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A Conversation with Roberto Lavagna

Speaker: Roberto Lavagna, minister of the economy, Argentina
Presider: Paul A. Volcker, former chairman of the board of governors, U.S. Federal Reserve System
April 21, 2004
Council on Foreign Relations

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The Council on Foreign Relations
New York, New York

PAUL VOLCKER: Your excellencies, ladies and gentlemen, the Council on Foreign Relations is very precise these days, and I have instructions here that I'm already four minutes behind time. So I will be rather brief in introducing our speaker—our distinguished speaker this evening.

You know, it's—how often do you hear the expression from an introducer up here that I am introducing a man that needs no introduction? I think that is the case today. As I observe the list of people coming here, I counted how many may have Argentine bonds—[laughter]—in which case I don't think our guest, the minister of the economy of Argentina, needs any introduction.

I used to think that I was well acquainted with events in Argentina and particularly in the 1980s, when there were certain crises. And in fact our guest was in office at that time, in a somewhat different ministry. And I thought I kept track with it fairly well into the 1990s, but I feel no sense of responsibility for what's going on in recent years.

What I do know is that Argentina has had perhaps the most difficult adjustment in a world that had—was marked by financial crises in the late 1990s, in the early part of the year 2000, and beyond. They were hit by internal problems that they've been reminded of all too frequently, but they were also hit by external problems in their neighboring country. They were hit by the fact that the United States dollar was extremely high at that time. And all those forces combined to a very difficult situation.

Minister Lavagna has inherited that situation, was appointed by President [of Argentina Eduardo Alberto] Duhalde in a transitional administration but continued in office afterward. He has been responsible for events in Argentina for two years now. Two years is not forever, but it may seem like forever to the minister. And we welcome you here to tell us about it and the kind of progress that's being made.

I should say that this meeting is, I'm carefully instructed, part of the C. Peter McColough series on international economics, a distinguished series. The next meeting will be on May 6, with Tim Geithner, the president of the Federal Reserve Bank of New York. And I can tell you, you are free as a bird this evening; this meeting is on the record.

So with that introduction, Mr. Minister, we're delighted to have you. [Applause]

ROBERTO LAVAGNA: Thank you very much. I would like to thank the Council on Foreign Relations for this invitation. I would also have to thank you all for coming and for your interest in my country and maybe in the bonds.

And, of course, it was for me an honor to be introduced by Mr. Paul Volcker. As he pointed out, for the last two years I have been the economy and production minister of Argentina, a country that has not only gone through a serious crisis, but a country that, even today, lives in a paradox. Maybe this is a forum in which it could be adequate to make some reflection about this paradox.

Some years ago, in the late '90s, especially since 1995, the country was in a deep recession with growing fiscal deficits. We saw an increasingly larger and costlier external debt and growing social imbalances. At that moment, the country used to receive funds from the IMF [International Monetary Fund] and from other multilateral institutions. This was the case until eight weeks before the economic and social and political collapse of December 2001. In addition, Argentina used to be considered an example, a model for the emerging countries.

However, now, at a time when the country is growing and recovering at a very high rate; has an inflation that reached 3.7 percent last year; has achieved the highest consolidated fiscal surplus levels in over 40 years; has achieved monetary reunification by eliminating 11 quasi-currencies, provincial monies that were issued during the crisis in 2000 and 2001; has decided to deal with the debt problem without requesting fresh funds; and even more important, has repaid $7 billion in net debt to the IMF and to the other IFIs [international financial institutions] during the last two years. [Under those] circumstances, the country's reputation is clearly a bad one. You can see the paradox. When all was in the negative direction, the country was an example, now that the country—not the government, not the economic thing—the whole Argentine society is recovering, now the financial institutions put on us a quite bad reputation.

As real as this reputation problem is, the fact is that Argentina has pulled itself out of the worst economic, social, and political crisis in the last at least 100 years on its own, and unfortunately, without international support. This contradiction between the international reputation and the domestic recovery deserves more close examination. The objective is not to do history, but to try to discover how to reconcile both matters—consolidating the domestic economic program and improving the reputation, while at the same time getting Argentina once again to be fully integrated in the international financial community.

The reason for the contradiction paradox can be summarized in a very candid way as follows: money, ideology, and bureaucratic structures. But for [various] reasons, money is a simple one. The collapse of the convertibility in December 2001 brought substantial money losses, both to Argentine citizens and to external creditors. It is clear that no one likes to lose money. It dispenses with the need of much more explanation. All the more so when these losses occur in a context in which even greater losses appeared in the stock markets in the last two or three years.

The second reason is ideology. Contrary to what the relevant economic indicators suggested, Argentina, as I was saying before, was considered an example of sound economic policy in the '90s, and a good example of what came to be called the Washington Consensus [on fiscal and monetary policies]. The question is, how could a star performer country, which had for 12 years received the support of the IMF [and] the World Bank, collapse amidst such a formidable political, social, and economic crisis? If everything was right, then what happened? Well, you know, since ideology is like a veil that conceals the reality, the confusions appear. When the confusions appear, many people try to elude their own responsibility.

The third reason is the reaction of the technical teams or bureaucracies, both domestic and international. How to explain the positive reports issued for so many? How to explain the mistaken forecasts without endangering maybe their jobs, maybe their institutions' prestige?

By putting these three pieces together, one can find the explanation for such a bad reputation, in spite of the conclusive recovery indicators.

The way to start dealing with the situation is by looking ahead freed from ideologies and without worrying about individual prestige. We have the obligation to Argentina and to the international financial system, not to individuals, not to some theoretical approach. Looking ahead means achieving a restructuring that is credible, sustainable over time, and which minimizes losses. Recovery and value creation are the central objectives and are part of the proposal made by Argentina in Dubai [at the September 2003 annual World Bank-IMF meeting], which expressly takes into account the link between growth and payment capacity. We intend to complete the technical work in the second half of May or first week of June in order to start with the formal debt exchange process as soon as possible.

In the meantime, let me say that the Argentine economy is recovering, and significant business opportunities appear in our country. The gross domestic product [GDP] grew 8.7 percent in 2003, and private estimates put it up over 7 percent this year. All the private estimates are higher than the official estimates. Industry grew more than 16 percent. The construction grew practically 38 percent. Inflation was, last year, at 3.7 percent, and is currently up [at a] level consistent with international levels.

For the first time in four decades, as I was saying before, the central government has booked two consecutive years of primary fiscal surplus. There is also surplus in the provinces as a whole. The fiscal effort made by Argentina in the middle of this crisis in two years is equivalent to 5 percent of the GDP, going from under 2 percent during the '90s to over 3 percent now.

In the middle of the crisis in the year 2000 and 2001, the provinces issued something like 11 provincial currencies. The central government has redefined the domestic currency, which, of course, is essential to implement a unified monetary policy. Reserves are being rebuilt in spite of nearly $7 billion in net payments to multilateral lending agencies. And maybe it should be noted that Argentina is the only [country] among the large debtors of the IMF, the World Bank and IDB [Inter-American Development Bank], to have reduced its debt to these agencies in net terms in the last two years. There is a floating exchange rate practically without restrictions in the exchange markets, and the external trade surplus is around 12 percent of the GDP.

The country is integrated with [the Latin American trade organization] Mercosur, which offers a market that ranks among the world's 10 largest economies. The financial sector has recapitalized, practically increasing 25 percent their capital, which is extremely important in terms of sustainability—social and political sustainability. In two years, a little more than 2 million jobs were created. That means that we bring down the unemployment rate from 24 percent to 14.5 percent. Of course, this is still a high figure, and it is—and it will continue to be the central axis of economic policy to continue to create conditions for the private sector to generate employment.

You will receive all the details and all the figures concerning the Argentine economy probably when you leave this room.

A very important and essential element to maintain the future growth is investment. Investment in equipment, machinery increased 45 percent in 2003. And this year, in the first quarter, the import of capital assets has grown over 100 percent.

I would like to conclude—to have the occasion to maintain an open dialogue, I suppose, is possible to be done—by pointing out that the key today is to be able to tell the difference between the crisis stock and the flows. The stocks reflect the cost of the crisis. Of course, it had an impact on us all, and it is an avoidable sunken cost. The flows represent the business opportunities created by a different political and social context and by a different economic policy. Some people understand that very well, and [this] reflects in their decision of investment I talked [about] some minutes ago.

It has not been my intention to sell false illusions, but rather to explain the actual and objective reality of Argentina's economy and the society today. Argentina today has been stabilized, is growing, and has, in our view, sustainable prospects. Thank you. [Applause]

VOLCKER: Well, thank you very much for those concise remarks, Mr. Minister. The time has come for a little dialogue here. I would remind you all, as you raise a question, identify yourself and your association, and ask questions and not lectures. With that, madame.

QUESTIONER: I'm a journalist, Lucy Komisar. You indicated that there had been some billions of dollars borrowed from the IFIs. Do you know where that money went? Is there any kind of accounting about where that money went? To what extent was it stolen? To what extent did any of it end up in accounts in Switzerland, either in or next to the accounts of [former Argentine President Carlos] Menem?

LAVAGNA: It's difficult to say. It is not my task to [speak] on a particular or special problem that must be behind us. When I make some reference to the '90s, I try to stick to the economic, social, and political problems and not mix with these kinds of problems. In any case, as you know, the justice and the judiciary are asking in Argentina, and we have this judiciary power to take their decision.

VOLCKER: I'm tempted to say I'm available for investigations, Mr. Minister. [Laughter.]

LAVAGNA: You have good experience on that, I think. [Laughs]

VOLCKER: Not yet. [Laughs]

QUESTIONER: You mentioned how the primary surplus basically has done a 5 percent of GDP change in the last two years and how the economic performance has been phenomenal. So my question to you is, why can't this continue? Why can't you just grow the primary surplus, increase it as a fraction of GDP, and continue to grow the way you've done it in the last two years?

VOLCKER: It really is amazing, if I may say so. I mean, personally, you have had in a fiscal position—[inaudible]—explain how to do that. It may have some relevance elsewhere.

LAVAGNA: OK. Maybe the most important reason why, for the first time in 40 years, we were able to have a quite relevant fiscal surplus was the decision, in the middle of a deep crisis, to say no to all the special interests. If you want some examples, the banks asked the government to be compensated [for] the cost of the crisis. We say no. The depositors asked the government to be compensated. We say no. Some car companies were requiring some indexation of previous debt created during the '90s. We say no. And so on and so on and so on. I can give you a list of at least 30 extremely important decisions in which the answer was no. Another example: when we redeemed the 11 currencies of the provinces, all the provinces tried to exchange one to one, and we decided to exchange that at market value plus a little more, but basically at market value. Well, that's the reason.

In Argentina, many people tried to get fiscal surplus [by] just reducing the number of public officials or [by] trying to make the universities or the hospitals—[inaudible]—things like that, and the reaction was always negative in the society. And at the end, it wasn't possible to get some fiscal surplus.

Now, in the middle of this crisis, it was the moment to use the fact that all the society was scared by the [depth] of the crisis and to make the decision to say no to all the special interests—and that created the possibility of changing, practically immediately, the fiscal situation. I took office in April 2002. The first surplus started in May 2002, and since that moment, we continue to have surplus—every month an increasing surplus.

The same happened with the provinces. The provinces were looking at the decisions of the central government. For example, will the central government index all the debts with the companies that make public works, for example? We say no, and when we say no, all the provinces had to do exactly the same. And for the first time in many, many years, the provinces, as a whole, now have a surplus. The surplus is 3 percent—2.4 percent created by the central government, 0.6 percent created by the provinces.

VOLCKER: Yes, ma'am.

QUESTIONER: Thank you. Minister Lavagna—Lacey Gallagher, CSFB [Credit Suisse First Boston]—I have two questions, if I may. The first one has to do with the debt restructuring, and, in particular, what you would see as the minimum sort of viable level of participation by bondholders in terms of percent. And if it's less than what's been typical in other restructurings, like in the 90[th percentile], you know, how you would see dealing with the problems of holdouts, whether you would leave a potential offer open or, you know, how you see managing that. The second question—

VOLCKER: Easy question. [Laughs.]

QUESTIONER: [Laughs.] That's a little bit of a big question. The second is a bit of a follow up to [an earlier] question, which is right now you're—as you're mentioning, your primary surplus is running even substantially above your target, and you've announced a few relatively small tax reductions. My question is, you know, what do you plan to do with the extra money? Will that go to the bondholders?

LAVAGNA: Thank you.

QUESTIONER: Thanks.

LAVAGNA: Let me start with the second part because [it is a] continuation of the previous one. Effectively, in four months, we practically got the total amount of surplus we had agreed [upon] with the IMF in September, but you have to take into account that not all this money goes directly to the treasurer. Part of this money goes directly, without any kind of possibility of changing things, to the provinces. This is the co-participation, the sharing of revenues between central government and the provinces. Other parts go directly to some funds related to investments—funds to investment in roads, in energy, and things like that. Again, this is automatic without any possibility of the central government to intervene. The last part is what you can call discretionary expenses or the spendability. In that case, we have a combination of a decrease in taxes and increase in some expenses.

The decreases in taxes are three. The [first is a] decrease in financial transactions taxes, starting the process for reducing these taxes, which is, of course, not precisely a very good kind of tax for the financial system. [The] second one is the reduction of the value-added tax [VAT] for all the people—2 million people, which has—will have a card. It's a social program. They buy goods in different parts of the country and they will receive 100 percent return of the VAT. The third one is a project we sent yesterday to the congress to decrease the value-added taxes on new investments and also some acceleration in fiscal amortization—I think the word is amortization—fiscal amortization also in new investment. This is the side of [the] decrease in taxes.

Concerning [the] increase in expenses, we are still discussing, but up to now, the only probable additional expense is an increase in the minimum pensions that [is] received [by] the pensioners—not all the pensions, but just the minimum category, which is now 240 pesos. And that means less than $100. This is the sharing of this additional amount. As you can see, we have some precise use for that.

VOLCKER: Didn't hear any plans about repaying the debt. [Laughter]

LAVAGNA: [Laughs] Second point was—

QUESTIONER: What about the restructuring and what are you going to do if you get less than 90 percent participation in a restructuring offer?

LAVAGNA: Yes. Yes.

QUESTIONER: Less than about 90 percent?

LAVAGNA: OK. Well, I hope that we are in a world in which people are coherent and consistent. I hope so. When you change [a] central rule of the game, you cannot maintain all the others. Let me explain that. When you change a central rule, which was that the IFIs, especially the IMF and the G-7 [group of seven industrialized nations], will put money in [the] face of crisis in some economies—in general, emerging economies—when you change that rule, and you say there is no more fresh funds, the—[inaudible]—and all—you know, all what the American government says about that—I have to say that, intellectually, I agree 100 percent. I wrote some book in 1997, in which, in my view, the moral hazard [the chance that a contract will change the risk-taking behavior of one or both of the involved parties] was probably one of the biggest problems for the functioning of the financial scene. I have to say, I agree with that. But it doesn't matter. What, you see, matters is that the United States and, by extension, the G-7, took the decision not only not to put fresh money but to reduce the exposure. That's why I was speaking about $7 billion we have repaid to the IFIs.

When you change that, you cannot maintain the usual rule of more than 80 percent, 90 percent, 95 percent. It's impossible. You have to be coherent and consistent. It's a different kind of restructuring of the debt. The conditions will be different. We will try to get the maximum participation, but you never know exactly what the result will be.

Let me say, yes, it's something that the president took a decision in his term, which is still three more years. This one will be the only restructuring of the debt. If someone decided to hold out, we'll have to wait until the next government, maybe the same president—he has the possibility to be re-elected—or another one, but not in this term.

VOLCKER: I think we better limit it to one question apiece. Yes, sir? In the middle.

QUESTIONER: Hi. It's Pablo Goldberg from Merrill Lynch. When mentioning the sources of the fiscal adjustment, I think you forgot to mention two. One is the work on inflation, on real wages and pensions, the public sector, and the [other] is taxes on exports. In that sense, are you concerned that going forward, should soy prices, for example, come down from the high levels they are today, you're going to be lacking some fiscal revenues? So would it be better to save some of the funds that you have, extra funds that you have today, through the overperformance of the economy, for the times when these revenues are not there, through reducing liabilities or through increasing some savings?

LAVAGNA: You know, I have the impression, taking into account your questions, that you agree with some kind of interpretation saying that the soybean has resolved all the problems of Argentina. [Laughter] Let me say that this is a simplification. [In the] last years, the incremental impact of the soybean was a little less than the decremental, the negative effect on the situation on the economy of—the larger economy of the Mercosur area. The recession in Brazil cost Argentina a little more than the incremental positive effect on the soybean. That's important, say, because, if not, there is the impression that again, as some people say, God is an Argentinian, and he will resolve the problem.

Of course, we hope that these years we could have maybe both effects on the same side, to have it a positive effect on the soybean price and to have also some positive effect on the Brazilian economy, which, you know, is our strategic partner and at the same time is our most important client in terms of—especially of exports on industrial goods. Maybe we can make also some—if this happens, if the prices of soybeans continue to be high and if the economy of our clients is good, maybe we can be able to make some savings for the future. Maybe.

QUESTIONER: My name is Gary Benanav from New York Life Insurance Company. You know that your bonds are held by many types of institutions around the world. They're also held by a large class of individuals in Argentina, the pensioners of Argentina, the future pensioners, who hold billions and billions of these bonds through the AFJPs [pension funds]. Is there any expectation or thought that you might treat local bondholders differently than you would treat external bondholders, or will everybody have the same haircut?

LAVAGNA: You know, in this case, you have to differentiate between what will be done and what—personally in this case, I think that the rule that all the creditors will be treated in exactly the same way must be changed also in the future. I don't see why an Italian individual that bought the bonds at 100 percent had to receive exactly the same that the vulture fund that has paid 14 cents. Argentina is not making the rules. Probably in the future, some things will change. I hope that they will change. In any case, at this moment, we will have the rule of equal treatment for everybody, and we will do that. But, of course, the interest of the creditors are different. Some people, maybe, would like to take discount bonds; others probably will prefer to receive par bonds. And maybe the case of the pension funds in Argentina, maybe, is the case in which a par bond to a very long period of time, taking into account the liabilities of these companies, are, in the very long run, probably they will choose these kinds of bonds. That means we will present a menu of bonds, we explain how to buy, and some of these bonds will take into account the interest of long-term investors.

VOLCKER: In the back row.

QUESTIONER: Joyce Chang with J.P. Morgan. I was wondering, minister, if you could provide more detail on how the new rules and regulations for the regulated utilities will work, and also how the government is addressing the natural gas shortages.

LAVAGNA: As you know, this is not a direct responsibility of the ministry of economy. I cannot give to you too much details. Of course, it corresponds to one of my colleagues to do that. But certainly, it's extremely important to improve the level of investment, taking into account that the economy is growing at a very important rate, that the—[inaudible]—capacity is reducing in some sectors, and especially in energy. This must be the medium- and long-term solution. And in the short term, as you probably know, we are trying to decrease some internal demand. We are receiving—buying some energy from Brazil. As you could remember, two years ago or three years ago it was the reverse; Argentina was selling in face of a crisis in Brazil. We are reducing a little the exports to Chile. We are buying again for the first time in practically 15 years some gas from Bolivia, which is very important also for stabilizing the economy in Bolivia.

You see, there are two different programs, one short-term program trying to improve the supply, the short-term supply, and trying to reduce demands, and a medium- and long-term program which certainly is related to prices of the utilities and to create the conditions for investment.

QUESTIONER: [Inaudible]—of Mayer, Brown. A couple of years ago, the IMF proposed a sovereign debt restructuring mechanism analogous to a corporate bankruptcy, like under Chapter 11 of the United States [bankruptcy code]. This was opposed by various participants in the market, including, you know, investors, as well as several countries themselves. Now, given the difficulties of restructuring without such a mechanism, and with the benefit of hindsight, obviously, do you think that, going forward, this would be a good idea or not?

LAVAGNA: Well, two things. The first one, of course, for Argentina, would be impossible to apply even if it would be approved, as a system, because it will take at least six or seven years to change all the regulations and all the rules of the constitutions of the World Bank and the IMF.

The second reflection is Argentina is also opposed to this measure because they gave too much influence to the IMF in establishing the economic policies of the countries. And taking into account our own experience, that would be the worst things to be done. The ownership of the economic policy is essential for the success of the policy. That's why maybe, in theory, something like a Chapter 11 could be useful, but the role that the IMF would have in this structure was so high, so invasive, that, in our view, it was a negative one.

We prefer to work now on the collective process and code of conduct. We proposed—[inaudible]—that the code of conduct must be combined with a code of transparency. It's amazing the lack of transparency in these markets. It took Argentina practically one year, working with a French bank, to clarify what the situation of the external debt was in the case of Argentina. And we discovered that we had 152 different bonds, 152; 14 different currencies, reduced to seven due to the creation of the euro; and eight legal jurisdictions, different legal jurisdictions. It took a long time, and it was clear that the market itself was unaware of this situation of Argentina, that someone was not doing well their job, apparently. That's why the code of conduct, combined with the code of transparency and the collective process classes are the instruments we have today. And I hope that some discussions will be done in the future concerning the minimum—the difference between different kind of creditors and things like that.

VOLCKER: Yes, sir, in the middle.

QUESTIONER: Arthur Rubin, ABN-AMRO Bank. A number of bondholders have expressed opposition to the idea that the BODEN [Bonos del Estado Nacional, U.S. dollar denominated bonds issued by the Argentine government after the devaluation of the peso] will not be included in the restructuring program, and the government has been very consistent in saying that the BODEN absolutely will not be restructured in the way that Argentina's other sovereign debt is. But by the government's own admission, it will be necessary to restructure or refinance some port ion of the BODEN as they become due, in order to continue to be able to meet its debt service. How do you propose to square the circle, as it were, between the contention that the BODEN will not be subject to restructuring, and the need to find some way to refinance a portion of the BODEN in the medium- to near term?

LAVAGNA: It's completely different. It is, of course, not the same to go to restructuring related to the default, to just go to the markets and see if the markets are prepared voluntarily to refinance some of these loans. And it's very clear that the market is prepared, even now. We are not doing that now because we do not need to do that now. Maybe next year. But also it's possible that we will not go to the market even next year. And the decision will be a voluntary one, which is completely different to a restructuring related to the default.

Maybe this is a good occasion to recall that 48 percent of the debt of Argentina is performing, and 52 percent is the part of the debt that is under restructuring. And what we have said concerning the bonds that are part of this 48 percent performing is, if we have any kind of change, these bonds will continue to be paid. In fact, today, today or tomorrow, we are paying a very important amount in dollars, not even in pesos, and this part of the debt will continue to be performing.

QUESTIONER: Hi. It's David Plumb from Bloomberg News. I wanted to ask whether today, in front of this audience, you'd be willing to share with us if the technical work that you're doing in terms of the restructuring will result in an offer that is preferable or is better than the one that has already been put out as your preliminary offer. Is that where you're going towards, or you're not going towards a more preferable offer?

LAVAGNA: You know, Argentina has employed three international, very important banks to assist Argentina for the discussion of the external debt, the part of the debt which is in the international markets, and three banks that will take care of the debt in the hands of people living in Argentina. We are working with these six banks in the context of the framework we created in Dubai. And maybe it will be useful if we recall what this proposal of Dubai is, because there was a lot of, maybe, misunderstanding, maybe a lot of pressure over Argentina, saying that this offer will imply a haircut of 92 percent. This is absolutely wrong. The offer includes 25 percent repayment, and a very important decision in terms of social and political decision in the Argentine economy, which is the decision of sharing the benefits of the future growth, including in all the menus we will present, a bond related to growth. I know the markets are not used to these kinds of bonds, but this is a different restructuring. It is not the usual one, and we will see the results. In any case, we are working with the banks in order to recover value, to create value, and the only way to do that is some kind of link between growth and payment capacity.

VOLCKER: One last question, then I'm going to ask a question.

QUESTIONER: Rightly or wrongly, one of the reasons Argentina's reputation has suffered is the perception that the rule of law has deteriorated, whether it's the cancellation of guaranteed gas contracts or rather arbitrary actions by the judiciary on emparos [judicial protections] and other issues. How do you see Argentina re-establishing credibility in that regard?

LAVAGNA: Well, you know, during the '90s, Argentina had convertibility law, had a zero-deficit law, had a law avoiding to use the reserves, and so on and so on and so on, a complex legal apparatus created together with the IMF. The results—you know, you cannot change the gravity law. When your macroeconomic model or your macroeconomic program is law, the final result is what was, in the case of Argentina, in December 2001. What I am trying to say is just the law is not enough in order to protect and to make capitalism function in an adequate way. What is true, also, is the reverse. You can have the most perfect macroeconomic problem; if you don't have a legal framework and if you don't respect contracts and things like that, it will end, finally, in a crisis. Our intention is to combine both things. We are working on that, trying to combine what we think is reasonable—macroeconomic problem with reconstruction of the legal framework. Of course, there is a lot of problems inherited from the crisis. We are trying to resolve that. It will take time.

Again, it is very important to differentiate the stocks from flows. If you just pay attention to the flows, probably it will be more difficult to get a solution. And what is extremely important for international investors, not a single decision was discriminatory between local capital and international capital. All the measures were across the board without any kind of discrimination, and all the measures were the result of the crisis. We will try to arrange the contract with the utility companies. With the case of water, for example, which is a very important contract, it's practically done, the agreement between the government and the company. In the case of energy, the ministry in charge of that issued some decisions and called for a public audience, which is necessary before increasing some of the prices, some of the tariff. And I have the impression that, during these years, we will have the possibility to create or recreate all the legal framework.

VOLCKER: I'm left with a great dilemma: Do I ask you a question or do I violate the Council rules about ending sharply at 7:00? I will speak fast, and you can give a very short answer. You referred to: Argentina followed the Washington consensus. You were kind of the poster boy for developments in the early 1990s. Things turned bad. You are not happy about the IMF. You think it's rather overbearing, apparently. You were not happy about what you see as inconstancy in the policies of the G-7. Going through this experience, what advice do you have for Argentina in the future, or any emerging economy, as to what it does when it gets into a crisis? Or does it avoid the crisis by not borrowing abroad? I'll give you 15 seconds for—[laughter]—

LAVAGNA: It's very—it is not my intention to give counsel or recommendation to any country. Each country is different. Of course, there are some general rules to be respected. But in any case, I think that the Argentine case is relevant for others. And one of the decisions we took at the beginning of my term in office was to withdraw from the IMF a request of $20 [billion] or $25 billion, to resolve the problems. Argentina is like an alcoholic. In '75 our external debt was $7.8 billion. Now it is 100 [billion dollars]—I don't know—-150, 157 [billion dollars] or something like that, especially during the '90s. And we must work with our resources and to create the condition to use the local savings and not to repeat what we had been doing during the '90s—every two years some kind of restructuring of the debt, each one increasing the capital, each one increasing the rate of interest.

VOLCKER: Well, thank you very much for speaking so frankly and directly. You were going to get tough questions. You got tough questions. You held your ground well. We appreciate you coming here and speaking.

LAVAGNA: Thank you. [Applause.]

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