Thank you very much. Thank you very much for talking to Bloomberg again. Last year, I think we discussed free market economics, dogs, and the Rolling Stones. But this time we are going to begin with Venezuela. You welcomed the removal of President Maduro, but the Trump administration seems quite happy at the moment. We're sticking with Venezuela's interim president, Delcy Rodriguez, who is loyal to Maduro. And you very much describe the Maduro regime as a narco-terrorist dictatorship. So what has changed? Are you worried that nothing has changed in Venezuela?
No, no, it's not. First of all, I would like to recognize the tremendous work done by President Trump and Marco Rubio. First, in order to confront that tyrant, dictator, murderer, Maduro. I must say they are proponents of spreading terrorism across the whole region, funding campaigns and financing terrorist acts on the streets, complicating lives for all governments that were not pro-21st century socialism. So I warmly welcome that situation. But on the other hand, I think the plan designed by the U.S. administration in three phases is quite appropriate. The first one has to do with stabilization, which is the current path, then reconstruction, and then the transition towards democracy. The thing is, stabilization has to be done as quickly as possible. In America, like in most countries in the Americas, we have suffered and continue to suffer with the wholesale encroachment of the hosts of the 21st century socialism. So on the structures at stake, you see, they basically had it somewhat different because it was under previous socialism administrations. And when they are not in government, they spend their time sabotaging governments that are not in their ranks. It's very difficult. You see in Venezuela, that old man, Cabello, thinking that there could be another possible way of managing the stabilization process truly means not understanding the limits of reality as such. So in my view, the work being done by the United States is excellent. And besides, I think it is working. It's bearing fruit because we see that pressure is being applied, political prisoners are being released, something we welcome, and we also hope they will finally release all of the political prisoners. We are particularly concerned about the situation of Nahuel Alberto Soto from Argentina. But as we see the positive evolution of the situation, we are hopeful that Nahuel will be able to be with us again.
The reason why I asked, you flew to Oslo to support Maria Corina Machado when she won the Peace Prize. And do you still support her to be, or her candidate, Edmundo Gonzalez, to be the president of Venezuela?
Look, the thing we need to understand is that over the course of the stabilization process, any alternative that weakens the force of the regime will make anything fail otherwise. So the way I see it, the approach taken by the United States to deal with the situation is the right thing to do, the right way to go at this time. And so, well, when it comes to rebuilding for a democratic transition, it'll be the time to make perhaps other decisions and see how progress can be made towards democratization in Venezuela. I mean, of course, I do greatly appreciate and I'm fond of Maria Corina, who's a great friend and defender of liberty, but we need for this process to be successful. We shouldn't be too hasty. And as a result, finally going backwards.
And you still talk with Machado and you're still in contact with her?
Yes, I'm in contact with her. We are friends.
Let's look at the economy. When we came here last year, you had already brought inflation down from 300% to 80%. Now it's at 30%. You've had a good year in terms of the trade deficit. The economy's growing. The two questions, though, always come back. And the first is the currency. As you know, you are a free marketeer. You believe in free currencies. And the question is when will you let the peso go free? And just to be really clear, the peso going free, you have broadened the band, but a free currency, you know as well as I do, means without any controls or fixed bands. When is that going to happen?
Okay. Well, the first thing we need to understand is that when you come into office and need to run a country, it's not that difficult to start from scratch. You need to obviously face history. And Argentina has a very bad history on its shoulders. Argentina has removed 13 zeroes from its currency. It has had three hyperinflations without a war. So there is a primary problem regarding the currency in Argentina. And that is the mechanism by which economic agents form expectations. If we were to work with a traditional rational expectations model like the one we've all studied, we have so much celebrated Robert Lucas's job. Well, so much so, you know, I've named two of my four-legged children after him. You can imagine the almost news cycle. Do they bark at you every day that you do not set the currency free? No, that hasn't happened because of that, I think. And besides, I have even much more liberal libertarian versions of me. But I would like to note that under normal pressure and temperature conditions, so to speak, the price level and the economy would be governed by the money amount. And the exchange rate is one more price in the economy, strictly speaking. We have set the money amount. This was in the quarter and mid-2024. And what we are getting out of here now is the effect, the hangover effect after the monetary disaster of the previous administration, which printed money in an amount equal to 28% of GDP and all the more so during the last few months before they left office to win the election. You know, this is the sort of sequence that prices follow. Let's suppose you have a fall in money demand that leads to a leap in the exchange rate and that leads to an increase in the price of tradeables. Then in wholesale prices, then retail prices and then wages. If you have spent almost 90 years with that sort of dynamic, it's quite likely that people will think that if the exchange rate goes up, then the prices will go up. And so I won't get angry because of the way people form their expectations, because, I mean, they've been proven right for 90 years. So what we are trying to do is for people to understand that people can build expectations that way. And we understand that the volatility in the exchange rate can translate into price volatility. Let's suppose you have a change in relative prices and tradeables become more expensive. Perhaps there is a deterioration in the terms of trade and the exchange rate goes up. What will happen then? Asset prices will go up. So you will see a mismatch between the price level and the money amount and the economy will go into recession. We understand the problem of volatility, so the exchange rate within the band is free. It is free within the band, it is free. And the bands function only to show the people that this adjustment will not be just any exchange rate. So then they learn and they lose the fear. So that's the role of bands, to limit.
But when, when do you think this year you will be able to say you have learnt, you have discovered what freedom is like? Now try it properly and float. Let's float the peso. What is the timing?
From my point of view, that will be when we've finally cleaned up the money overhang. We have had this money overhang, the political hangover of previous monetary policy. Also due to the capital controls that were put in place in the past and also as a result of the price controls. Since we have set and fixed the money amount and we only now print against new demand, inflation will converge towards international levels, which means that at that point you have managed to clean up the money overhang and will be in a position to let the peso float freely without any sort of trouble, because along the way the agents will have known. And if those exchange rate volatility and they want to translate that into the domestic prices, they will have to face an America's worst face. They will have no demand and will have the other with the other big test.
And, you know, it's a fairly simple question is the international loan markets. You have raised money at home domestically, but as you know very well, the last, when your predecessor defaulted on the foreign bonds. And so the question is very specific: when will you go and raise money in New York or outside Argentina?
Well, strictly speaking, raising money for the various monies, he believes should need, would just be to rollover as a general framework because Argentina has zero deficit. In fact, the amount related to interest is paid by Argentina out of surplus. That's the first point. And through the Tax Innocence Act, we hope to really boost and develop the domestic capital market. Therefore, our need to resort to funds in the foreign markets will be less and less. In the worst of cases, perhaps we would only be going out to international markets to secure the rollover. Besides, given Argentina's fundamentals, we think that, so let us only hope by paying a surplus rate or with country risk at 550 basis points, we think that is clearly not in line with our fundamentals. So since almost no backup. And we've assumed that we have a very low debt to GDP ratio because most of the debt is within the public sector and we have achieved fiscal equilibrium. We will need less and less access to capital markets aside from the rollover and with the development of the local market will be able to pay and bring down the exposure. It's not something that, given our fiscal performance, should be a concern.
I would be worried not to have you go out. Last year you famously got a $20 billion swap loan from the US. The big success when you got it, Scott Bessent, the Treasury secretary, said that you had committed to, as he put it, to getting China out of Argentina and you have always been very critical of China. But as you know, China still has a space station in Argentina. You still have a swap line with China. What does getting China out of Argentina mean to you?
There's still plenty of chaos in my view. What so Bessent said is well, in line with the thinking of the United States administration, and this is a matter related to geopolitics. The United States does trade with China, and the way we see it, China is a great trading partner opportunity. It means a lot of opportunities for us to expand markets. So that is not any source of conflict.
