Louis Caputo: “We were beating inflation by points and this is a knockout hand”

The Minister of Economy, Luis Caputo, repeated in a radio interview the explanations that President Miley had given, and he himself in a post in X, about the new phase of the economic program in which the government is going to have “zero emissions” and the freezing of the monetary base, to make the peso “recontra-scarce” (Miley dixit), accelerate “deflation” and get the economy closer to stock lifting.

Interviewed by journalist Gabriel Anello in the program “Super Mitre Deportivo”, Caputo strongly defended the official economic policy, said that the blue dollar at 1,500 pesos “doesn’t keep them awake”, pointed out that the International Monetary Fund never asked them to devalue the peso and that today’s announcements and the zero emissions policy that will be implemented on Monday will definitely beat inflation.

“We were beating inflation by points and this is a knockout hand,” the economy minister said.

Caputo reiterated the explanations that the President had already given that starting Monday the “taps” for the issuance of pesos would be turned off. At first it was the fiscal deficit, then the interest for the payment of the Central Bank’s “remuneration liabilities” and next week the tap of the “puts” of the banks in the Central Bank would be turned off, forced to buy the bonds previously issued by the Treasury at a predetermined price at a simple request from the banks and the purchase of dollars with the issuance of pesos by the Central Bank, which, after buying the dollars at the official price in the Single and Free Market Cambios (MULC), would sell a part of them in the Cash with Settlement (CCL) market at a higher price, enough to “sterilize” or neutralize the pesos issued in the initial operation. Since this was also done at a lower price, the amount of dollars sold in the subsequent operation would be less than the amount bought, which would also increase the amount of reserves in the Central Bank.

In the morning, Miley justified this decision due to the “anomaly” observed by the government that the financial dollar continued to rise at the same time that the Central Bank continued to buy dollars. This means, said the president and confirmed the minister, that the pesos issued to buy dollars do not have a legitimate “counterpart demand”, but rather it is a product of the operating rules of the exchange market, so the Central Bank will freeze or it will eventually reduce the “monetary base” to such an extent that there will be no real demand for the peso.

However, Caputo was cautious about when to pick up or eliminate “exchange stocks.”

“You have to get out of the trap not quickly, but nicely. We are going to do it to the extent that the results validate the measures we are taking. At the moment it is happening faster than expected,” he said, adding that at the time the current government took office there was a risk of hyperinflation and today there are already 30-year mortgage credit lines.

In addition, like Miley, he considered the June retail inflation data very positive, which amounted to 4.6 percent in the general index. Caputo instead preferred to highlight “core inflation” (which excludes “seasonal” and “regulated” prices), which was 3.7%, the same as in May.

“The 4.6% inflation rate in May was a very good number. And let’s keep in mind that rates and relative prices restructure only once. So the important thing is to look at core inflation to see how it’s going down,” he stressed.

Asked if inflation would ease again “next month,” Caputo said “we hope so,” but he couched that in saying we shouldn’t focus so much on “month-by-month.”

“Maybe July will be similar because the dollar rose to $1,400; I think it shouldn’t have an impact, although there could be some volatility.”

On inflation, the minister recalled that he had always said that the peso would become a scarce currency. “In currency competition, everyone says they will look for the dollar. But the market is looking for the scarce commodity, which will be the peso, because taxes will have to be paid in pesos. This will strengthen the peso and inflation will fall more rapidly,” the minister said.

In addition, when asked if the dollar at $1,500 keeps him awake at night, Caputo replied: “No, not at all. I am a macroeconomics fanatic. The minister also assured that “all the dollars are going to go down again. The measures we are taking will balance the peso market. “People will have to demand more pesos.”

The interviewer asked, “Is the gap going to be reduced again.” “Yes, clearly,” Caputo replied, and specified that the level of the gap “is key to get out of the trap. This new monetary plan is to reduce inflation. And thus the CCL dollars will be converted into official dollars and allow a simpler and more non-painful exit from the stock for Argentines. We are not in a hurry, we want to do it nicely. The gap is going to be closed.”

It was here that he issued his most powerful phrase about the crisis when he said, “We were beating inflation by the numbers and this is a knockout hand.” He concluded, “The new phase of the economic program should strongly help to ensure that in the coming months (inflation in Argentina) will be much closer to the inflation of a normal country.”

Caputo stressed that the most important thing for the stability of the dollar and prices is the “macroeconomic system.”

“People in Argentina think we’ve seen them all before. But a macroeconomic order like this has never been seen before.” Yes, there were moments, he explained, where there was a certain order for a while, pointing to the first years of convertibility and the first years after convertibility as examples. But those moments of a certain macroeconomic order, he stressed, were “because there was a crisis before, but there was never conviction, which is why Argentina went back to its old ways and everything fell apart.”

Caputo vehemently denied that the IMF had ever asked him to devalue the peso and instead highlighted the entity’s strong support for the announcement of deepening Argentina’s economic program with the start of the so-called “Phase 2”.

Finally, when asked if “new money” could come from the fund, Caputo explained that it “could be in a new program, which we’ll have to start talking about now.”

And he concluded: “Assuming we agree on fiscal, monetary and exchange policies, there could be additional money, yes. That is not a guarantee, I cannot speak for the IMF. But clearly there could be.”