1 00:00:00,320 --> 00:00:04,200 Speaker 1: Hey, Brad, I didn't realize you're gonna be in person. 2 00:00:05,440 --> 00:00:06,840 Speaker 2: I didn't realize you're going to be in person. 3 00:00:08,760 --> 00:00:12,160 Speaker 3: I thought you're like and normally we're just disembodied voices. 4 00:00:13,840 --> 00:00:16,360 Speaker 4: Singing country tunes from some unders. 5 00:00:18,000 --> 00:00:23,960 Speaker 1: I wish, Oh my god, I did a deadlift one, two, three, 6 00:00:26,800 --> 00:00:31,280 Speaker 1: so many uh barges. This isn't after School Special, except. 7 00:00:31,040 --> 00:00:33,560 Speaker 3: I've decided I'm going to base my entire personality going 8 00:00:33,600 --> 00:00:36,840 Speaker 3: forward on campaigning for a strategic pork reserve in the US. 9 00:00:36,920 --> 00:00:38,640 Speaker 2: Where's the best with imposta? 10 00:00:38,840 --> 00:00:41,400 Speaker 3: These are the important question? Is that robots taking over 11 00:00:41,440 --> 00:00:41,800 Speaker 3: the world? 12 00:00:41,880 --> 00:00:44,720 Speaker 1: No, I think that, like in a couple of years, 13 00:00:44,880 --> 00:00:47,200 Speaker 1: the AI will do a really good job of making 14 00:00:47,200 --> 00:00:50,560 Speaker 1: the odd launch podcast And people say I don't really 15 00:00:50,560 --> 00:00:52,400 Speaker 1: need to listen to Joe and Tracy anymore. 16 00:00:52,640 --> 00:00:53,599 Speaker 2: We do have. 17 00:00:57,120 --> 00:00:59,279 Speaker 3: Until then. This is lots more a. 18 00:00:59,240 --> 00:01:01,880 Speaker 1: Weekly chet about whatever is on our minds. 19 00:01:01,920 --> 00:01:05,960 Speaker 3: And we really do have the perfect guests. 20 00:01:08,880 --> 00:01:11,200 Speaker 1: Do you recall the first time we talked about Argentina? 21 00:01:12,160 --> 00:01:16,200 Speaker 2: Yes, worst position of my life? 22 00:01:16,240 --> 00:01:19,520 Speaker 1: No, not at all, the worst, without a question, the 23 00:01:19,600 --> 00:01:25,319 Speaker 1: worst interview I've done as being interviewed, the biggest bomb 24 00:01:25,400 --> 00:01:25,960 Speaker 1: I've ever had. 25 00:01:26,040 --> 00:01:27,199 Speaker 3: Will you tell me this story. 26 00:01:27,360 --> 00:01:29,240 Speaker 2: Yes, So I was. 27 00:01:29,200 --> 00:01:31,720 Speaker 1: Two thousand and six, probably maybe two thousand and seven, 28 00:01:31,880 --> 00:01:33,560 Speaker 1: two and six, I think it was two thousand and five, 29 00:01:34,080 --> 00:01:36,080 Speaker 1: maybe it's two thousand and five. I was living in 30 00:01:36,120 --> 00:01:39,000 Speaker 1: New York. I was more or less unemployed. I think 31 00:01:39,000 --> 00:01:41,240 Speaker 1: I was doing like, you know, temp work or something 32 00:01:41,280 --> 00:01:44,720 Speaker 1: like that. And I saw an ad online I forget 33 00:01:44,760 --> 00:01:49,160 Speaker 1: where that the Rubini Global Economics was hiring for someone 34 00:01:49,240 --> 00:01:52,200 Speaker 1: going to do economic analysis. And I was like, I 35 00:01:52,200 --> 00:01:55,480 Speaker 1: need a job, and I'm kind of interested in economics. 36 00:01:55,480 --> 00:01:57,600 Speaker 1: I just stopped a job that I had working for 37 00:01:57,600 --> 00:02:01,160 Speaker 1: a small portfolio management company, and so I sent an 38 00:02:01,200 --> 00:02:03,160 Speaker 1: email and I'm like, I think I've studied a little 39 00:02:03,160 --> 00:02:05,520 Speaker 1: economics and maybe I could do this. And I went 40 00:02:05,560 --> 00:02:07,760 Speaker 1: to an office on the Lower West Side. I think 41 00:02:07,800 --> 00:02:11,600 Speaker 1: it was Tribeca. Was that where it was Brad somewhere road? 42 00:02:12,520 --> 00:02:14,720 Speaker 2: Maybe it was the north of Tribeca. 43 00:02:14,960 --> 00:02:18,040 Speaker 4: Okay, it's like there's a warehouse off to the west 44 00:02:18,120 --> 00:02:18,880 Speaker 4: of soho. 45 00:02:19,280 --> 00:02:22,040 Speaker 1: I met with Brad. I was applying for the job 46 00:02:22,080 --> 00:02:26,200 Speaker 1: I met with Brad. I knew actually in advance of 47 00:02:26,280 --> 00:02:30,640 Speaker 1: this interview, that Brad was interested in Argentina specifically, and 48 00:02:30,680 --> 00:02:32,920 Speaker 1: all the problems that it had, and I tried to 49 00:02:33,040 --> 00:02:36,560 Speaker 1: cram the day before to learn something about Argentina, and 50 00:02:36,840 --> 00:02:39,320 Speaker 1: I think the first question Brad asked me something about 51 00:02:39,360 --> 00:02:42,520 Speaker 1: how you know, what would some policy prescription I'd have 52 00:02:42,639 --> 00:02:44,840 Speaker 1: for it? And you know that experience, like if you're 53 00:02:44,960 --> 00:02:47,400 Speaker 1: trying to speak a foreign language that you used to 54 00:02:47,440 --> 00:02:49,120 Speaker 1: know fifteen years ago and you think maybe you know 55 00:02:49,160 --> 00:02:52,280 Speaker 1: it in your mouth opens but nothing comes out. Yeah, 56 00:02:52,280 --> 00:02:52,640 Speaker 1: that was me. 57 00:02:52,800 --> 00:02:55,600 Speaker 3: I also know the experience of like having a bad 58 00:02:55,680 --> 00:02:58,960 Speaker 3: interview in real time and you realize that it's going terribly. 59 00:02:59,120 --> 00:03:01,160 Speaker 1: Oh it's just like the mouth opens and it is 60 00:03:01,240 --> 00:03:03,760 Speaker 1: like no words came out, and I'm like, well, I 61 00:03:03,800 --> 00:03:06,079 Speaker 1: guess I'm going to do something else. Anyway, it worked out. 62 00:03:06,560 --> 00:03:12,120 Speaker 4: We should have hired you on the st blog alone anyway, 63 00:03:12,440 --> 00:03:13,480 Speaker 4: bad business model. 64 00:03:15,000 --> 00:03:16,520 Speaker 2: Anyway, we should have recognized it. 65 00:03:16,560 --> 00:03:18,760 Speaker 4: We should have moved to meet the talent where the 66 00:03:18,800 --> 00:03:19,800 Speaker 4: town is incredible. 67 00:03:19,800 --> 00:03:22,880 Speaker 1: Eighteen years later, here we are, seventeen years later, Here 68 00:03:22,919 --> 00:03:25,440 Speaker 1: we are and people are still talking about Argentina. 69 00:03:25,960 --> 00:03:30,480 Speaker 3: Yeah, well we are here with Brad Setzer, a senior 70 00:03:30,480 --> 00:03:33,200 Speaker 3: fellow at the Council on Foreign Relations. He's been on 71 00:03:33,240 --> 00:03:34,840 Speaker 3: the show multip many times. 72 00:03:35,000 --> 00:03:36,839 Speaker 1: He's got to be c he might be the number 73 00:03:36,880 --> 00:03:37,240 Speaker 1: one now. 74 00:03:38,320 --> 00:03:38,880 Speaker 3: I don't know. 75 00:03:39,240 --> 00:03:42,960 Speaker 4: I'm sure I've been eclipsed. I was out of commission 76 00:03:42,960 --> 00:03:43,480 Speaker 4: for two years. 77 00:03:43,640 --> 00:03:44,160 Speaker 2: That's true. 78 00:03:44,240 --> 00:03:47,640 Speaker 1: When Brad was at a treasury there were a couple 79 00:03:47,640 --> 00:03:49,120 Speaker 1: of years where we didn't get to speak. We didn't 80 00:03:49,120 --> 00:03:50,480 Speaker 1: get a chance to speak to him. But it's been 81 00:03:50,520 --> 00:03:51,119 Speaker 1: a lot now. 82 00:03:51,960 --> 00:03:55,440 Speaker 3: But to your point, Joe, it doesn't. It always feels 83 00:03:55,440 --> 00:03:58,480 Speaker 3: like deja vu with Argentina. Like it's always it's either 84 00:03:58,600 --> 00:04:02,320 Speaker 3: they've just defaulted on ball because someone decided to give 85 00:04:02,360 --> 00:04:06,040 Speaker 3: them money again for reasons I don't understand, or something 86 00:04:06,240 --> 00:04:09,120 Speaker 3: kind of crazy is happening. Like with Argentina, it just 87 00:04:09,120 --> 00:04:12,560 Speaker 3: feels like the craziest outcome is like the one that 88 00:04:12,760 --> 00:04:13,560 Speaker 3: tends to happen. 89 00:04:13,680 --> 00:04:16,840 Speaker 1: And the thing is to Tracy is that all the 90 00:04:16,920 --> 00:04:20,840 Speaker 1: years years later, I actually still have no conceptual understanding 91 00:04:20,839 --> 00:04:23,920 Speaker 1: of what's actually the problem with the Argentine economy. I 92 00:04:23,920 --> 00:04:27,120 Speaker 1: don't understand why. You know, several years ago, I think 93 00:04:27,120 --> 00:04:33,120 Speaker 1: they elected some pretty like normy reasonably centrist neoliberal president 94 00:04:33,160 --> 00:04:35,040 Speaker 1: and it was like, oh, he's going to shake hands 95 00:04:35,040 --> 00:04:37,320 Speaker 1: with Wall Street and here, and it didn't work, and 96 00:04:37,360 --> 00:04:39,240 Speaker 1: you know, and so I don't really understand. I don't 97 00:04:39,240 --> 00:04:42,720 Speaker 1: know what Prohnism is exactly. I'm not sure anyone totally does. 98 00:04:43,160 --> 00:04:47,200 Speaker 1: I don't know why there's this perpetual seeming basket case 99 00:04:47,200 --> 00:04:50,280 Speaker 1: that has rapid inflation after all these years. I would 100 00:04:50,279 --> 00:04:54,000 Speaker 1: bomb another interview if I were being asked any Argentina question. 101 00:04:54,160 --> 00:04:56,800 Speaker 1: And I've gotten good at bsing on other topics, but 102 00:04:56,920 --> 00:05:00,400 Speaker 1: even though I can't even begin to BS on Argentina. 103 00:05:00,600 --> 00:05:04,360 Speaker 3: Brad, what's your summation of the Argentine economy? Like if 104 00:05:04,839 --> 00:05:07,960 Speaker 3: Joe was interviewing you for a job, what would you say. 105 00:05:08,320 --> 00:05:10,880 Speaker 4: Oh, well, I have a thesis. It may be a 106 00:05:10,920 --> 00:05:13,800 Speaker 4: wrong thesis, but it is. It's an economy with a 107 00:05:13,920 --> 00:05:17,680 Speaker 4: very small banking system, so it has difficulty financing fiscal 108 00:05:17,720 --> 00:05:21,680 Speaker 4: deficits domestically. It tends, therefore, to try to borrow a 109 00:05:21,760 --> 00:05:25,920 Speaker 4: lot externally, and it has a relatively small export sector, 110 00:05:26,080 --> 00:05:29,120 Speaker 4: very ag based, with a lot of volatile export revenues, 111 00:05:29,760 --> 00:05:33,200 Speaker 4: and it tends to overborrow relative to his export capacity. 112 00:05:33,800 --> 00:05:36,200 Speaker 4: And when you can't borrow externally, it tends to print money. 113 00:05:36,800 --> 00:05:40,799 Speaker 4: So you get this combination of default inflation and periods 114 00:05:40,800 --> 00:05:41,920 Speaker 4: of stability. 115 00:05:41,760 --> 00:05:44,200 Speaker 1: And all of that definitely makes sense, so when you 116 00:05:44,360 --> 00:05:46,359 Speaker 1: spell it out like that, but it also seems like 117 00:05:46,440 --> 00:05:48,880 Speaker 1: doesn't it apply to a bunch of country like, you know, 118 00:05:49,240 --> 00:05:54,839 Speaker 1: not a very depthful domestic financial system. Commodity exporters so 119 00:05:54,960 --> 00:05:57,680 Speaker 1: obviously exposed to very volatile like aren't a lot of 120 00:05:57,680 --> 00:06:00,200 Speaker 1: countries in this predicament, And why is it seen like 121 00:06:00,320 --> 00:06:05,520 Speaker 1: Argentina specifically. People think it theoretically can get out of it, 122 00:06:05,560 --> 00:06:07,640 Speaker 1: but it just can't. It seems to just keep tripping 123 00:06:07,640 --> 00:06:08,239 Speaker 1: over itself. 124 00:06:09,120 --> 00:06:12,919 Speaker 4: Well, I think actually, compared to most other commodity exporters, 125 00:06:12,960 --> 00:06:16,279 Speaker 4: like commodity exports is a share of GDP aren't all 126 00:06:16,320 --> 00:06:19,920 Speaker 4: that high. It's just there's very few manufactured exports, so 127 00:06:19,960 --> 00:06:25,599 Speaker 4: it's a relatively low level of commodity exports relative to 128 00:06:26,320 --> 00:06:28,880 Speaker 4: the size of the economy. And I think people tend 129 00:06:28,880 --> 00:06:32,520 Speaker 4: to think that because it's a relatively big economy, it 130 00:06:32,560 --> 00:06:37,000 Speaker 4: can support more debt. Man it can given these constraints. 131 00:06:37,360 --> 00:06:39,919 Speaker 4: So that's kind of my my thesis. But you know, 132 00:06:39,960 --> 00:06:43,640 Speaker 4: there are there are countries around it that are have 133 00:06:43,680 --> 00:06:46,760 Speaker 4: commodity dependent economies. They are more mining, less. 134 00:06:46,600 --> 00:06:53,520 Speaker 5: Ag but a much bigger export base and less debt, 135 00:06:53,640 --> 00:06:56,520 Speaker 5: and they've built up over time monetary policy credibility in 136 00:06:56,560 --> 00:06:59,760 Speaker 5: a way that you know, boringly, and Argentina has not 137 00:07:00,160 --> 00:07:00,680 Speaker 5: very clearly. 138 00:07:00,880 --> 00:07:05,040 Speaker 3: Okay, so this feeds into my big question here, why 139 00:07:05,040 --> 00:07:07,839 Speaker 3: do people keep giving Argentina money? Because this is like 140 00:07:08,160 --> 00:07:10,600 Speaker 3: a joke in the market. And I think I tweeted 141 00:07:10,600 --> 00:07:14,120 Speaker 3: this once but the distracted boyfriend meme, you know, turning 142 00:07:14,120 --> 00:07:19,120 Speaker 3: away from defaulted Argentina bonds and looking at more Argentina bonds. 143 00:07:19,440 --> 00:07:21,800 Speaker 3: And also I didn't realize this, but Argentina is the 144 00:07:21,800 --> 00:07:23,680 Speaker 3: IMF's biggest creditor. 145 00:07:23,280 --> 00:07:27,040 Speaker 4: Now, which well they owe more to the orry. Let 146 00:07:27,040 --> 00:07:30,080 Speaker 4: me restay that they were the biggest creditor, will be 147 00:07:30,120 --> 00:07:32,320 Speaker 4: in a very different situation. 148 00:07:31,960 --> 00:07:34,880 Speaker 3: The biggest debtor. But you know what they say about debtors, 149 00:07:34,960 --> 00:07:37,000 Speaker 3: if you're big enough, you kind of enough. 150 00:07:37,080 --> 00:07:39,000 Speaker 4: I guess they're plenty big enough. 151 00:07:39,200 --> 00:07:41,400 Speaker 3: Okay, So why do they keep getting money? 152 00:07:42,400 --> 00:07:46,320 Speaker 4: Well, actually, Argentina didn't get money for a long time 153 00:07:46,400 --> 00:07:50,640 Speaker 4: after their two thousand and one two thousand and two default. 154 00:07:50,760 --> 00:07:53,400 Speaker 4: They didn't eventually do a restructuring. It took a while, 155 00:07:53,960 --> 00:07:55,920 Speaker 4: and then after they did the restructuring, there are a 156 00:07:55,960 --> 00:08:00,360 Speaker 4: lot of holdouts and they really didn't regain market acts 157 00:08:00,400 --> 00:08:03,640 Speaker 4: for a long period. And then you know, Joe's right, 158 00:08:03,720 --> 00:08:08,200 Speaker 4: I mean a centrist relatively a center right really maybe 159 00:08:08,360 --> 00:08:12,360 Speaker 4: more right than center right. President was elected President Machli. 160 00:08:12,760 --> 00:08:15,000 Speaker 4: He brought in a bunch of Wall Street bankers to 161 00:08:15,080 --> 00:08:18,080 Speaker 4: run his economic team, and they had a clear theory 162 00:08:18,080 --> 00:08:21,000 Speaker 4: of the case that Argentina had under borrowed. They would 163 00:08:21,040 --> 00:08:24,000 Speaker 4: settle with the holdouts. They would go out and raise 164 00:08:24,560 --> 00:08:27,880 Speaker 4: a certain amount of bonds that would cover fiscal deficits 165 00:08:27,920 --> 00:08:31,800 Speaker 4: associated with tax cuts, like a very conventional center right 166 00:08:31,880 --> 00:08:36,560 Speaker 4: to write agenda finance with external foreign currency borrowing. And 167 00:08:36,559 --> 00:08:38,120 Speaker 4: they went out and they did a lot of that. 168 00:08:38,960 --> 00:08:41,920 Speaker 4: But apart from that one borrowing spree, which was big, 169 00:08:42,040 --> 00:08:45,280 Speaker 4: like forty fifty billion and maybe more in two years, 170 00:08:45,960 --> 00:08:50,400 Speaker 4: Argentina really hasn't had access to external bond markets. But then, 171 00:08:50,440 --> 00:08:54,760 Speaker 4: you know, the IMF saw a group of non parentist 172 00:08:54,880 --> 00:08:59,920 Speaker 4: reformers struggling and it gave them a structure reform. They were, 173 00:09:00,120 --> 00:09:02,600 Speaker 4: you know, they are going to backing certain structural reforms. 174 00:09:02,840 --> 00:09:06,520 Speaker 4: Mackri was friends with Donald J. Trump and they came 175 00:09:06,520 --> 00:09:10,040 Speaker 4: from real estate development families. He got a big IMF loan. 176 00:09:10,200 --> 00:09:13,000 Speaker 4: But then the current government, they the previous government had 177 00:09:13,000 --> 00:09:15,120 Speaker 4: borrowed so much from the IMF, they've not had access 178 00:09:15,160 --> 00:09:17,840 Speaker 4: to new money. They clearly don't have access to the 179 00:09:17,840 --> 00:09:20,720 Speaker 4: bond market. Their bonds have been trading in you know, 180 00:09:20,760 --> 00:09:23,280 Speaker 4: between twenty and forty cents on the dollar ever since 181 00:09:23,320 --> 00:09:24,599 Speaker 4: the twenty twenty restructuring. 182 00:09:24,720 --> 00:09:28,559 Speaker 1: So obviously we want to talk about the theoretical economic 183 00:09:28,600 --> 00:09:32,559 Speaker 1: agenda of the president elect, and is talk about dollarization 184 00:09:32,920 --> 00:09:34,680 Speaker 1: just real quickly before we sort of get to the 185 00:09:34,720 --> 00:09:38,160 Speaker 1: present moment. What failed about the Mockery plan? Like when 186 00:09:38,200 --> 00:09:40,480 Speaker 1: he you know, as you say, it sounded sort of 187 00:09:40,520 --> 00:09:44,920 Speaker 1: normal on paper and standard maybe you know, conservative government 188 00:09:45,000 --> 00:09:48,280 Speaker 1: staffed with Wall Street friendly tych Why didn't that put 189 00:09:48,320 --> 00:09:49,360 Speaker 1: the country on a new path. 190 00:09:50,320 --> 00:09:52,520 Speaker 2: I think he just borrowed too much. 191 00:09:52,360 --> 00:09:55,920 Speaker 1: In a conservative version of the same old problem. 192 00:09:56,000 --> 00:09:57,720 Speaker 4: I mean, I think if you were going to fund 193 00:09:57,960 --> 00:10:00,559 Speaker 4: a big tax cut, his thesis was, as you would, 194 00:10:00,760 --> 00:10:03,800 Speaker 4: you know, provide the sugar before you do the tough 195 00:10:03,800 --> 00:10:06,360 Speaker 4: structural re form. The sugar was a round of tax cuts, 196 00:10:06,400 --> 00:10:09,880 Speaker 4: and they were going to slowly phase in spending, protecting 197 00:10:10,360 --> 00:10:13,760 Speaker 4: social spending. So the first effect was a bigger deficit, 198 00:10:14,040 --> 00:10:18,520 Speaker 4: fully financed by external foreign currency borrowing and the market 199 00:10:18,640 --> 00:10:23,160 Speaker 4: and I guess the Mocker government overestimated their capacity to 200 00:10:23,200 --> 00:10:27,200 Speaker 4: sustain a higher level of external debt and sort of 201 00:10:27,200 --> 00:10:30,240 Speaker 4: things went downhill. I there was, you know, the standard 202 00:10:30,280 --> 00:10:33,880 Speaker 4: cyclical fluctuations which made it hard to bring the fiscal 203 00:10:33,880 --> 00:10:37,400 Speaker 4: deficit back down, and they were reluctant to do brutal 204 00:10:37,440 --> 00:10:39,960 Speaker 4: cuts because they thought they would lose the election. And 205 00:10:40,000 --> 00:10:42,520 Speaker 4: if they lost the election, we'd be back in paranism. 206 00:10:42,559 --> 00:10:45,080 Speaker 4: We would surely have a default. But it ended up 207 00:10:45,240 --> 00:10:48,600 Speaker 4: adding clearly like one hundred billion to Argentina's external debt 208 00:10:48,920 --> 00:10:49,720 Speaker 4: in a four years. 209 00:10:49,800 --> 00:10:51,880 Speaker 1: I shouldn't laugh, but it's something grim, opit. 210 00:10:52,000 --> 00:10:52,360 Speaker 2: I mean it was. 211 00:10:52,520 --> 00:10:56,200 Speaker 4: It was a stunning spree of external borrowing. And you know, 212 00:10:56,240 --> 00:10:59,040 Speaker 4: they didn't want to let the currency weaken too much 213 00:10:59,600 --> 00:11:03,000 Speaker 4: because were worried about inflation. So the current account was 214 00:11:03,040 --> 00:11:07,439 Speaker 4: not helping them, and so you know, I think they 215 00:11:07,520 --> 00:11:10,559 Speaker 4: just borrowed too much. To be honest, you can fund 216 00:11:10,600 --> 00:11:13,480 Speaker 4: tax cuts if you can fund them domestically, but funding 217 00:11:13,520 --> 00:11:19,040 Speaker 4: them with external dollars when you're a dollar constrained economies risky. 218 00:11:32,240 --> 00:11:34,800 Speaker 3: We're recording this on November twenty ninth, and I feel 219 00:11:34,840 --> 00:11:37,520 Speaker 3: like I have to caveat the conversation with the exact date, 220 00:11:37,600 --> 00:11:41,800 Speaker 3: because things move fast in Argentina. And in fact, I'm 221 00:11:41,880 --> 00:11:44,800 Speaker 3: looking on the Bloomberg terminal now and it looks like 222 00:11:44,960 --> 00:11:48,840 Speaker 3: the new president, Javier Millay, has just picked his economies 223 00:11:48,880 --> 00:11:52,920 Speaker 3: are and it's someone who I think wasn't the front 224 00:11:53,000 --> 00:11:56,920 Speaker 3: runner like a week or two ago. Anyway, we wanted 225 00:11:56,960 --> 00:12:02,960 Speaker 3: to talk to Brad about dollarization, and I don't know 226 00:12:03,200 --> 00:12:06,480 Speaker 3: much about this process. I am very willing to admit, 227 00:12:06,840 --> 00:12:10,360 Speaker 3: you know, I think it's happened in like Panama and Ecuador. 228 00:12:10,720 --> 00:12:13,400 Speaker 3: But can you talk generally to begin with, like what 229 00:12:13,679 --> 00:12:15,600 Speaker 3: does dollarization actually mean? 230 00:12:16,320 --> 00:12:19,439 Speaker 4: I think you can think of dollarization as two things. 231 00:12:19,960 --> 00:12:24,360 Speaker 4: One is just a buyback of your own currency. People 232 00:12:24,440 --> 00:12:27,760 Speaker 4: have currency in circulation bills. You buy them back and 233 00:12:27,800 --> 00:12:31,960 Speaker 4: you give them dollars. Euroisation in the Euro area becomes 234 00:12:32,000 --> 00:12:36,520 Speaker 4: the legal currency that settles all transactions. If the dollar 235 00:12:36,600 --> 00:12:40,679 Speaker 4: is the legal currency settling all transactions, then debts that 236 00:12:40,720 --> 00:12:44,040 Speaker 4: were previously in your local currency also have to be 237 00:12:44,080 --> 00:12:47,480 Speaker 4: redenominated in two dollars. So the second component is a 238 00:12:47,520 --> 00:12:52,120 Speaker 4: redenomination of debt in two dollars. And so you combine 239 00:12:52,160 --> 00:12:56,440 Speaker 4: those two things. Dollars have replaced currency in circulation, dollars 240 00:12:56,480 --> 00:12:58,880 Speaker 4: are legal tender, and your debts are in dollars. 241 00:12:59,440 --> 00:12:59,960 Speaker 2: You dollars. 242 00:13:00,640 --> 00:13:02,600 Speaker 3: What's the problem that you're actually trying to solve. 243 00:13:03,200 --> 00:13:05,760 Speaker 4: Usually you're trying to solve a problem of inflation that 244 00:13:05,800 --> 00:13:09,280 Speaker 4: you're trying you basically need to tie your hands. It's 245 00:13:09,320 --> 00:13:13,400 Speaker 4: like Odysses going through the straits with the sirens, you know, 246 00:13:13,600 --> 00:13:17,440 Speaker 4: lashing himself to the mass and will not be tempted 247 00:13:17,480 --> 00:13:20,040 Speaker 4: to print money. You have no capacity to print money. 248 00:13:20,520 --> 00:13:22,160 Speaker 4: So if you want to spend money, you got to 249 00:13:22,240 --> 00:13:24,760 Speaker 4: raise money. You know, you're you have to raise hard 250 00:13:24,800 --> 00:13:26,600 Speaker 4: dollars to fund domestic spending. 251 00:13:26,760 --> 00:13:30,200 Speaker 3: It sounds like you need money to do this as well, though, 252 00:13:30,320 --> 00:13:34,439 Speaker 3: like the idea of your you know, replacing your existing currency. 253 00:13:34,480 --> 00:13:36,960 Speaker 3: So I guess in this case the Argentine peso with 254 00:13:37,800 --> 00:13:40,600 Speaker 3: the dollar, like you would need dollars in order to 255 00:13:40,640 --> 00:13:41,520 Speaker 3: do that. 256 00:13:41,520 --> 00:13:46,840 Speaker 4: That is a very important insight chasing, thank you. That 257 00:13:47,000 --> 00:13:49,920 Speaker 4: is one of the problems that Argentina faces. They're trying 258 00:13:49,960 --> 00:13:52,160 Speaker 4: to dollarize and the central bank is out of dollars, 259 00:13:52,240 --> 00:13:56,400 Speaker 4: which is is an interesting theoretical problem. 260 00:13:56,440 --> 00:14:00,160 Speaker 1: So this new incoming president, Tamil he said he he 261 00:14:00,240 --> 00:14:02,520 Speaker 1: wants to dollar rise. He's also talked about getting rid 262 00:14:02,520 --> 00:14:04,640 Speaker 1: of the Central Bank. Of course, we don't know what 263 00:14:04,640 --> 00:14:06,480 Speaker 1: he's going to do, and it's possible that he sort 264 00:14:06,480 --> 00:14:09,359 Speaker 1: of ends up governing the country as a sort of standard. 265 00:14:09,520 --> 00:14:12,400 Speaker 3: Well, he's kind of going back and conservative. 266 00:14:11,960 --> 00:14:15,080 Speaker 1: You know, center right Latin American president. As you know, 267 00:14:15,160 --> 00:14:17,600 Speaker 1: often countries go back and forth between left and right. 268 00:14:17,840 --> 00:14:20,720 Speaker 1: Like I get that impulse actually, which is that you know, 269 00:14:20,760 --> 00:14:24,240 Speaker 1: if your country has a pattern of just printing too 270 00:14:24,320 --> 00:14:27,360 Speaker 1: much money historically, then you solve the problem by essentially 271 00:14:27,640 --> 00:14:30,840 Speaker 1: throwing away the printing price. There's literally no way Argentina 272 00:14:30,880 --> 00:14:34,680 Speaker 1: can print dollars dollars for pretty stable. Is there a 273 00:14:34,720 --> 00:14:37,040 Speaker 1: path to doing that given the lack of dollars? 274 00:14:38,520 --> 00:14:43,160 Speaker 4: Not unless a generous benefactor we're willing to lend Argentina 275 00:14:43,240 --> 00:14:44,080 Speaker 4: a bunch of dollars. 276 00:14:44,240 --> 00:14:45,280 Speaker 3: Is it the IMF again? 277 00:14:45,440 --> 00:14:49,240 Speaker 4: Sorry, well, I don't think the IMF is actually willing 278 00:14:49,280 --> 00:14:52,160 Speaker 4: to provide the dollars. I mean, I think the IMF 279 00:14:52,240 --> 00:14:55,000 Speaker 4: believes that it needs to finally get a little money back. 280 00:14:55,360 --> 00:14:57,520 Speaker 4: But you know, conceptually, it could be the IMF, it 281 00:14:57,560 --> 00:15:00,720 Speaker 4: could be the United States, it could be the private 282 00:15:00,840 --> 00:15:03,640 Speaker 4: Argentines who have a lot of dollars offshore who band 283 00:15:03,760 --> 00:15:07,040 Speaker 4: together and provide a generous loan. But Argentina doesn't actually 284 00:15:07,080 --> 00:15:10,080 Speaker 4: have the capacity to pay very much interest on the 285 00:15:10,160 --> 00:15:12,240 Speaker 4: dollars at borrows, given how much is paying on this 286 00:15:12,360 --> 00:15:17,320 Speaker 4: existing dollar debt. So there are some real challenges coming 287 00:15:17,400 --> 00:15:20,280 Speaker 4: up with the dollars, which is probably why Malay is 288 00:15:20,320 --> 00:15:23,480 Speaker 4: at least you know, the last I had read he's 289 00:15:23,600 --> 00:15:26,640 Speaker 4: said the dollarization is a goal, is you know, he said, 290 00:15:26,840 --> 00:15:29,680 Speaker 4: it's something that doesn't need to be accomplished on day one. 291 00:15:30,520 --> 00:15:33,160 Speaker 4: They're not going to, in the first instance, shut down 292 00:15:33,200 --> 00:15:37,120 Speaker 4: the central bank, and their first move, supposedly last I saw, 293 00:15:37,600 --> 00:15:39,360 Speaker 4: was going to be, as you know, Joe suggested a 294 00:15:39,440 --> 00:15:45,800 Speaker 4: sort of standard but harsh fiscal consolidation budget tightening, which 295 00:15:45,880 --> 00:15:48,280 Speaker 4: is also just a reflection of reality. At this point 296 00:15:48,480 --> 00:15:52,400 Speaker 4: Argentina is it cannot finance its fiscal deficits right now. 297 00:15:52,720 --> 00:15:56,760 Speaker 3: Bret. You know you mentioned earlier the Argentina economy is 298 00:15:56,800 --> 00:16:01,320 Speaker 3: sort of characterized by a small banking system. Would dollarization 299 00:16:01,840 --> 00:16:05,600 Speaker 3: help with expanding the financial system in the sense that 300 00:16:05,760 --> 00:16:10,960 Speaker 3: like maybe you're encouraging more faith in the money and 301 00:16:11,000 --> 00:16:14,360 Speaker 3: that would translate into more willingness to actually put money 302 00:16:14,640 --> 00:16:17,080 Speaker 3: into bank deposits, and then banks would be able to 303 00:16:17,160 --> 00:16:17,600 Speaker 3: lend more. 304 00:16:18,480 --> 00:16:23,040 Speaker 4: So there are two I think offsetting effects. One is, 305 00:16:23,080 --> 00:16:26,000 Speaker 4: at least in theory, there are a lot of dollars 306 00:16:26,040 --> 00:16:28,880 Speaker 4: in circulation in Argentina, a lot of dollars locked up 307 00:16:28,880 --> 00:16:32,560 Speaker 4: in safe deposit box. The black market, well it's black market, 308 00:16:32,720 --> 00:16:36,840 Speaker 4: plus you know some wealthy Argentines just rather than trusting 309 00:16:36,840 --> 00:16:39,680 Speaker 4: the banking system. You know, have a certain number of 310 00:16:39,720 --> 00:16:42,120 Speaker 4: dollars in Miami and a certain number of dollars under 311 00:16:42,120 --> 00:16:45,800 Speaker 4: the mattress. So there are dollars in circulation, the black market, 312 00:16:45,880 --> 00:16:48,720 Speaker 4: there are dollars under the mattress, and then there are 313 00:16:48,880 --> 00:16:54,560 Speaker 4: offshore dollars in the offshore banking system. Conceptually, some of 314 00:16:54,600 --> 00:16:58,160 Speaker 4: those dollars could migrate into the domestic banking system, which 315 00:16:58,200 --> 00:17:01,720 Speaker 4: would expand the deposit base, allow the banks to lend more. 316 00:17:01,760 --> 00:17:04,440 Speaker 4: They have to lend more in dollars, and they could 317 00:17:04,680 --> 00:17:09,000 Speaker 4: conceivably provide more dollar financing to the government. So that's 318 00:17:09,080 --> 00:17:14,600 Speaker 4: kind of EFFECTA effect B is that you really don't 319 00:17:14,600 --> 00:17:18,399 Speaker 4: have a lender of last resort, so you know, banks 320 00:17:18,440 --> 00:17:21,840 Speaker 4: are in the business of maturity transformation, particularly if you 321 00:17:21,880 --> 00:17:25,240 Speaker 4: don't have a printing press if you don't have your 322 00:17:25,280 --> 00:17:30,639 Speaker 4: own central bank. So if depositors ever want their deposits back, 323 00:17:31,040 --> 00:17:33,760 Speaker 4: you have to provide them with dollars cash. 324 00:17:34,320 --> 00:17:36,560 Speaker 2: So either you get those. 325 00:17:36,400 --> 00:17:39,320 Speaker 4: Dollars from your central bank again the central bank doesn't 326 00:17:39,359 --> 00:17:43,520 Speaker 4: have dollars, or you have to hold as assets a 327 00:17:43,520 --> 00:17:49,240 Speaker 4: lot of offshore dollars. So it tends to have offsetting effects. 328 00:17:50,320 --> 00:17:53,080 Speaker 4: If it worked, it could bring money into the banking system. 329 00:17:53,400 --> 00:17:55,960 Speaker 4: If it doesn't work, you will have converted a bunch 330 00:17:55,960 --> 00:17:58,840 Speaker 4: of peso deposits into dollars. People will show up and 331 00:17:58,840 --> 00:18:01,399 Speaker 4: ask for their dollars back, and the banks will be 332 00:18:01,480 --> 00:18:04,679 Speaker 4: unable to honor those dollar promises, and you'll end up 333 00:18:04,720 --> 00:18:06,560 Speaker 4: with a frozen banking system. 334 00:18:07,240 --> 00:18:12,360 Speaker 1: Are there other ways besides dollarization, in which I mean 335 00:18:12,400 --> 00:18:15,600 Speaker 1: because you're trying to solve an institutional problem, and you know, 336 00:18:16,040 --> 00:18:18,840 Speaker 1: I love the analogy of tying yourself to the mast, 337 00:18:18,920 --> 00:18:21,320 Speaker 1: and so you don't have the temptation to do an 338 00:18:21,880 --> 00:18:25,639 Speaker 1: Are there other examples, either historically or around the world 339 00:18:25,680 --> 00:18:30,800 Speaker 1: where countries solve the institutional problem of essentially self constraint 340 00:18:31,320 --> 00:18:34,439 Speaker 1: other than sort of dollarization, which seems kind off the 341 00:18:34,480 --> 00:18:35,960 Speaker 1: table without the. 342 00:18:35,920 --> 00:18:39,400 Speaker 4: Dollars, so you can do various forms of pegs which 343 00:18:39,400 --> 00:18:40,479 Speaker 4: are just sort of softer. 344 00:18:40,760 --> 00:18:41,840 Speaker 2: Yeah, but you know, but. 345 00:18:41,840 --> 00:18:42,800 Speaker 1: You can always break a peg. 346 00:18:42,960 --> 00:18:44,760 Speaker 4: You can always break a peg. You can do various 347 00:18:44,800 --> 00:18:44,960 Speaker 4: you know. 348 00:18:45,080 --> 00:18:46,680 Speaker 1: But again, you can always undollarized too. 349 00:18:47,200 --> 00:18:49,919 Speaker 4: It's hard to it's harder to undollarize, but you know, 350 00:18:50,000 --> 00:18:54,080 Speaker 4: it's conceptually, I mean, remember Argentina got off a currency board, right, 351 00:18:54,119 --> 00:18:55,240 Speaker 4: which was supposed to be the. 352 00:18:55,320 --> 00:18:57,120 Speaker 1: Is a board in a peg basically the same thing 353 00:18:57,440 --> 00:18:58,920 Speaker 1: a board as you fully. 354 00:18:58,600 --> 00:19:00,640 Speaker 4: Back all currency and circus relation with. 355 00:19:00,640 --> 00:19:02,840 Speaker 2: Dollars or whatever your peg do. 356 00:19:03,000 --> 00:19:05,600 Speaker 4: So you anyone who has a peso could get a 357 00:19:05,640 --> 00:19:08,959 Speaker 4: dollar and those dollars are available at the central bank. Now, 358 00:19:09,000 --> 00:19:10,800 Speaker 4: it doesn't solve the problem of a lender of last 359 00:19:10,800 --> 00:19:13,800 Speaker 4: resort to the government or to the banking system, but 360 00:19:13,880 --> 00:19:16,960 Speaker 4: it means like every peso is backed by a dollar 361 00:19:16,960 --> 00:19:20,560 Speaker 4: at the central bank. So it is more constraining that respect. 362 00:19:21,119 --> 00:19:23,879 Speaker 4: You know, a peg is a function of credibility, and 363 00:19:23,920 --> 00:19:27,000 Speaker 4: if you're really, really really committed to the peg, and 364 00:19:27,119 --> 00:19:31,520 Speaker 4: if you have a really tight budget, you could conceivably 365 00:19:31,560 --> 00:19:35,119 Speaker 4: make it work. But it's basically ultimately it hinges on 366 00:19:35,720 --> 00:19:36,840 Speaker 4: fiscal discipline. 367 00:19:36,880 --> 00:19:38,679 Speaker 2: I mean, it kind of goes back to being boring. 368 00:19:39,400 --> 00:19:41,840 Speaker 1: Tracy, I'm just looking on the terminal. You know, you 369 00:19:41,960 --> 00:19:45,480 Speaker 1: mentioned the new finance minister. Huh the title our colleague 370 00:19:45,480 --> 00:19:49,280 Speaker 1: Sebastian Boyd who wrote it one of a great colleagues, Milaipics, 371 00:19:49,440 --> 00:19:53,080 Speaker 1: architect of Argentine borrowing boom to run economy. And then 372 00:19:53,320 --> 00:19:55,879 Speaker 1: if one of the capudo was the financial minister for 373 00:19:56,000 --> 00:19:59,280 Speaker 1: Mauricio Mockery and ran the negotiations with bondholders that paved 374 00:19:59,280 --> 00:20:02,400 Speaker 1: the way for a return earn international markets in twenty sixteen. 375 00:20:02,520 --> 00:20:05,440 Speaker 3: So this just proves my point that like the craziest 376 00:20:05,440 --> 00:20:08,600 Speaker 3: outcome is always like what's going to happen with Argentina. 377 00:20:09,040 --> 00:20:14,040 Speaker 3: What's the scorecard for dollarization in places where it's actually happened. 378 00:20:14,080 --> 00:20:17,399 Speaker 3: So I mentioned Ecuador and Panama, and I see like 379 00:20:18,119 --> 00:20:21,719 Speaker 3: different interpretations of the success of those programs. So some 380 00:20:21,760 --> 00:20:25,399 Speaker 3: people look at Ecuador and say, well, Ecuador growth is 381 00:20:25,440 --> 00:20:29,920 Speaker 3: still relatively sluggish, whereas Panama has boomed. But with Panama, 382 00:20:30,359 --> 00:20:33,439 Speaker 3: it's hard to kind of disentangle the factor of the 383 00:20:33,440 --> 00:20:36,919 Speaker 3: Panama Canal and having like an offshore financial center and 384 00:20:36,960 --> 00:20:40,080 Speaker 3: things like that. So how would you evaluate the success 385 00:20:40,119 --> 00:20:42,440 Speaker 3: of previous dollarization programs? 386 00:20:43,240 --> 00:20:46,800 Speaker 4: So yeah, I've spent more time thinking about Ecuador than Panama. 387 00:20:46,880 --> 00:20:50,280 Speaker 4: I would tend to think that Panama's success is a 388 00:20:50,359 --> 00:20:52,520 Speaker 4: function probably less of the canal and more of being 389 00:20:52,520 --> 00:20:56,240 Speaker 4: an offshore financial center and the Panama papers, and a 390 00:20:56,280 --> 00:21:01,119 Speaker 4: set of less savory aspects of contemporary globalization, which are 391 00:21:01,160 --> 00:21:04,600 Speaker 4: probably they are facilitated by doing business and dollars. I mean, 392 00:21:04,720 --> 00:21:08,199 Speaker 4: presumably some Argentines have their offshore dollars in banks and 393 00:21:08,240 --> 00:21:13,959 Speaker 4: Panama with Ecuador. Look, Ecuador has stuck by dollarization, so 394 00:21:14,000 --> 00:21:17,480 Speaker 4: in that narrow sense it has worked. The banking system 395 00:21:17,680 --> 00:21:21,480 Speaker 4: has not imploded, there have not been runs, Ecuador has 396 00:21:21,520 --> 00:21:26,760 Speaker 4: not grown especially rapidly compared to its Andean peers that 397 00:21:26,840 --> 00:21:30,560 Speaker 4: have not dollarized. You know, Colombia, Peru, Chile have generally 398 00:21:30,640 --> 00:21:34,520 Speaker 4: outperformed Ecuador and Ecuador rather clearly, and this is I 399 00:21:34,520 --> 00:21:37,840 Speaker 4: think an important principle. You know, dollarization doesn't end the 400 00:21:37,920 --> 00:21:41,480 Speaker 4: risk of default, and when oil prices go down, Ecuador 401 00:21:41,560 --> 00:21:45,639 Speaker 4: still regularly defaults. So there have been multiple defaults after 402 00:21:45,680 --> 00:21:49,080 Speaker 4: Ecuador dollarized, So I think the record is a little 403 00:21:49,119 --> 00:21:52,760 Speaker 4: bit mixed. Certainly, if you can pull it off having 404 00:21:52,840 --> 00:21:56,639 Speaker 4: your own stable currency which you can use to denominate 405 00:21:56,720 --> 00:22:01,160 Speaker 4: bank accounts and most of your own borrowing. It's a 406 00:22:01,200 --> 00:22:05,080 Speaker 4: better clearer path to disability, particularly. 407 00:22:04,440 --> 00:22:06,280 Speaker 2: If you have a limited export base. 408 00:22:20,480 --> 00:22:25,360 Speaker 1: In theory, if there were some generous borrower, rich Argentines 409 00:22:25,359 --> 00:22:29,639 Speaker 1: who wanted to repatriate their money to facilitate the transition. 410 00:22:30,280 --> 00:22:32,880 Speaker 1: Is there an estimate of how many dollars the country 411 00:22:32,880 --> 00:22:38,080 Speaker 1: would need in order to dollarize at some reasonable dollar 412 00:22:38,119 --> 00:22:39,000 Speaker 1: peso conversion? 413 00:22:39,920 --> 00:22:41,800 Speaker 3: Oh yeah, wait, can I just tack onto that? How 414 00:22:41,840 --> 00:22:44,480 Speaker 3: does it actually work? Because my understanding is there's like 415 00:22:44,520 --> 00:22:49,480 Speaker 3: there's multiple like extraget rates currently in the economy. There's 416 00:22:49,520 --> 00:22:52,880 Speaker 3: like the gray market currency conversion, and then the official rate. 417 00:22:53,359 --> 00:22:54,360 Speaker 3: It seems tricky. 418 00:22:55,280 --> 00:22:58,560 Speaker 4: So yeah, there's a blue the blue dollar, which is 419 00:22:58,600 --> 00:23:01,639 Speaker 4: the the black mart market rate, which is you know, 420 00:23:02,560 --> 00:23:04,040 Speaker 4: like I think it's about it at one thousand, the 421 00:23:04,040 --> 00:23:06,840 Speaker 4: official rates three point fifty, so like a little bit 422 00:23:06,880 --> 00:23:08,760 Speaker 4: of a gap, and then there are special rates. So 423 00:23:08,880 --> 00:23:12,320 Speaker 4: Argentina has this problem that exporters would like to convert 424 00:23:12,400 --> 00:23:16,920 Speaker 4: their soybean exports into pesos at the black market rate, 425 00:23:18,760 --> 00:23:22,600 Speaker 4: they are unwilling to convert at the official rate. So 426 00:23:22,760 --> 00:23:26,000 Speaker 4: at various points in time, Argentina gets desperate for dollars 427 00:23:26,440 --> 00:23:29,840 Speaker 4: and it basically gives a special rate to various sectors 428 00:23:29,880 --> 00:23:32,480 Speaker 4: of the economy to try to pull money in. 429 00:23:32,720 --> 00:23:34,240 Speaker 2: But the two key rates. 430 00:23:33,960 --> 00:23:37,040 Speaker 4: Are the black market rate, the blue Paesel blue dollar, 431 00:23:37,560 --> 00:23:42,119 Speaker 4: and the official rate. I think at the official rate, 432 00:23:42,600 --> 00:23:45,960 Speaker 4: getting rid of the monetary base, which is probably insufficient, 433 00:23:46,800 --> 00:23:50,119 Speaker 4: that leaves you no dollars to back the banks, no 434 00:23:50,280 --> 00:23:53,720 Speaker 4: dollars to cover your dollar debts. The central Bank actually 435 00:23:53,760 --> 00:23:56,879 Speaker 4: has a lot of short term payso bills, which are 436 00:23:56,920 --> 00:24:00,720 Speaker 4: a really big problem no matter what, particularly if you 437 00:24:01,040 --> 00:24:03,159 Speaker 4: dollarize at at too high of a rate. But you 438 00:24:03,160 --> 00:24:06,159 Speaker 4: could take out the monetary base with about twenty billion dollars. 439 00:24:06,640 --> 00:24:09,200 Speaker 4: Now you do have the problem that at the current 440 00:24:09,280 --> 00:24:12,600 Speaker 4: or exchange rate, the short term financial liabilities of the 441 00:24:12,640 --> 00:24:16,399 Speaker 4: central bank are like sixty billion, and so it's you know, 442 00:24:16,400 --> 00:24:19,600 Speaker 4: you would probably be unable to pay the central bank 443 00:24:19,880 --> 00:24:24,320 Speaker 4: liabilities and so you would have to restructure there. If 444 00:24:24,359 --> 00:24:27,480 Speaker 4: you devalued, you can kind of lower that cost a bit, 445 00:24:27,800 --> 00:24:31,720 Speaker 4: but again you need extra dollars beyond what it takes 446 00:24:31,960 --> 00:24:35,119 Speaker 4: to get rid of the monetary base. Because the government 447 00:24:35,320 --> 00:24:38,680 Speaker 4: has to pay all of its domestic debts in dollars. 448 00:24:39,119 --> 00:24:44,280 Speaker 4: The government has to manage fluctuations in monthly revenues in dollars. 449 00:24:44,720 --> 00:24:48,160 Speaker 4: The banks have to handle demand for if anyone wants 450 00:24:48,200 --> 00:24:49,560 Speaker 4: to pull money out of the bank, they have to 451 00:24:49,600 --> 00:24:53,520 Speaker 4: have dollars available. So it becomes you need a buffer. 452 00:24:54,000 --> 00:24:56,440 Speaker 4: And so I think realistically. 453 00:24:55,600 --> 00:25:00,960 Speaker 2: You need like fifty fifty billion something like that. 454 00:25:01,080 --> 00:25:03,520 Speaker 3: Yeah, so, I know we've been talking about. 455 00:25:03,200 --> 00:25:05,600 Speaker 4: Fifty billion and a debt restructuring and a debt restarction. 456 00:25:05,840 --> 00:25:08,200 Speaker 3: Got it well, without the debt restructuring, it was really 457 00:25:08,200 --> 00:25:12,160 Speaker 3: realistic anyway. No, I know we've been talking about dollarization, 458 00:25:12,400 --> 00:25:17,800 Speaker 3: but could you get a situation where like there's unization 459 00:25:18,560 --> 00:25:19,080 Speaker 3: you do that? 460 00:25:19,200 --> 00:25:22,720 Speaker 4: Well, Malay is so keen, so fond of the Chinese sign. 461 00:25:23,200 --> 00:25:26,040 Speaker 4: I mean he is kissing and making nice but sure. 462 00:25:26,119 --> 00:25:29,840 Speaker 4: I mean, Argentina has an eighteen billion dollar swap line 463 00:25:29,840 --> 00:25:33,080 Speaker 4: with the PBOC. I think they've used at least five maybe, 464 00:25:33,160 --> 00:25:34,840 Speaker 4: you know, I think maybe that's gone up in the 465 00:25:34,880 --> 00:25:36,560 Speaker 4: past few weeks. 466 00:25:36,600 --> 00:25:37,159 Speaker 2: We don't know. 467 00:25:37,760 --> 00:25:41,600 Speaker 4: So if the PBOC we're willing to extend that swap line, 468 00:25:41,760 --> 00:25:44,200 Speaker 4: you know, swap line is you know, Argentina puts pesos 469 00:25:44,240 --> 00:25:47,119 Speaker 4: un deposited in China, the PBOC puts you on in 470 00:25:47,200 --> 00:25:50,919 Speaker 4: the bank account of the Central Bank of Argentina. You 471 00:25:50,960 --> 00:25:57,159 Speaker 4: could provide enough yuan to allow U yuanization if you 472 00:25:57,200 --> 00:26:00,439 Speaker 4: so desired. You would have to yuan eyes all of 473 00:26:00,480 --> 00:26:04,800 Speaker 4: the debts, not dollarize them. And then you know, Argentina 474 00:26:04,840 --> 00:26:06,920 Speaker 4: would still owe a lot of dollar debts on its 475 00:26:06,960 --> 00:26:10,600 Speaker 4: external bonds. It would owe SDRs back to the IMF. 476 00:26:10,680 --> 00:26:13,080 Speaker 4: So not all of his liability structure would be wan eyes, 477 00:26:14,320 --> 00:26:18,760 Speaker 4: but it is possible. It would be slightly strange because 478 00:26:18,840 --> 00:26:23,159 Speaker 4: you know, the one is not freely convertible in China. 479 00:26:23,280 --> 00:26:26,080 Speaker 4: But if you have enough you want in Argentina, you 480 00:26:26,119 --> 00:26:27,240 Speaker 4: can solve that problem. 481 00:26:27,720 --> 00:26:29,320 Speaker 1: Well, so I just want to say thank you for 482 00:26:29,359 --> 00:26:31,800 Speaker 1: coming in. And I do think now I could at 483 00:26:31,880 --> 00:26:33,800 Speaker 1: least be ask my way for about ten minutes, and 484 00:26:33,800 --> 00:26:34,880 Speaker 1: then Argentina. 485 00:26:34,720 --> 00:26:36,639 Speaker 4: You would have been highlight. You would have been higher. 486 00:26:36,800 --> 00:26:38,919 Speaker 1: Stroke my chin and take things like well, you know, 487 00:26:39,480 --> 00:26:43,320 Speaker 1: dollarization has been no pantacya for Ecuador because things like that, 488 00:26:43,440 --> 00:26:46,200 Speaker 1: and I sound very wise, and he's like, oh, you know, 489 00:26:46,359 --> 00:26:48,160 Speaker 1: and of course we must remember that there are two 490 00:26:48,160 --> 00:26:51,000 Speaker 1: exchange rates in Argentina and all these great things like that. 491 00:26:51,160 --> 00:26:54,000 Speaker 1: So I will just finish this up. My last question 492 00:26:54,080 --> 00:26:57,120 Speaker 1: with the question that you asked me like seventeen years ago. 493 00:26:57,240 --> 00:27:01,000 Speaker 1: And so you get the call from Javier Mila and 494 00:27:01,000 --> 00:27:04,440 Speaker 1: this is brand You've been studying our economy for probably 495 00:27:04,480 --> 00:27:08,400 Speaker 1: twenty plus years. You know more about dollarization and international 496 00:27:08,680 --> 00:27:11,640 Speaker 1: capital flows than anyone else in the world. Please join 497 00:27:11,680 --> 00:27:15,879 Speaker 1: my government as the new special advisor. What would you 498 00:27:15,920 --> 00:27:18,360 Speaker 1: tell him in terms of a policy approach. 499 00:27:19,800 --> 00:27:23,760 Speaker 4: Well, I think I would tell him three or four 500 00:27:23,760 --> 00:27:24,280 Speaker 4: big things. 501 00:27:24,320 --> 00:27:24,639 Speaker 2: Okay. 502 00:27:25,240 --> 00:27:28,719 Speaker 4: The first big thing is you really don't have an 503 00:27:28,760 --> 00:27:29,879 Speaker 4: option to dollarize. 504 00:27:31,080 --> 00:27:33,800 Speaker 1: The first first item is your agenda is impossible. 505 00:27:33,840 --> 00:27:36,200 Speaker 4: Okay, Well, I think that's pretty much what Capudo told 506 00:27:36,240 --> 00:27:39,119 Speaker 4: him as well. I mean, it really is impossible to 507 00:27:39,160 --> 00:27:41,840 Speaker 4: dollarize when you don't have dollars at the central bank. 508 00:27:42,160 --> 00:27:44,639 Speaker 4: I mean, technically there are a few dollars against the 509 00:27:44,680 --> 00:27:48,840 Speaker 4: mandatory reserves of the banks, but those are not realistically 510 00:27:48,960 --> 00:27:52,960 Speaker 4: usable dollars, and you have no prospect, no real prospect 511 00:27:52,960 --> 00:27:57,520 Speaker 4: of borrowing the dollars, so dollarization is not a realistic goal. 512 00:27:58,160 --> 00:27:59,720 Speaker 4: Second is, you know you have to do what you 513 00:27:59,760 --> 00:28:04,600 Speaker 4: want to do, which is titan Argentine fiscal policy. You're 514 00:28:04,640 --> 00:28:06,760 Speaker 4: going to have to cut the fiscal deficit. I think 515 00:28:06,840 --> 00:28:09,600 Speaker 4: Caputo wants to go to a two percent of GDP 516 00:28:09,760 --> 00:28:11,120 Speaker 4: primary surplus next year. 517 00:28:11,440 --> 00:28:11,680 Speaker 2: Good. 518 00:28:12,200 --> 00:28:14,680 Speaker 4: I think that is necessary. I don't think you can 519 00:28:14,800 --> 00:28:18,439 Speaker 4: do that fiscal consolidation and OSCO cut the size of 520 00:28:18,480 --> 00:28:22,040 Speaker 4: government in half, which has been his other proposal. I 521 00:28:22,040 --> 00:28:25,480 Speaker 4: think you have to be realistic about how much consolidation, 522 00:28:25,640 --> 00:28:30,760 Speaker 4: how much shock therapy the economy can take. But clearly directionally, 523 00:28:31,240 --> 00:28:35,200 Speaker 4: you need to have a big upfront fiscal consolidation, get 524 00:28:35,280 --> 00:28:38,480 Speaker 4: rid of some of the subsidies, rein in spending, whatever 525 00:28:39,640 --> 00:28:42,480 Speaker 4: tax breaks that you're the last government provided at the 526 00:28:42,600 --> 00:28:44,080 Speaker 4: end of it, at the end of its term that 527 00:28:44,120 --> 00:28:47,040 Speaker 4: you're willing to roll back even though you want tax 528 00:28:47,120 --> 00:28:49,320 Speaker 4: cuts over time, you want to strength the state. I mean, 529 00:28:49,360 --> 00:28:52,760 Speaker 4: in the short run, don't do tax cuts, but execute 530 00:28:52,800 --> 00:28:56,360 Speaker 4: on tight spending, and then you have to restructure. Third, 531 00:28:56,440 --> 00:28:59,040 Speaker 4: the balance sheet of the Central Bank. My friend Chris 532 00:28:59,080 --> 00:29:02,440 Speaker 4: marsh who's right to blogs tweets as the General Theorist, 533 00:29:03,000 --> 00:29:06,200 Speaker 4: has a great blog on this. The Central Bank has 534 00:29:06,240 --> 00:29:11,400 Speaker 4: a horrible balance sheet, like really horrible. It has these 535 00:29:11,680 --> 00:29:16,479 Speaker 4: long term, non traded, low interest rate dollar bonds that 536 00:29:16,920 --> 00:29:21,240 Speaker 4: they are called non transferable treasury securities, but basically they're 537 00:29:21,880 --> 00:29:25,760 Speaker 4: dollar bonds of consequence of loans to the government that 538 00:29:25,840 --> 00:29:28,080 Speaker 4: pay a very low interest rate. That's their main asset. 539 00:29:28,440 --> 00:29:31,120 Speaker 4: Their net foreign asset position is down negative. They've borrowed 540 00:29:31,160 --> 00:29:34,040 Speaker 4: more in foreign currency than they hold in foreign currency. 541 00:29:34,360 --> 00:29:37,040 Speaker 4: Their main asset are these foreign currency denominated, low interest 542 00:29:37,080 --> 00:29:40,960 Speaker 4: rate Government of Argentina securities, and then they borrowed a 543 00:29:41,040 --> 00:29:44,920 Speaker 4: ton or issued a ton of short term Peso bills 544 00:29:44,920 --> 00:29:48,280 Speaker 4: that pay these incredibly high interest rates, so they are 545 00:29:48,640 --> 00:29:53,120 Speaker 4: hemorrhaging cash. Is this backdoor fiscal deficit. So you have 546 00:29:53,200 --> 00:29:55,720 Speaker 4: to do a restructuring. No matter whether you want to 547 00:29:55,760 --> 00:30:00,160 Speaker 4: dollarize or just have a normal functioning central bank, you 548 00:30:00,240 --> 00:30:03,840 Speaker 4: have to, you know, swap out the zero or low 549 00:30:03,880 --> 00:30:08,040 Speaker 4: interest rate non transport treasury securities for something that pays 550 00:30:08,120 --> 00:30:11,040 Speaker 4: a real interest rate. So there's income coming in and 551 00:30:11,120 --> 00:30:14,800 Speaker 4: you have to probably restructure these short term bills and 552 00:30:14,880 --> 00:30:18,800 Speaker 4: so you have to kind of change a situation where 553 00:30:18,800 --> 00:30:21,360 Speaker 4: the central bank has no income but it's paying like 554 00:30:21,400 --> 00:30:24,320 Speaker 4: one hundred percent interest, and you probably can't just do 555 00:30:24,360 --> 00:30:25,959 Speaker 4: that with credibility and you know, we're going to bring 556 00:30:26,000 --> 00:30:27,960 Speaker 4: the interest rate down, you probably need to do a 557 00:30:27,960 --> 00:30:31,280 Speaker 4: pretty hard ass restructuring. Fourth component, you know, the bonds 558 00:30:31,280 --> 00:30:34,800 Speaker 4: are trading. They've rallied a little, maybe too much. Bonds 559 00:30:34,840 --> 00:30:37,880 Speaker 4: have been trading under forty ever since they were issued. 560 00:30:37,880 --> 00:30:41,280 Speaker 4: In the restructuring, they're really starting to amortize in twenty 561 00:30:41,320 --> 00:30:46,560 Speaker 4: twenty five. These are bonds that are clear that Argentina 562 00:30:46,600 --> 00:30:49,480 Speaker 4: clearly can't pay, and I would say, you need to 563 00:30:49,640 --> 00:30:53,400 Speaker 4: organize over the next year a preemptive restructuring of your 564 00:30:53,560 --> 00:30:56,880 Speaker 4: sixty five to seventy billion in international sovereign bonds. You 565 00:30:56,920 --> 00:30:58,600 Speaker 4: will not be able to pay them when they come 566 00:30:58,640 --> 00:31:01,160 Speaker 4: due in twenty twenty five, nor should you want to. 567 00:31:01,560 --> 00:31:02,960 Speaker 3: So that would be my structuring. 568 00:31:03,040 --> 00:31:05,320 Speaker 1: Would that be this is gonna be the last structuring, 569 00:31:05,320 --> 00:31:06,800 Speaker 1: though they're really going to do it this time. 570 00:31:07,400 --> 00:31:11,880 Speaker 4: Well, yeah, I think Argentina and these smart bond investors 571 00:31:12,280 --> 00:31:15,760 Speaker 4: realized that the twenty twenty restructuring was built around the 572 00:31:15,800 --> 00:31:18,840 Speaker 4: wrong premise. It was built around the premise that US 573 00:31:18,880 --> 00:31:21,840 Speaker 4: Treasury rates were going to be two percent forever and 574 00:31:21,920 --> 00:31:25,280 Speaker 4: so therefore a five percent interest rate for Argentina would 575 00:31:25,320 --> 00:31:28,200 Speaker 4: have been a reasonable rate. That is not the case 576 00:31:28,280 --> 00:31:31,680 Speaker 4: right now. So the bondholders wanted to preserve the face 577 00:31:31,800 --> 00:31:34,080 Speaker 4: value of the bonds and were willing to accept a 578 00:31:34,080 --> 00:31:37,720 Speaker 4: low coupon back in twenty twenty, and then they wanted 579 00:31:37,800 --> 00:31:41,000 Speaker 4: relatively short amortizations, so the bond started to amortize after 580 00:31:41,040 --> 00:31:45,400 Speaker 4: five years, and you just have this steady wall of 581 00:31:45,480 --> 00:31:48,760 Speaker 4: amortizations for the next ten years. What you need to 582 00:31:48,800 --> 00:31:51,920 Speaker 4: do is you need to do cut face, raise cubon, 583 00:31:52,640 --> 00:31:55,080 Speaker 4: give Argentina another five to ten years before they have 584 00:31:55,120 --> 00:31:57,600 Speaker 4: to amortize. Hard deal, but it's doable. 585 00:32:02,200 --> 00:32:05,320 Speaker 1: Lots More is produced by Carmen Rodriguez and dash Ol Bennett, 586 00:32:05,400 --> 00:32:06,600 Speaker 1: with help from Moses Anda. 587 00:32:06,920 --> 00:32:08,960 Speaker 3: Our sound engineer is Blake Maples. 588 00:32:09,000 --> 00:32:11,000 Speaker 1: Sage Bauman is our head of podcasts. 589 00:32:11,280 --> 00:32:13,040 Speaker 3: Catch you next time for lots More. 590 00:32:13,240 --> 00:32:14,000 Speaker 1: Thanks for listening.