UBA economist José María Fanelli talks to the Herald about the coming policy reforms
José María Fanelli is not generally in the media or political spotlight, but his influence on both worlds is significant.
As the chair of economy at the Universities of Buenos Aires and San Andrés, his ideas are often heard by policymakers, analysts and even journalists — many of whom were trained by him.
In this interview with the Herald, he talks about the upcoming economic transition and how it could impact the poor.
What immediate macroeconomic problems will the next president face?
It will be the problems that Argentina’s macroeconomy has typically faced, not too different from what I teach in my classroom when speaking of the country’s history, so I won’t be very original in terms of a diagnosis: the country will face a steep fiscal deficit and an overvalued exchange rate. The deficit has been there for some time, but it got out of control this year, and the international situation this year made the exchange rate harder to sustain.
Do you see a consensus among economists advising presidential candidates to address these issues in the next term?
Yes. There is no economist I have spoken to that stands a chance of making economic policy decisions next year that has big differences with this diagnosis. The only real debate this year was between proponents of “gradual” reforms or “shock” reforms.
And how does that debate look today?
What has changed in the last few months is that the fall in global soy bean prices, the growing problems of Brazil which look like they will last for the next two years and the devaluation of competitors has left less room for an extremely slow version of gradualism. That doesn’t mean that shock reforms are needed but that there’s less time than it seemed.
Are you optimistic about the chance of success of those reforms?
I’m optimistic in the long term, but what worries me is that I see too much optimism among those with chances of taking on government positions. I shared their optimism a year and a half ago but things are more difficult now. We have some advantages, even if it’s for all the wrong reasons: lots of people have been saving in dollars as they don’t trust the country’s institutions or its currency, so that money can come back into the system if the state’s economy becomes solid again. But what happens until then? Who finances the state meanwhile? And there’s an issue that is even more important: the distributive impact of the reforms that are being planned
What are the distributive risks?
The problem is that the state has lost a lot of room for financial flexibility in the short term, even if in the long term it is more solid. And if getting short-term financial relief is complicated, then the only alternative to avoid serious damage is to have a dramatic improvement in the efficiency of public policies, otherwise there will be cuts that will hit the people at the bottom of the income pyramid, which will also be an attack on social peace. Austerity almost always hits the worse-off. So if the next government doesn’t proactively work in the opposite direction, the people close to the poverty line will be the ones that pay to fix the macroeconomy, and that has to be avoided. As of today, we are not doing it: we are subsidizing the rich with cheaper dollars for tourism or savings instead.
Don’t you share the idea that debt can be taken on in order to keep financing the state until a more orderly macroeconomy is achieved in order to avoid hitting the poor with cuts?
I think it might be hard to issue debt until those who can loan the money see the country has good long term prospects. A year or two ago I was one of the first proponents of the idea that foreign investors would start coming into the country even before any reform was done, because that might allow them to buy on the cheap before those assets went up. Now, I’m not so sure, the latest news makes the country less tempting than it was. So more creativity will be needed.
What kind of creativity?
A scheme to improving infrastructure with bonds might be a good idea to get dollars and create jobs quick, for example. But also doing the basics: having credible stats again, for example, would be a quick way of restoring confidence.
Do you think the next government should be focused on investment over consumption?
Not on any investment but on job-creating investment. The key is betting on infrastructure. Because if the government solves the deficit problem and the exchange rate problem it will generate a lot of jobs for highly trained people, as the country will become competitive. But a third of the population is excluded from this, has had no access to quality jobs for a long time, so in my view this should be an obsession for the incoming administration. Jobs socialize people, jobs bring access to quality health coverage and social security and jobs help people out of the bottom echelons of income distrubution. Social policies don’t ensure social integration in the long term, access to quality jobs does, and it’s been a very long time since Argentina did this.
What other long-term debates do you think should be included in the economic agenda?
The debate over public goods. The economic pact that the outgoing government signed with the people was based on ensuring access to private goods: people bought more cars and house appliances, had free access to football matches, had social programmes that gave them cash, the middle class had almost free access to electricity and fuel. But the government failed at providing public goods. So now you have a car but don’t have new highways or safe roads, you have no public safety which ensures it doesn’t get stolen and so on. The public administration is failing in the provision of public goods, and I think that is because the state is better at attracting crooks than at attracting capable administrators. So families who have some cash in their pockets prefer to send their kids to private schools that are run more efficiently than the public ones, hire private security because they can’t trust the police and so on.
There is a lot of talk on lowering export tax duties on the agricultural sector for it to boom again. Do you think that’s fiscally risky?
It’s a very fine equation that has to take into account the international price of commodities at the time, the tax burden and the state’s finances simoultaneously. But one thing that can be done at almost no cost is to eliminate those taxes to the regional economies that are not really exporting anymore. And then, there’s the same issue that we’ve been talking about: it depends on what you do with the money. If the tax burden is high but then four years later the roads that transport their production are much improved then the overall effect of those taxes will be positive, and any crisis will be handled better.
@ignacioportes
José María Fanelli is not generally in the media or political spotlight, but his influence on both worlds is significant.
As the chair of economy at the Universities of Buenos Aires and San Andrés, his ideas are often heard by policymakers, analysts and even journalists — many of whom were trained by him.
In this interview with the Herald, he talks about the upcoming economic transition and how it could impact the poor.
What immediate macroeconomic problems will the next president face?
It will be the problems that Argentina’s macroeconomy has typically faced, not too different from what I teach in my classroom when speaking of the country’s history, so I won’t be very original in terms of a diagnosis: the country will face a steep fiscal deficit and an overvalued exchange rate. The deficit has been there for some time, but it got out of control this year, and the international situation this year made the exchange rate harder to sustain.
Do you see a consensus among economists advising presidential candidates to address these issues in the next term?
Yes. There is no economist I have spoken to that stands a chance of making economic policy decisions next year that has big differences with this diagnosis. The only real debate this year was between proponents of “gradual” reforms or “shock” reforms.
And how does that debate look today?
What has changed in the last few months is that the fall in global soy bean prices, the growing problems of Brazil which look like they will last for the next two years and the devaluation of competitors has left less room for an extremely slow version of gradualism. That doesn’t mean that shock reforms are needed but that there’s less time than it seemed.
Are you optimistic about the chance of success of those reforms?
I’m optimistic in the long term, but what worries me is that I see too much optimism among those with chances of taking on government positions. I shared their optimism a year and a half ago but things are more difficult now. We have some advantages, even if it’s for all the wrong reasons: lots of people have been saving in dollars as they don’t trust the country’s institutions or its currency, so that money can come back into the system if the state’s economy becomes solid again. But what happens until then? Who finances the state meanwhile? And there’s an issue that is even more important: the distributive impact of the reforms that are being planned
What are the distributive risks?
The problem is that the state has lost a lot of room for financial flexibility in the short term, even if in the long term it is more solid. And if getting short-term financial relief is complicated, then the only alternative to avoid serious damage is to have a dramatic improvement in the efficiency of public policies, otherwise there will be cuts that will hit the people at the bottom of the income pyramid, which will also be an attack on social peace. Austerity almost always hits the worse-off. So if the next government doesn’t proactively work in the opposite direction, the people close to the poverty line will be the ones that pay to fix the macroeconomy, and that has to be avoided. As of today, we are not doing it: we are subsidizing the rich with cheaper dollars for tourism or savings instead.
Don’t you share the idea that debt can be taken on in order to keep financing the state until a more orderly macroeconomy is achieved in order to avoid hitting the poor with cuts?
I think it might be hard to issue debt until those who can loan the money see the country has good long term prospects. A year or two ago I was one of the first proponents of the idea that foreign investors would start coming into the country even before any reform was done, because that might allow them to buy on the cheap before those assets went up. Now, I’m not so sure, the latest news makes the country less tempting than it was. So more creativity will be needed.
What kind of creativity?
A scheme to improving infrastructure with bonds might be a good idea to get dollars and create jobs quick, for example. But also doing the basics: having credible stats again, for example, would be a quick way of restoring confidence.
Do you think the next government should be focused on investment over consumption?
Not on any investment but on job-creating investment. The key is betting on infrastructure. Because if the government solves the deficit problem and the exchange rate problem it will generate a lot of jobs for highly trained people, as the country will become competitive. But a third of the population is excluded from this, has had no access to quality jobs for a long time, so in my view this should be an obsession for the incoming administration. Jobs socialize people, jobs bring access to quality health coverage and social security and jobs help people out of the bottom echelons of income distrubution. Social policies don’t ensure social integration in the long term, access to quality jobs does, and it’s been a very long time since Argentina did this.
What other long-term debates do you think should be included in the economic agenda?
The debate over public goods. The economic pact that the outgoing government signed with the people was based on ensuring access to private goods: people bought more cars and house appliances, had free access to football matches, had social programmes that gave them cash, the middle class had almost free access to electricity and fuel. But the government failed at providing public goods. So now you have a car but don’t have new highways or safe roads, you have no public safety which ensures it doesn’t get stolen and so on. The public administration is failing in the provision of public goods, and I think that is because the state is better at attracting crooks than at attracting capable administrators. So families who have some cash in their pockets prefer to send their kids to private schools that are run more efficiently than the public ones, hire private security because they can’t trust the police and so on.
There is a lot of talk on lowering export tax duties on the agricultural sector for it to boom again. Do you think that’s fiscally risky?
It’s a very fine equation that has to take into account the international price of commodities at the time, the tax burden and the state’s finances simoultaneously. But one thing that can be done at almost no cost is to eliminate those taxes to the regional economies that are not really exporting anymore. And then, there’s the same issue that we’ve been talking about: it depends on what you do with the money. If the tax burden is high but then four years later the roads that transport their production are much improved then the overall effect of those taxes will be positive, and any crisis will be handled better.
@ignacioportes
