The Broad Front senator questioned the objectives of monetary policy and inflation. “It wasn’t blowing and making a bottle,” he said.
The government’s economic team appeared this Thursday at the Integrated Budget Commission with the Treasury, within the framework of the analysis of the Accountability project that the Senate must approve in 45 days.
Among other authorities, the Minister of Economy, Azucena Arbeleche, the Director of Economic Policy, Marcela Bensión, the President of the Central Bank of Uruguay, Diego Labat, and also the Director of the Planning and Budget Office (OPP), Isaac Alfie, attended. .
After the preparation of general issues by the government officials, including the president of the BCU, Diego Labat, the senator of the Broad Front, Mario Bergara, questioned that “a fiscal improvement is considered as something positive and a celebration.”
“Obviously we are going to disagree and qualify this tone because our analysis indicates that in these years the ‘fiscal improvement’ (said in quotation marks) is explained almost entirely by the fall in wages and liabilities, and by the increase in the tax burden. Roughly speaking, salaries and liabilities have implied less spending in these years, of around US$700 million, and the increase in tax collection amounted to just over US$100 million -peso more, peso less; dollar more, dollar less–, which explains, mainly, the change in the fiscal result”, argued the former Minister of Economy.
Subsequently, Bergara, who was also president of the BCU, referred to inflation, which closed in the annual accumulated to August at 9.53%.
“Regarding inflation issues –although two and a half years late–, it has been recognized that lowering inflation is not that simple, which seems to us to be good news, as well as making a correction. In a generous or self-satisfied way, they talk about having ambitious goals when, in reality, what they had was a wrong vision of the subject. That we now have inflation goals that are 2% above what was proposed is an act of humility and speaks of accepting that things were not so easy, it was not blowing and making a bottle, or lowering inflation when you wanted, even in times when economic growth was not so dynamic”, pointed out the senator from the Front, who questioned the fact that during Labat’s administration at the head of the BCU, inflation was not the only objective of monetary policy.
In this line, he added that there was an intention to “sustain the level of activity in depressive moments” of the economy.
“Unfortunately, this was done within the framework of a contradiction – from our point of view – between monetary and fiscal policy. While the monetary policy was totally expansive –and we agreed–, the fiscal policy was contractionary from the start. This indicates that beyond the speeches, the management of monetary policy takes into account multiple objectives: inflation, competitiveness and growth; as it should be, as the law says. Before, Chinese dishes were talked about and it was a source of ridicule. I don’t know what this is called today, but it smells like Chinese dishes, it looks like Chinese dishes and sounds like Chinese dishes”, Bergara said in reference to his popular parallelism used to explain macroeconomic balance policies.
And I add: “On the other hand, we must also say that if the diagnosis is that exports fly and that ?as the president of the Central Bank of Uruguay explained? we are importing a very significant inflation from abroad? We agree on that? We do not see the systematic rise in the interest rate as an anti-inflationary element today, when we have depressed domestic consumption. I think no one can argue that the pressure on the prices of the economy is due to an extraordinary demand that we Uruguayans are making today and that, therefore, this must be addressed by cooling credit by raising interest rates. No one can share that diagnosis. So, if inflation is imported, but we have a depressed domestic consumption, we are missing a thread in the reasoning that justifies such a considerable rise in the interest rate that the Central Bank of Uruguay has carried out in recent times”.
In his turn, Labat maintained that “the BCU’s concern and effort to lower inflation” lies in its importance because “low inflation is a necessary condition for greater growth.”
“Our insistence on the central objective is inflation. It is clear that lowering inflation is not an easy task, but it is possible and absolutely necessary. Today – it is a worldwide phenomenon – hundreds and thousands of people are working on this, researching and defining what works and what doesn’t. There are no recipes, but it is known that there are things that work and it is known that there are others that do not work”, Labat said, citing examples from other Latin American countries that have controlled inflation such as Brazil, Peru and Paraguay, among others.
Regarding Bergara’s statements, the president of the BCU responded: “I am going to make some very clear clarifications. For the Central Bank of Uruguay there are no multiple objectives, there are no Chinese dishes, we do not have Chinese dishes, we do not handle Chinese dishes and, much less, we make jokes with Chinese dishes. All the evidence indicates that, precisely, the first thing that the Central Bank of Uruguay has to do is to mention and make very clear what its objectives are. As we know that there is evidence and that Nobel prizes have been won in this regard, we cannot repeat that. I want to make it very clear that we do not have Chinese dishes and that we do not have multiple objectives. When making decisions, gradualness and caution should not be confused. We should not ask the policies what they cannot give. We can say that gradualness and caution have been. I have mentioned that Paraguay and Peru have more than thirteen rate increases; Brazil, twelve; Uruguay has been cautious and cautious with rate hikes. One thing is to be cautious and another is to forget about the goal we have in the long term”.
Finally, Labat stressed that “the reduction of inflation is important, but the consolidation of the policy” that is being carried out is much more important.
“The Central Bank of Uruguay decided to return to a regime where the instrument is the interest rate. In this regard, I say that there is abundant evidence that, especially in markets like ours, the interest rate has a much better reach to economic agents, it is clearer to read and in some way it activates the transmission mechanisms more easily. of monetary policy.” argued Labat, who also recalled that last August 31 was a year without BCU interventions in the foreign exchange market.
“What happened in other times? Dollars were bought, the exchange rate was maintained, pesos were sent to the market and later they had to be withdrawn with treasury bills. That is not happening today. Today we are not buying dollars nor are we selling dollars, we are not intervening in the exchange market. That does not mean that at some point the conditions are necessary and that it has to be done. Perhaps it should be done, but the conditions will have to be given and it will not be at any time. So, that’s why I say that this spiral is not what is happening today.” he added.
Montevideo Portal
