is one alternative. There are other alternatives. Our best solution is in the style of the one put together by Emilio Ocampo. But if that cannot be done, we have other alternatives that are more basic in financial terms, but that can be done. We have a menu with four options and we are going to use the one that allows us to do it as quickly as possible.

A month ago you announced that you had the funds to dollarize. Can you tell me what amount you have agreed and who would put that money forward?

It is US$30 billion and there are confidentiality agreements. It is strange, that question. You have a lot of high risk funds that could play a one or two billion dollar chip. Let’s say, with 15, you can do it.

And what do you think of the proposal of your rival, Patricia Bullrich, to seek a loan from the IMF to get out of capital controls?

It is an aberration. It is getting into debt to finance an run on the peso. Nonsense. And it does not solve the ultimate problem, which is the very existence of the Central Bank. It is a mechanism by which you are going to put Argentines further into debt to let people a few people make money in the forex market, where there is a fatally arrogant bureaucrat, who believes he can determine the exchange rate he is given and will intervene accordingly. It will fail. In fact, it has already failed. It is worse than Fernando De la Rúa’s loan, because at least that one was tied to the payment of the debt.

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This year, the deficit, money issuance and reserves have deteriorated sharply. Can Argentina put its accounts in order in two years to start paying the Fund in 2026 and its private creditors, eventually, or will new restructurings be necessary?

Argentina can do the fiscal adjustment. Politicians do not want to give up their privileges. We propose a fiscal adjustment precisely so as not to have to resort to this kind of trickery. In the end, all rollover problems are always linked to the same problem, in that the fiscal accounts are not in order. And trying to correct with financial engineering what you have to correct structurally, which is the fiscal deficit.

So Argentina’s payment capacity improves in the very short term.

Yes, of course, because it improves due to the stabilization and the expansive effect of the fiscal adjustment. From the beginning we have been thinking of freezing public spending in nominal terms.

How do you explain the market’s fear of a correction in Argentine assets if you are the most voted candidate in the primaries, considering that you propose this type of adjustment? Do you see it as a contradiction?

Why would someone with such a pro-market agenda be rejected by the market? It is a nice contradiction that has an explanation. Basically, when you work in a bank as an analyst, what do you do? You go to another country and you have to analyze it. You go to see consultants from that country. If the consultants are brutes, who say that inflation is multi-causal, that it is the fault of the distributive power, of international prices, and they are also people who are linked to politics, and who are doing politics, well then, what opinion do you want them to have? There are a lot of consulting firms that do a job that is truly that of a mercenary. So they end up listening to guys who are statists, who work for governments, and then from the market they end up making a recommendation against the very basis of the market. Let me give you an example. One of the things that the brutes of domestic economists say is that bailing out the Central Bank’s liabilities would generate a hyperinflation. This is a contradiction, because hyperinflation means that money is worthless. When you are going to redeem a debt, the debt is not worth less, the debt is worth more. Therefore, the peso should not be worth less, it should be worth more, and the inflation rate has to go down, not generate hyperinflation. Well, it is my fault that they do not understand how the Central Bank’s balance sheet works in dynamic terms.


What about the exchange rate? The argument that a parallel exchange rate of $700-800 pesos would be convenient for you, because it would make it easier to dollarize.

It is a concept put forward by people who do not know our concepts. We have always said that the exchange rate to dollarize is the market rate. Today it is at $570. Never at a price determined by a bureaucrat.

Do you think Massa will be able to postpone a sharp devaluation of the official dollar until the October elections?

He will try to do everything he can to avoid it. That is what his political career depends on, so he is going to try. He is going to use all the instruments he has at hand to try to avoid it, which is what he is doing.

There is a view in the market that if he faces a resounding defeat on August 13, that a devaluation could come that same week.

Well, we will see what happens on August 13, won’t we? It’s all conjecture. He’s a politician, he’s going to want to win the election, he’s going to use everything he has in his reach to try to win. It works like that. What is our campaign slogan? A different Argentina is impossible with the same old people. The economic policy in Argentina is denominated by politics, therefore, from being the richest country in the world, today we are 140th at the parallel exchange rate, 45% poverty, 10% indigence, a disaster. Why? Because of the stupid vision that the economy is too important to be left in the hands of economists. In Argentine economists are bad, politicians are even worse.

How do you see the swap with China and the lack of visibility on how it is used?

The first person who put forward a reasonable interpretation about that was Carlos Rodríguez, precisely my chief economic advisor. Clearly it is operating as debt because if the swap were truly a swap, that account would have to vary according to commercial transactions, and yet it does not move. There are parts of the swap that can be made liquid and there are parts that cannot. So, the part that is made with the continent, with China directly, those are not liquid. But the parts of the swaps that are made with Hong Kong are liquid. That is, they can be converted and become liquid. So, many economists kept saying that they were using the funds from the people’s dollar deposits. But, in reality you were financing the run with debt. Just what Juntos por el Cambio wants to do, you realize that they are not very different. They are basically the same, the only thing they differ in are the forms.