Category Archive: Interviews

  1. Milei and the World

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    Esta entrevista se puede leer en español aquí.

    It didn’t take long for the new President of Argentina, Javier Milei, to don gloves in the international arena and showcase his libertarian approach to foreign policy. Some political gestures have already stirred conflicts with Brazil and China—the country’s two most significant trading partners. In December, Milei invited former Brazilian president Jair Bolsonaro to his presidential inauguration, and last month, his administration initiated relations with Taiwan by arranging meetings with representatives from the Taiwanese trade office and Taiwan’s representative in Buenos Aires.

    Identifying as an “anarcho-capitalist,” Milei aims to strengthen ties with what he calls the “free world.” However, this ideological rerouting of Argentina’s foreign policy clashes with very particular dependency relationships, mainly with the International Monetary Fund (IMF) and China. Milei’s early confrontations with other leaders in the South American region and his immediate distancing from forums like BRICS and Mercosur (the Southern Common Market) indicate his desire to swiftly choose his adversaries. These conflicts could prove costly. 

    To better understand the initial steps of the Milei government’s foreign policy, we spoke with Maia Colodenco, Head of the International Affairs Unit at the Ministry of Economy of Argentina in 2019 under Alberto Fernández’s government. She represented Argentina at the G20, worked as a consultant for the Inter-American Development Bank, and served as Principal Advisor to the Executive Director for Argentina at the World Bank in Washington.

    An interview with Maia Colodenco

    CAMILO GARZóN: Some members of Milei’s economic team have already been announced. They include economic advisors who previously worked with Macri, such as Luis Caputo, the Minister of Economy, and Santiago Bausili, head of the Central Bank of Argentina. How do you see this initial circle of economic advisors?

    Maia colodenco: Milei undeniably came to power by winning the runoff, but he needed coalition forces to help him achieve that victory. On the one hand, this points at a certain negotiation of continuity with those forces that aided him in gaining power. On the other hand, considering the country’s current economic situation, I think Milei now recognizes the need for a certain macroeconomic pragmatism in contrast to his campaign rhetoric. It is a lesson learned from when Macri came into office, introducing shock policies that did not turn out well in the end.

    There were certain macroeconomic imbalances at the end of Alberto Fernández’s administration that needed resolution—imbalances that persist and have not been addressed yet. The analysis of exchange rate issues is still valid, and it requires a revision of the foreign exchange clamp (a set of restrictions on access to foreign currencies in Argentina), which was implemented in 2011 and is still in effect. There is still no clear policy on how they will structure local currencies alongside the dollar. Faced with these challenges, instead of dismantling the Central Bank of Argentina, they appointed Santiago Bausili, well known in the market sector, as the Bank’s President. This reflects a certain pragmatism and, in a way, hints at a tendency or focus towards dollarizing the liabilities of the Central Bank and eventually dollarizing the whole economy.

    So, while I can see some shock policies in other political areas, at least in terms of the economy, the continuity of certain figures within the sector may indicate a pragmatic approach. The negotiation of external debt with the IMF is likely playing a role in how this macroeconomic decision aligns with continuity measures.

    CG: How do you this government will navigate renegotiating the external debt and the country’s relationship with the IMF?

    MC: Negotiations with the IMF are always complicated, but we need to consider the precedents. Back in 2018, the Macri government took on the largest debt in the history of the IMF, which was also the most significant credit assumed by the government in the entire history of Argentina, amounting to $45 billion. In that sense, I believe that it is also in the IMF’s best interest to resolve the matter and maintain good terms with Argentina.

    During Alberto Fernández’s government—which I was part of—Martín Guzmán, the first Minister of Economy, renegotiated the debt with the IMF in a way that served Argentina well, in my view.1 The restructuring didn’t involve austerity measures; it allowed for debt refinancing without any labor reforms or privatization of state-owned companies. It curbed spending without being regressive. Unlike cases in other parts of the world, Guzmán initiated the negotiation by approaching private creditors with an analysis of restoration and sustainability based on maturities, and later negotiated with the IMF. This was a new strategy, and it proved successful. In contrast to some of the current policies being promoted, we believe that the program negotiated by Martín Guzmán aimed for a gradual adjustment, one which depended on how various factors had evolved in Argentina, while also including the issue of reducing IMF surcharges on the agenda.

    Now, the IMF clearly wants the numbers to add up and doesn’t care about what happens to the people in the country. For this government, Milei’s most recent mission objective—led by Luis Caputo and Chief of Staff Nicolás Posse—is to renegotiate the initial maturities of the debt that Argentina holds with the IMF, totaling $1.95 billion. Nevertheless, the impact of the new internal measures proposed by Javier Milei, currently being discussed in Congress, still need to be assessed, as they could also affect negotiations with the IMF.

    Among these measures are reforms to people’s pensions and the reduction of social plans, which together constitute a significant portion of public spending. There are also proposed reforms to healthcare systems, as well as everything related to reducing electricity and transportation subsidies. These reforms indirectly affect the relationship with the IMF insofar as they aim to reduce public spending with these adjustments, aspiring to achieve their fiscal deficit reduction goals. Depending on which variables they touch, whether these goals are achieved through increased employment or through less consumption and fewer economic stimuli, the impact may vary. In any case, the IMF will clearly commend Milei if fiscal deficit reduction is achieved. I don’t think they care how it’s done as long as the numbers show improvement.

    CG: On the other hand is Argentina’s presence in certain global economic forums. How do you interpret Milei’s recent speech at the World Economic Forum at Davos?

    MC: I think it stems from a misguided and outdated diagnosis of the current state of affairs—something from another era. For instance, there are aspects of his speech which I think no longer hold. He claims that the West has failed economically, but he doesn’t offer an alternative. If he is referring to the economic model of Southeast Asia, then that’s not a model he seems to admire. In that sense, we see a bit of a contradiction and a world of categories that harken back to the Cold War, as if there were still a sharp division between East and West. The world is currently multipolar, with actors much more atomized and a more conflicted globe, but the answer to our problems is definitely not a crusade against socialism, as he presents it. I also think the diagnosis is mistaken on Argentina’s self-awareness regarding its national and international role. In a Latin American context, a country like Argentina is far from insignificant, but it is not a systemic player in the broader context of the international economy. 

    An important trend in today’s international stage is the significant weight held by the private sector. Meetings like Davos have become very important, especially for influencing discussions on debt restructuring. The country needs to understand that it is not only engaged in relationships with state actors; there is a private sector that now holds as much influence as some states in various areas. However, this doesn’t mean Milei should solely focus on private entities as independent and self-sufficient units. Many developments, such as those occurring in the electric car sector, were driven by extensive state development agendas and investments. Someone like Elon Musk can praise entrepreneurial initiative all he wants, but his growth in various sectors has been considerably facilitated by the state. In that sense, when Milei’s discourse celebrates entrepreneurs unilaterally against the state, I cannot avoid perceiving contradictions. I believe he misunderstood the Davos audience, which consists of both types of actors—entrepreneurs and state representatives.

    CG: I find it interesting how Milei is already hinting at an alignment with the United States and Israel, while also distancing himself from Brazil and China. How do you think these changes affect Argentina’s presence in a group like BRICS?

    MC: The Argentine government has already formally announced that it has declined the invitation to join BRICS. Consequently, Argentina will no longer be part of a group that is key in parallel diplomacy to institutions of the global North. As I mentioned earlier, it would clearly benefit a country like Argentina to be involved in more international forums, especially economic ones. Participation in these forums can foster useful diplomatic and power dynamics, which can even influence support for various agreements. 

    In Alberto Fernández’s government, for example, we worked extensively in the G20. Many of the agreements we reached there were then extended to the IMF or the UN. All of that bespoke work contributes to building relationships with other states. In that sense, I believe it is a mistake not to participate, and I also think Milei is grounding this form of distance in a misguided diagnosis which leads to a diplomatic overreaction. Even the US State Department has affirmed that it would never ask countries not to join BRICS.

    Looking at Milei’s withdrawal from potential membership, I think his opposition was more strongly triggered by Iran’s recent inclusion in the BRICS forum than by a formal distancing from China. But even so, it is still an error—Argentina needs to improve trade relations with Brazil and China, its main partners. 

    We still need to wait and see what happens to Mercosur, since formal meetings have yet to take place. The Minister of Foreign Affairs, Diana Mondino, recently met with members of that forum to negotiate a free trade agreement with the European Union—this is despite Milei stating last year that Mercosur should be abolished because it was a defective customs union. Statements by Mondino are more nuanced; she speaks about “modernizing” Mercosur and says that the four member countries must reduce the number of customs barriers between them. On another front, regarding the Organization for Economic Co-operation and Development (OECD), Argentina will surely insist on joining—the question there is whether the OECD will accept its entry or not. 

    I believe Argentina should not have to choose between one forum or another. It could have a presence at both. However, it’s been Milei’s political decision to choose between the two. In my view, this decision seems to stem from an exaggerated line of action that had never been explicitly requested. Argentina has never before had to choose between China and the United States.

    In fact, we have historically had a very good financial relationship with the Chinese government through their swap agreement with the Central Bank of Argentina, which has been crucial for these countries’ economic relations. At the same time, the agreement with the IMF has also been very important. This shows that we can maintain very suitable agreements with the United States that are not incompatible with keeping good relations with China.

    CG: Can you elaborate on Argentina’s relations with China and Taiwan?

    mc: Argentina has always adhered to the One China principle. In our region, only Paraguay has expressly recognized Taiwan as an independent state. Since 2012, the relationship between Argentina and China has evolved, marked by increased investments in infrastructure. Just between 2007 and 2020, Argentina received $10 billion in investments from Chinese companies, primarily focused on energy, mining, and the financial sector.

    Historically, Argentina has maintained a strong and positive bond with China. The trade volume between the two countries has been a key element. As our second-largest trading partner, the possibility of having a credit line for commercial transactions has been crucial. This arrangement has allowed us to bypass the direct use of the dollar in currency exchanges—hence our growth in trade volume. Additionally, China has played a significant role in supplementing Argentina’s international reserves through the swap agreement. Additionally, there are major infrastructure projects in Argentina that are funded by China, including railways and dams in Santa Cruz. Many of these investments are related to logistics for exports and, in general, focus on infrastructure development.

    Sure, if one looks at the places where China has been directing its major interests over time, the role that Argentina plays in Chinese investments has somewhat diminished. However, Argentina still remains among the top three recipients of direct foreign investment in Latin America. In that sense, I believe that this shift in opinion regarding China has not worked well; it is evident that Argentina does not stand to gain from losing the Chinese market, or even simply from facing the risk of losing it.

    CG: Let’s talk about the case of Brazil, Argentina’s main trading partner. How do you see this relationship developing with both governments holding such divergent political positions?

    mc: Under Alberto Fernández, the national government made efforts to strengthen Mercosur. We believed that Mercosur needed to be modernized and made more efficient, while still safeguarding this crucial alliance between neighboring countries. I think that Lula will now be the guardian of that relationship, responsible for preserving Mercosur as a framework, though I suspect he doesn’t want to explore the possibility of creating alternate regional institutions at the moment.

    As to our direct relations with Brazil, the situation is now obviously different from the time when Bolsonaro was in power. Back then, even without a friendly relationship, many connections were well-kept. Since Brazil is a strategic and historical partner, we cannot afford to lose sight of our mutual identities. But Milei has already shown that he can take a more confrontational stance. He has already withdrawn Argentine ambassadors from Nicaragua, Cuba, and Venezuela, and he is currently in a dispute with Petro, though only on social media for now. 

    CG: Milei has arrived at a juncture where his ideological counterparts, such as Donald Trump or Jair Bolsonaro, are no longer in power. In Latin America, there was a period when left-leaning policies converged among governments in countries like Venezuela, Argentina, and Brazil, eventually leading to regional institutions like UNASUR (the Union of South American Nations) and BancoSur (the Bank of the South). Do you think something similar might happen if Milei finds regional counterparts that are consistent with his libertarian policies?

    mc: I haven’t seen any indications that Milei wants to create something similar to what existed during the so-called “pink tide.” It doesn’t mean it couldn’t happen eventually, but from what I see in the case of someone like Milei, who is a somewhat anti-institutional character, is that it would be more challenging for him to develop a similar regional institution. He is more skeptical of all these multilateral environments, not unlike Trump and Bolsonaro. The three share a diplomatic tendency to withdraw from various multilateral forums.

    Milei’s bilateral relations often lack pragmatism, although he has demonstrated some realism on certain macroeconomic issues. We will see how some aspects of international politics realign, but I believe that Argentina should neither remain in international conflicts nor overreact to them. 

  2. Milei y el Mundo

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    Read this interview in English here.

    Al nuevo presidente de Argentina, Javier Milei, no le llevó mucho tiempo ponerse los guantes en la arena internacional para mostrar cómo es la política exterior de un libertario. Con Brasil y China, que son los dos socios comerciales más importantes del país, ya ha creado conflictos, como la presencia del expresidente brasilero, Jair Bolsonaro, en su posesión presidencial. O las relaciones que ha empezado a tener con Taiwán, como la reunión con representantes de la oficina comercial de Taiwán o el encuentro de la ministra argentina de asuntos exteriores, Diana Mondino, con la representante de Taiwán en Buenos Aires.

    Milei se considera un “anarcocapitalista” y buscará estrechar lazos con lo que llama “mundo libre”, pero esa carga ideológica sobre la política exterior argentina se choca con unas relaciones de dependencia concretas con el Fondo Monetario Internacional alrededor de la deuda que tiene contraída con ese organismo, y también de la creciente importancia de China en la economía Argentina. Las primeras confrontaciones que ha elegido con otros líderes en el continente, y el distanciamiento de foros como los BRICS y Mercosur muestran que Milei quiere rápidamente elegir sus enemigos, pero estas peleas le podrían salir costosas. 

    Para discutir sobre las primeras puntadas de la política exterior del gobierno de Javier Milei hablamos con Maia Colodenco, quien fue Jefa de la Unidad de Asuntos Internacionales del Ministerio de Economía de Argentina, en el gobierno de Alberto Fernández. Representó a la República Argentina en el G20 y se desempeñó como consultora del Banco Interamericano y como Asesora Principal del Director Ejecutivo por Argentina del Banco Mundial, con sede en Washington. En 2019 fue nombrada jefa de la Unidad de Asuntos Internacionales del Ministerio de Economía. 

    Una entrevista con Maia Colodenco

    CAMILO GARZóN: Algunos miembros del equipo económico de Milei que ya fueron anunciados son también perfiles de asesores económicos que venían de trabajar con Macri, como Luis Caputo, el ministro de Economía, o Santiago Bausili, del Banco Central. ¿Qué lectura hace de ese primer círculo de asesores económicos de Milei y cómo cree que influyen en su política económica? 

    MAIA COLODENCO: Obviamente Milei llegó al gobierno ganando el balotaje, pero necesitó de fuerzas de coalición que lo ayudaron a acceder al triunfo. Ahí se ve cierta negociación de continuidad con esas fuerzas que lo ayudaron a llegar al poder, pero creo que también Milei ve, comparado con sus nichos de campaña y viendo cómo está el país en términos económicos, que es necesario cierto pragmatismo en términos macroeconómicos. Es la “moraleja” que queda de cuando Macri entró al gobierno, al haber introducido políticas de shock que no salieron bien.  

    Había ciertos desequilibrios macroeconómicos al finalizar la gestión de Alberto Fernández que había que resolver, que todavía existen y no han sido abordados. El análisis, por ejemplo, de las cuestiones cambiarias, el cepo cambiario (ese conjunto de restricciones al acceso de divisas extranjeras en Argentina, y que se aplica desde 2011) sigue estando vigente. Todavía no hay una política clara de cómo van a unificar las monedas comparativamente con el dólar. Frente a estos desafíos, en lugar de cancelar el Banco Central, pusieron a cargo una personalidad que es muy conocida en el sector de los mercados, como es Santiago Bausili, que hoy es presidente del Banco Central. Ahí se ve cierto pragmatismo y también se ve, de alguna manera, una tendencia o un foco hacia la dolarización, como tratar de dolarizar los pasivos del Banco Central, lo cual puede ser un camino hacia una posible dolarización de la economía. 

    Así que puedo ver algunas políticas más de shock en otros sectores del campo político, pero en lo económico esa continuidad de algunas figuras dentro del sector quizá marque un cierto pragmatismo. La negociación de la deuda externa con el Fondo Económico Internacional (FMI) seguramente tiene algún rol en esta decisión macroeconómica que va en la línea de medidas de continuidad.  

    CG: ¿Cómo cree que se va a desarrollar el tema de la renegociación de la deuda externa y la relación del país con el Fondo Monetario Internacional en este gobierno? 

    MC: Siempre las negociaciones con el Fondo Monetario Internacional son complicadas. El antecedente es que, en 2018, el gobierno de Macri tomó la deuda más grande del FMI en su historia. Es también el crédito más importante asumido por el gobierno en toda la historia argentina. Es una deuda que alcanza los 45 mil millones de dólares. Yo creo que hasta para el Fondo es un tema a resolver y quedar en buenos términos con Argentina. 

    En el gobierno de Alberto Fernández, donde trabajé, Martín Guzmán, su primer ministro de Economía renegoció la deuda con el Fondo de una forma en la que creo que le servía a la Argentina.1 Esto porque no implicaba políticas de ajuste, y permitía refinanciar la deuda sin ninguna reforma laboral o sin privatización de empresas públicas. Paraba el gasto, pero no era regresivo. Guzmán empezó la negociación, a diferencia de otros casos en el mundo, primero con los acreedores privados de acuerdo a los vencimientos, con un análisis de restauración y de  sostenibilidad, y luego negoció con el FMI. Eso es algo que de esta manera no se había hecho nunca y se logró cambiar. En comparación con algunas de las políticas actuales que se están promoviendo, creemos que el programa que en su momento había negociado Martín Guzmán tenía la intención de que el acuerdo fuera un ajuste paulatino, de acuerdo a cómo iban evolucionando los factores en Argentina y poniendo en la agenda el tema de la reducción de los sobrecargos del FMI. 

    Obviamente el FMI quiere que los números cierren y no le importa lo que pase con la gente en el país. Por su parte, en el arranque de este gobierno, el objetivo más reciente de la misión del gobierno de Milei, que encabeza Luis Caputo y el jefe de Gabinete, Nicolás Posse, es renegociar los primeros vencimientos de la deuda que Argentina mantiene con el Fondo. Estos ascienden, en total, a 1.950 millones de dólares. Pero hay que ver cómo continúan las nuevas medidas internas en el país que Javier Milei está proponiendo y que se están discutiendo en el Congreso, pues estas podrían impactar también la negociación con el FMI.

    Entre estás están las reformas de las jubilaciones de la gente, la reducción de los planes sociales, que ocupan gran parte del gasto público. La reforma de los sistemas de salud, así como todo lo que tiene que ver con la reducción a los subsidios eléctricos y del transporte. Estas reformas, indirectamente, impactan la relación con el FMI en tanto que lo que buscan es reducir el gasto público con esos ajustes, y así pretenden lograr unos objetivos de reducción de déficit fiscal. Depende de qué variables toquen, si recargan el logro de estos objetivos vía cantidad de empleo o vía menos consumo y menos estímulos a la economía. Pero el FMI claramente va a felicitar a Milei si se logra reducir el déficit fiscal. No creo que le importe cómo se haga mientras se haga y se vea el numerito creciendo.

    CG: Por otro lado está la presencia de Argentina en ciertos foros económicos globales, pues justo el país viene de participar del Foro de Davos. ¿Qué lectura hace de la intervención de Milei en su discurso y cómo siente que fue interpretado por otros jefes de Estado, pero también por otros personajes como Elon Musk, que alabó su intervención?

    MC: Sí, claramente puedo decir que fue muy elocuente, eso, sin duda. Pero creo que parte de un diagnóstico de la realidad actual equivocado y desactualizado, como de otra época del mundo. Por ejemplo, hay categorías de su discurso que yo entiendo que no funcionan más. Dice que ha fracasado el occidente en lo económico, pero entonces, ¿cuál es la región que no lo ha hecho? Si se está refiriendo al modelo económico del sudeste asiático, ese no es un modelo que a él le guste seguir. Entonces, vemos un poco de contradicción y también un mundo de categorías que viene más de la Guerra Fría, como si hubiera una división tajante entre oriente y occidente, pero actualmente el mundo está multipolarizado. Los actores están mucho más atomizados, hay mucho más conflicto en el mundo, pero este no pasa por una cruzada contra el socialismo, como él lo presenta. 

    También me parece que el diagnóstico es equivocado en el sentido del autoreconocimiento del rol que cumple Argentina a nivel nacional e internacional. Un país como Argentina, latinoamericano, grande, no es un país insignificante, pero tampoco es un país de carácter sistémico en la economía internacional. La verdad es que estamos en un montón de foros internacionales y podemos hacernos escuchar la voz siempre, pero me parece que el diagnóstico del rol de Argentina también está fuera de contexto. Para varios líderes habrá parecido pintoresco, a otros los habrá desencajado su forma de hablar y sus comentarios fuera de protocolo. 

    Una de las tendencias que se ven en el escenario internacional es que hoy en día el sector privado tiene un peso notorio, y por eso un foro como el de Davos es importante. Vimos antes su poder en las discusiones sobre la reestructuración de la deuda. El país tiene que entender que no solo se mueve en relaciones con actores estatales, sino que hay un sector privado en distintas áreas que tiene tanto peso e iniciativa como ciertos países, pero eso no hace que Milei deba solamente enfocarse en los privados como unidades independientes y autosuficientes. Muchos de los desarrollos, como en el sector de los autos eléctricos, fueron impulsados por grandes agendas de desarrollo e inversiones estatales amplias. Un tipo como Elon Musk puede celebrar todo lo que quiera la libre iniciativa de las empresas, pero su crecimiento en distintos sectores ha sido facilitado por el Estado, así que veo también en esa celebración unilateral de los emprendedores contra el Estado contradicciones en su discurso. Yo creo que a Milei le faltó entender un poco a la audiencia de Davos, que está compuesta de ambos actores, de empresarios y representantes de los Estados. 

    CG: Conectando con esos otros foros, me parece interesante la relación que ya va esbozando Milei de un alineamiento con Estados Unidos e Israel, y en cambio un distanciamiento con Brasil y con China. ¿Cómo cree que esos cambios de prioridades impactan su presencia en un foro como el de los BRICS? 

    MC: El gobierno argentino ya anunció que ha rechazado la invitación a sumarse a los BRICS en una carta formal a los mandatarios de esos países, con lo cual en esta ocasión ya no hará parte de ese grupo clave de diplomacia paralela a las instituciones del norte global. Claramente, como dije antes, a un país como Argentina le sumaría estar en más foros de debate internacional, sobre todo los económicos. La participación en esos foros implica una gimnasia diplomática y de poder que es muy útil, pues puede incluso después repercutir en apoyos en distintos tipos de acuerdos logrados en cada foro.  

    En el gobierno de Alberto Fernández trabajamos mucho, por ejemplo en el G20. Muchos acuerdos que lográbamos tener en el G20 pedíamos trasladarlo al FMI o a Naciones Unidas. Todo ese trabajo personalizado en cada foro ayuda y va construyendo una relación con otros Estados, por lo que creo que es un error no sumarse, y también en ese distanciamiento creo que Milei parte de un diagnóstico equivocado, llevándole a sobrerreaccionar diplomáticamente. Incluso el Departamento de Estado de Estados Unidos ha dicho que no le pediría a los países que no se sumen a los BRICS

    La reciente incorporación de Irán en el foro de los BRICS es lo que desató más claramente la oposición de Milei, y motivó su salida de la eventual incorporación más que un distanciamiento formal con China. Pero es un error, en todo caso, porque la Argentina tiene que mejorar las relaciones comerciales con los que son sus principales principales socios, Brasil y China.

    En el Mercosur hay que ver que pasa, porque aún no se han dado reuniones tan formales. Entiendo que la canciller, Diana Mondino, estuvo recientemente reunida con miembros de ese foro en el marco de las negociaciones alrededor de un acuerdo de libre comercio con la Unión Europea. Esto a pesar de que Milei había hablado el año pasado que al Mercosur había que eliminarlo porque era una unión aduanera defectuosa. Mondino ha matizado esas declaraciones y habla de “modernizar” Mercosur, y dice que la relación de los cuatro países miembros debe cambiar para reducir la cantidad de barreras aduaneras que hay entre los países. En otro frente, que es el de la OCDE, Argentina sí va a insistir en unirse a este organismo. La cuestión es si la OCDE va a aceptar su ingreso.

    Yo creo que Argentina no tendría que elegir su presencia en uno u otro foro, y podría estar en ambos. Pero ha sido una decisión política de Milei elegir entre los dos, en mi caso, pienso que obedeciendo a una sobrerreacción y a un lineamiento que no ha sido solicitado de manera tácita. Argentina no ha tenido que elegir antes entre China y Estados Unidos. 

    Tenemos de hecho muy buena relación con China históricamente a través del swap, que es el acuerdo de intercambio financiero que el gobierno chino tiene con el Banco Central, y que ha sido fundamental para las relaciones económicas del país. A su vez, el acuerdo con el Fondo Monetario también ha sido muy importante, de modo que eso muestra que podemos tener muy buenos acuerdos con Estados Unidos a la vez que no son incompatibles con las relaciones con China. 

    CG: ¿Puede elaborar un poco más sobre la relación de Argentina con China? ¿Cómo se han visto afectadas estas relaciones por las señales del gobierno de Milei de tener nuevos acercamientos a Taiwán? 

    mc: Argentina siempre se ha adherido al principio de una sola China. De la región, solamente Paraguay ha manifestado su reconocimiento a Taiwán como Estado independiente. Desde el 2012 han cambiado las relaciones entre Argentina y China, pues se han dado más inversiones en infraestructura. Sólo entre 2007 y 2020 Argentina ha recibido $10 mil millones en inversiones de compañías chinas, concentradas en energía, minería y el sector financiero. 

    Argentina históricamente ha tenido un muy buen vínculo con China. El stock comercial entre ambos países ha sido un elemento central, porque al ser nuestro segundo socio comercial, la posibilidad de tener una línea de crédito para los intercambios comerciales ha sido clave, pues ha permitido dejar de pasar por el dólar directamente en los intercambios de moneda, y por eso ese intercambio de stock creciente. Pero también China ha sido importante para suplementar nuestras reservas internacionales a través de la figura del swap. Además tenemos importantes obras de infraestructura hechas con China: los ferrocarriles, represas en Santa Cruz. Muchas de estas inversiones tienen que ver con la logística de las exportaciones, pero en general se dedican a temas de infraestructura. 

    Ya, de hecho, si uno ve donde está poniendo los principales intereses de China a lo largo del tiempo, vemos que ha reducido un poco el papel de Argentina en sus inversiones, aunque seguimos estando entre los tres principales recipientes de inversión extranjera directa en Latinoamérica. Entonces creo que este pivoteo de opinión respecto a China no ha funcionado bien, y claramente a Argentina no le resulta beneficioso perder ese mercado o al menos la amenaza de perder el mercado de China.

    CG: Sobre el caso de Brasil, el principal socio comercial, ¿cómo ve que se desarrollará esta relación estando los dos gobiernos tan enfrentados en sus posiciones políticas?

    mc: Brasil, como decía, es nuestro principal socio comercial. En el gobierno de Alberto Fernández, Argentina venía realizando mucho trabajo para sostener el Mercosur con el gobierno nacional, porque creíamos que era una instancia que había que modernizar y hacerla más eficiente, pero igual era clave resguardar esta alianza entre los países vecinos. Yo creo que ahora Lula va a ser el guardián de esa relación y el encargado de preservar la instancia del Mercosur, pues no creo que Lula quiera apostarle a crear otras instancias de institucionalidad regional. 

    Directamente con Brasil está obviamente el caso inverso cuando estuvo Bolsonaro en el poder.  En ese entonces no había una amistad, pero sí se mantuvieron muchas relaciones, y creo que dado que Brasil es un socio estratégico e histórico no podemos perder ese conocimiento de identidad mutua, de respeto y apoyo. Con otros países vecinos Milei ya ha mostrado que puede tener una actitud más confrontativa cuando están en posiciones políticas distintas. Por ejemplo, ya retiró los embajadores argentinos en Nicaragua, Cuba y Venezuela, y está peleando con Petro, por ahora en redes sociales.

    CG: Milei llegó en un momento internacional en el que sus homólogos ideológicos, como Donald Trump o Jair Bolsonaro ya no están en el poder. Cuando en América Latina hubo un bloque en el que convergían políticas de izquierda entre gobiernos como los de Venezuela, Argentina y Brasil, eso eventualmente devino en una institucionalidad regional, como Unasur, el Banco del Sur, etc. ¿Piensa que podría suceder algo semejante si Milei encuentra pares regionales que sean coherentes con sus políticas libertarias?

    mc: Yo no he visto trazos de que quiera realizar algo semejante a lo que existió en la llamada ola rosa. No quiere decir que no pueda existir eventualmente, pero yo lo que veo en el caso de una persona como Milei es un carácter anti-institucionalista, por lo que le quedará más difícil desarrollar una institucionalidad regional similar. Es más descreyente de todos estos ambientes multilaterales, como también era Trump y Bolsonaro, y por eso, lo que comparten es esa tendencia en diplomacia a salirse de distintos foros multilaterales. 

    A Milei le falta pragmatismo en sus relaciones bilaterales, aunque ha mostrado algo de realismo en algunos temas macroeconómicos. Veremos cómo se reacomodan algunos aspectos de la política internacional, pero veo que Argentina no tiene ni que quedarse en conflictos internacionales, ni sobre reaccionar ante estos. 

  3. Brand New India

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    With India headed to elections this April, the ruling BJP is rolling out enormous publicity campaigns to promote its record on economic growth and Hindu nationalism. Central to Prime Minister Narendra Modi’s third bid for reelection is the narrative that the Indian economy continues to grow and remains open for business. Amid the ample flows of international finance, and support from Western capitals, Modi’s India is an increasingly ethno-nationalist state. This week, tens of millions of Hindus mobilized across the country as Modi inaugurated a Ram temple in Ayodhya, in the state of Uttar Pradesh. Built at the site of a Muslim mosque destroyed by Hindu extremists in 1992, the temple’s unveiling represents a major step in Hindu nationalism—and the symbolic end of India’s secular republic. The question as to whether Modi’s Hindutva agenda lies in contradiction with the economic liberalism that has defined much of BJP’s policy is on many commentatorslips.

    The BJP has long relied on a well-oiled marketing machine to win votes. The advertising blitz now underway recalls the party’s “India Shining” campaign of 2004, launched by the Ministry of Finance. Then, as now, images were plastered across the country, expressing optimism about the country’s economic performance and promoting liberal reforms. At the 2014 elections, Modi ran with the slogan of  “good times,” promising development, a “muscular Hindu nation,” and a bright and glorious future.

    To discuss these ad campaigns and the connections between the seemingly separate spheres of economic growth, national identity, and international politics, we talked to the Indian historian of nationalism, Ravinder Kaur. She is the associate professor of Modern South Asian studies at the University of Copenhagen, and the author of 4 books, including Brand New Nation: Capitalist Dreams and Nationalist Designs in 21st Century India, The People of India, Identity, Inequity and Inequality in India and China, and Since 1947: Partition Narratives among Punjabi Migrants of Delhi.

    An interview with Ravinder Kaur

    TIM SAHAY: Your book, Brand New Nation, looks at how countries were plugging into the liberal global economy of the 1990s to attract investment capital, and far from diminishing the importance of nation-states, rejuvenated ethno-nationalism. You’ve argued that in the Indian case, the “liberal” economy and “illiberal” hypernationalism of Modi’s BJP are not separate phenomena, but two strands of Hindutva’s vision. How would you characterize these connections?

    Ravinder kaur: I begin my book in the 1990s, arguing that the last three decades of economic reforms basically transformed the nation into a commodity. I traced the ways in which India, the post colony, turned itself into an “emerging market.” Contrary to the understanding of globalization as a process imposed from the outside and resisted by local groups, I argue that economic “LPG” reforms—liberalization, privatization, globalization—were embraced by the policy elite in India. Initially, there was some political pushback against it, both within the BJP and Congress, but by the turn of the century, any resistance to them had disappeared. 

    This great transformation activated a seemingly unlikely alliance between global capitalism and hypernationalism, a foundation on which twenty-first century Hindu nationalism would begin taking shape. 

    In the early 2000s, the government organized and funded mass publicity campaigns, such as “Incredible India” and “India Shining.” These were used to try to brand postcolonial India as a lucrative investment destination for global capital. These campaign ads showcased India as  Hindu, rather than the multiethnic society that it is. The Brand India publicity material mostly appeared as a repackaging of cultural symbols—from yoga to Ayurveda, colorful festivals to nature, and a virtual absence of Muslims. These campaigns dovetailed with a broader cultural politics that sought to define who was included and who was excluded in India. 

    The question I took up in the book was: “What is a nation in the twenty-first century?” It leads us to a different set of answers. I elaborate on the idea of an “identity economy,” in which a national identity is put to work in the domain of the economy, and harnessed to boost the self-image, self-identity, and prestige of the nation. I look at ways the economic and the non-economic work together to produce a particular kind of nation form.

    TS: What is unique about this project of national rejuvenation? China’s CCP has the story of a century of humiliation at the hands of Western powers, while the Indian BJP narrative has been a millennia of humiliation, of being conquered by foreigners, whether Muslim kings or British colonialists. These civilizationist-nationalist narratives violently flatten their history.

    RK: The infusion of capital promises progress and prosperity, and is a sign of the nation’s arrival on the world stage. Capital appears as a curative force that can efface the shame of colonial subjugation and violence, and redeem the nation’s lost glory via economic growth.

    Identity economy entails reimagining the nation as a commercial enclosure that can be put at the disposal of investors—its territory as a vast reservoir of untapped natural resources, its population as a “demographic dividend” that provides both labor and consumer markets to sustain growth, and its cultural essence to be turned into a corporate brand identity. Thus, the emergent nation form—the brand new nation—is erected not just upon the scaffolding of economic growth, but also the promise of civilizational glory and rejuvenation.

    Stalled liberalization

    TS: Could you specify the link between liberalizing policy changes to attract foreign capital and India’s domestic politics?

    RK: One goal of these ad campaigns is to signal to the world that we are open for business. They seek to invite investment, both domestic and foreign. In India, much of the liberalization of the economy has taken place in the service sector, and the country’s service exports have boomed. There has also been an attempt to boost and open the manufacturing sector—as with the flagship program called “Make In India”—and turn the entire territory into a zone of production, with mixed results. Meanwhile, the vast agricultural sector—India remains a country where 46 percent of working age adults are engaged in farming—has been the last area to remain protected. When in 2020 the BJP made attempts to liberalize and deregulate farming, large-scale farmers’ protests broke out and forced the government to shelve its reforms. 

    Liberalization has not happened suddenly, as shock therapy, but gradually. There are regulatory requirements for Indian partnerships or joint ventures, rather than 100 percent foreign ownership. These projects lead to a lot of conflicts, as making land—especially farmland—available to investors is often fraught, and Modi’s land liberalization agenda too has stalled

    Likewise, modes of federal governance have changed a lot. India competes for foreign  investments but, within India, different regions also compete with each other to lay claim to those investments. The current government has sought to create what’s known as the “one nation” model—one nation, one tax, one market. This entails greater centralization of economic and political power in Delhi and the weakening of the regional power structures. This has been attempted, for example, through a common Goods and Services tax system that centralizes revenue collection, thus giving greater power to the central government. That too is a project to unify the entire territory, both in an economic and cultural sense.

    TS: The BJP’s major support has come from the rising Hindu middle classes of North India. Is the success of Modi and the BJP a bottom-up expression of a newly prosperous Indian middle class?

    RK: These policy initiatives have always been led by the elite; to think that they have ever had a grassroots constituency is a mistake. Only after the policies are made by the elite does the question of selling it to the population come up. This is where mass campaigns or political spectacle have become a central component of Indian politics.

    What I analyze in the book is how these mass publicity campaigns emerged as a form of governance. In the run up to the 2004 election, BJP prime minister Atal Bihari Vajpeyi launched the “India Shining” campaign, which celebrated the high growth rates the country was reaping while encouraging higher consumption among newly affluent Indians. When the BJP then lost the 2004 election, many blamed the “India Shining” campaign. What people forget is that though the government lost the election, its liberal economic reform program had already become hegemonic. The Congress Party’s counter slogan to the BJP’s “India Shining” was “Aam Aadmi ko kya mila” (“What did the common person gain out of it?”). The Congress-led United Progressive Alliance government (2004–2014) also wanted to deliver “reforms with a human face.”

    TS: When Modi came to power in 2014 his election campaign promised acche din: India Shining 2.0. Despite the optimism from many corners, India’s economy has underperformed since then. Growth rates have fallen, underemployment remains high, investors have been burnt, and inequality is skyrocketing. How has Modi’s government responded to all this? Is it concerned about inequality or is it totally committed to an oligarchic project with the Adani and Ambani families at the core?

    Ravinder kaur: I think it’s a balancing act here. Firstly, inequality has certainly widened in India since Modi came to power, and Adani and Ambani’s wealth have skyrocketed.

    At the same time, the Modi government has kept in place many of the welfarist policies established by the UPA. For example, it maintained the Right to Work (National Rural Employment Guarantee) schemes, which guaranteed 100 days of work to 64 million rural workers, especially women. It also preserved the Right to Food program. Likewise, the BJP increased social welfare goods. The most prominent successes have been targeted poverty alleviation programs: the distribution of cooking gas cylinders, widening access to bank accounts, and direct cash transfers. So it’s not the case that Modi simply embraced a free-market model, which would have had its own major obstacles in a country the size of India.

    A key difference between the UPA and the current government is how welfare is administered. Rather than a basic provision from the state, welfare provisions are marketed and advertised as a benevolent gift from the BJP government, indeed as the beneficence of Modi himself. This is not welfare as a citizen’s right but as a gift one should be grateful for. These branding exercises have reaped electoral benefits for the BJP, especially among rural women in  Uttar Pradesh and Madhya Pradesh.

    TS: Why has the rise of Brand India gone hand in hand with the decline in liberal democracy?

    RK: India’s efforts to brand itself as the “world’s largest democracy” helped project it as an alternative to an authoritarian China—whence the paradox: under Modi, the very democratic advantage that shaped Brand India’s image on the world stage entailed its steady erosion at home. Hindutva politics recognises this contradiction: it cashes in on India’s democratic credentials to gain external recognition even as it weakens democratic institutions at home. Consider the unabashed implementation of the hardline Hindutva agenda in Modi’s second term—from the revocation of the special status of Kashmir in August 2019, the Citizenship Amendment Act (CAA) that excluded Muslims, to the inauguration of the Ram temple in Ayodhya this week. What characterizes this moment of majoritarian muscle flexing is the heavy-handed suppression of dissent (the crux of democracy), especially in university spaces, and how the act of protest itself has been criminalized by the State.


    TS: What do you make of Modi’s India positioning the country as a pro-West bulwark against China? This project seems like it would be a momentous shift away from India’s long-held foreign policy of nonalignment.

    RK: If India is positioned as a bulwark against China, this is largely thanks to efforts by foreign powers rather than Modi. With much of the world “derisking” its economies from China, India now finds itself in a happy position. It is the only country which rivals China in terms of scale of population. 

    The old Indian project of pan-Asian unity is long gone. Nehru was very much invested in that, but it came undone thanks to the Indo-China War in 1962. The ongoing border conflict between India and China has caused immense nationalist mobilization on both sides. So regardless of which party is in power, given the security threat China poses to India, any government would be pro-Western. 

    TS: India today relies upon extremely anti-Muslim, majoritarian, identity-based politics, but it’s not clear to me that the Hindu extremists in Modi’s party are entirely under his control. How unstable is this as a basis for rule in a country with over 200 million Muslims and other minorities?

    RK: Whether the growing strength of Hindutva will lead to some social breakdown that causes investment capital to flee, we don’t know. For now, India remains profitable to many, such that the world more or less wishes India well. The United States grants Modi’s violent project a carte blanche. This provides a high degree of security. But the impacts of a further deteriorating social fabric remain to be seen. Such projects can never truly be contained.

    TS: Modi has also positioned India as a champion of the Global South. He has argued that India faces massive challenges and wants reform of the unequal Westen-led international order—just like developing countries in Africa, Asia, and Latin America. At last year’s G20, India championed the goals of debt relief, poverty reduction, and sustainable development. What makes this project different from the non-aligned movement of the 1950s–60s?

    RK: On the face of it, it looks as if the 1950s have returned. But much is different this time. Countries across Asia, Africa, and Latin America are no longer impoverished in the way they were at the time of decolonization in the mid-twentieth century, and there is tremendous inequality within the global South. Meanwhile, in terms of foreign-policy influence, larger and more prosperous countries, like those in BRICS, now have substantial clout in the world, and are seeking to come together. 

    So this is very different from the Non-Aligned Movement, which many people did not take seriously, because it lacked economic or military power. But nevertheless, the old Non-Aligned Movement always had very strong currency, primarily because it came with very strong moral arguments about anti-racism, decolonization, and nuclear disarmament. The current mobilizations have nothing like that. There is no alternative vision of the world that they are trying to put forward, but instead new ways to plug into the capitalist world-system for their own advantage.

  4. Petro en la COP28

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    Read this interview in English here.

    El presidente de Colombia, Gustavo Petro, llegó a la presidencia en julio de 2022 con un discurso ambientalista fuerte en contra de los hidrocarburos, el cual contrasta con la posición ambiental de otros líderes de izquierda de América Latina que llegaron al poder de la mano de los recursos de la economía extractiva. Ese acento crítico se vió en su participación en la Cumbre del Clima (COP28), que se celebra este año en Dubai, Emiratos Árabes Unidos.

    En esta Cumbre del Clima, que se realiza en el sexto país exportador de petróleo mas grande en el mundo, Colombia anunció que se adherirá al Tratado de No Proliferación de Combustibles Fósiles, un mecanismo que existe desde 2019 y que, por ahora, es el primer país continental en vincularse a él, más allá de las islas del archipiélago del pacífico, que son las más vulnerables a los efectos del cambio climático. En su discurso ante los otros mandatarios de la Cumbre, Petro entrelazó las desigualdades del cambio climático y la guerra en Gaza. 

    La retórica de Petro en la COP28 ha indicado una agenda climática transformadora, pero ¿cómo se ha traducido esta retórica en las políticas ambientales y energéticas internas de Colombia? ¿Cuál es el papel del gobierno colombiano para influir en la política climática regional en América Latina?

    Manuel Rodríguez Becerra fue el primer ministro de Medio Ambiente de Colombia desde 1993 hasta 1996 bajo el presidente César Gaviria. Hizo parte de la Comisión Mundial de Bosques y fue cofundador del Foro Nacional Ambiental (1998), una alianza de organizaciones no gubernamentales interesada en promover debates y reflexiones alrededor de la protección del medioambiente y el desarrollo sostenible. Publicó recientemente el libro Presente y futuro del medio ambiente en Colombia (2023). Para esta entrevista hizo un análisis sobre el discurso de Petro en la COP28, y la participación de Colombia en foros globales, y políticas climáticas en América Latina que muchas veces son diferentes o contradictorias.

    Entrevista con Manuel Rodríguez Becerra

    Camilo Andrés garzón: Una de las apuestas grandes del gobierno de Colombia ante la COP 28 ha sido buscar que se acuerde globalmente un plan progresivo de eliminación de combustibles fósiles como uno de los consensos finales de ese foro. ¿Es realista pensar que logrará ese objetivo?

    Manuel rodríguez becerra: La idea de lograr un compromiso mayoritario para suspender la explotación de carbono, petróleo y gas en fechas determinadas no iba a suceder en esta COP. El presidente Petro, por razones políticas muy respetables, dijo que Colombia se adherirá al Tratado de no Proliferación de Combustibles Fósiles, un tratado promovido en 2019 por las islas que están en mayor riesgo en el Pacífico. Es el primer país continental que ingresa en ese tratado, pero eso no garantizará que este encuentre grandes consensos, porque los países desarrollados se han negado reiteradas veces a establecer fechas concretas para no explotar más combustibles fósiles. 

    Ya está el antecedente de que en la COP26 (2021) setenta y siete países se comprometieron a eliminar el uso y producción de carbón de forma gradual. El plan preveía que los países más desarrollados renunciaran al uso y producción de carbón para la década de 2030, y que los países más pobres lo hicieran en 2040. China e India propusieron esto, pero no es claro que realmente estos objetivos se vayan a cumplir, pues lo que muestran los datos es que el mundo va en la senda contraria. Son más los combustibles fósiles que se consumen hoy. 

    Esto lo muestra el informe “The production gap” (2023), publicado por el Instituto de Estocolmo para el Ambiente, que plantea la tesis de que los veinte gobiernos responsables de más del 80 por ciento de las emisiones globales planean producir más del doble de combustibles fósiles, para 2030, de lo que sería necesario si se quiere mantener el límite de 1.5 grados Celsius. Según ese estudio, el mundo no va en camino a producir menos hidrocarburos, sino más. Las proyecciones son de una producción de un 460 por ciento más de carbón, un 83 por ciento más de gas y un 29 por ciento más de petróleo en 2030. 

    Realmente, después de veintiocho COP realizadas entre 1994 y 2023, nunca ha habido un acuerdo formal para reducir el uso de combustibles fósiles en el mundo. 

    CaG: ¿Cómo interpreta el impacto y los contenidos del discurso de Petro ante el foro de presidentes de la COP28, en el que asemejó la situación humanitaria en Gaza con los desplazamientos por cambio climático que se darán en todo el mundo, y dijo que “Hitler está golpeando en las puertas de los hogares de la clase media europea y norteamericana y muchos ya lo han hecho entrar”?

    mrb: Petro tiene toda la razón en el tema de que en el futuro va a haber millones de migrantes por las consecuencias del cambio climático, eso es algo que hace bien en señalar y en lo que hay que seguir insistiendo porque es, correctamente, un desplazamiento que vendrá especialmente desde los países más vulnerables. No me parece, en cambio, tan acertado que esto lo combine con unas escenas sobre el sufrimiento en Gaza, pues es un problema muy diferente y con sus propias causas.  

    Del mismo modo, sus comparaciones del ascenso de la derecha en Europa y Estados Unidos tampoco cayeron bien en la Cancillería Alemana, por ejemplo, que protestó contra el discurso por “hacer comparaciones crudas con la era nazi, y así relativizar el Holocausto”, como dijo en un comunicado. Es interesante que el gobierno de Colombia, en el discurso que se produjo por escrito basado en la intervención que dio Petro, quitó esas alusiones que hizo el presidente a Hitler y a Gaza, con lo que creo que hay una falta de transparencia increíble. 

    Otro punto que dijo el presidente Petro en ese discurso es que logró bajar la deforestación en la Amazonía en un 70 por ciento con recursos propios, lo cual no es del todo cierto porque Colombia viene recibiendo recursos importantes de cooperación internacional desde Noruega, Gran Bretaña, y Alemania para este propósito. Pero, en general, para los donantes es una buena noticia que esos recursos que están dando sí se estén traduciendo en datos efectivos de reducción de la deforestación. 

    Ahora, por ahora es muy temprano para considerar esa reducción como definitiva, y sigue siendo coyuntural. Lo que necesitamos saber del plan de Gobierno es si realmente va a bajar la deforestación de forma sustantiva o no. Hay que recordar que en el periodo del presidente Iván Duque, su antecesor en el poder, el daño ambiental de los bosques bajó muy sustancialmente, pero para el año siguiente volvió a subir violentamente, por lo que celebrar la reducción en un año no es definitivo. Creo que los países donantes le hacen un seguimiento muy cuidadoso para que el gobierno pueda cumplir estas metas de manera duradera.  

    CaG: ¿Cómo evalúa el énfasis que le ha dado el gobierno de Gustavo Petro precisamente a esa reducción de la deforestación amazónica?

    mrb: Hace bien el Gobierno de Gustavo Petro en enfocar sus esfuerzos en debilitar la deforestación en la cuenca amazónica y en buscar una cooperación internacional activa para detener la deforestación en esta cuenca. No solamente en relación con el cambio climático, sino porque es la región con la mayor biodiversidad del mundo, por lo que tiene un gran significado proteger los bosques amazónicos y proteger las fuentes hídricas superficiales. 

    Otro gran anuncio que ha hecho Colombia es el de la Ministra de Ambiente y Desarrollo Sostenible, Susana Muhamad, que presentó la Estrategia Nacional de Restauración, la cual plantea la meta de restaurar más de 753 mil hectáreas al 2026 en el país, la más ambiciosa que se haya trazado algún Plan de Desarrollo. Es una meta ambiciosa, pues Colombia tenía una meta de restaurar un millón de hectáreas en esta década al 2030, y el gobierno Petro ha propuesto realizar 750 mil a 2026. El punto es si va a tener la capacidad para que el ministerio y las autoridades ambientales hagan ejecución de esas promesas. 

    Pero de todas maneras, uno podría decir que de llegar a cumplir esas dos metas en reducción de la deforestación y de restauración forestal, uno de los mayores legados de Petro sería en lo ambiental. Otro tema es que en el mismo discurso, el presidente Petro reiteró el tema de detener la explotación y exploración de gas y petróleo en el país, y eso en relación con la firma del Tratado de No Proliferación de Combustibles Fósiles. Pero muchos consideramos que es un gran problema suspender la exploración de combustibles fósiles en Colombia.

    CaG: ¿Por qué lo dice?

    MRB: En las regiones del mundo existen grandes diferencias sobre los factores que inciden en las emisiones de gases de efecto invernadero. Mientras que la agricultura, la silvicultura, y otros usos del suelo representan el 24 por ciento de las emisiones totales de gases de efecto invernadero del mundo, en América Latina representan más del 50 por ciento. En Colombia, la deforestación, la agricultura y la silvicultura representan el 59 por ciento de las emisiones de estos gases contaminantes. Por eso su prioridad para reducir las emisiones no debería estar necesariamente en la descarbonización de la economía, sino en detener la deforestación y transformar la actividad agropecuaria, aún cuando avanzar en la descarbonización sí sea importante. 

    Además, en Colombia, los combustibles fósiles representan un 3 por ciento del PIB, y suspender su exploración conllevaría a poner en riesgo el autoabastecimiento de gas y de petróleo del país, dos combustibles que todavía se consumirán en algún grado dentro de veinte o treinta años en el mundo. También significaría sacrificar sus exportaciones, pues estas equivalen al 40 por ciento en total. Es decir, implica un sacrificio significativo de puntos de crecimiento económico que son importantes para la solución de diversos problemas sociales. La política de suspender en Colombia la exploración de petróleo y gas no tiene ningún beneficio sustancial para el planeta, pues mientras haya demanda internacional la oferta que deje de hacer Colombia la suplirá otro país y sin acuerdos internacionales para reducir significativamente la explotación de combustibles fósiles. 

    CaG: ¿Cómo juega o qué tan distintivo es como actor Petro frente a otros líderes de América Latina y cómo puede afectar esto la idea de una posición regional unificada en temas ambientales ante la COP28?

    MRB: Estamos en un contexto muy diverso. Mientras que Milei, de Argentina, niega el cambio climático, Lula, de Brasil, hace un equilibrio difícil entre el extractivismo y la defensa de los indígenas. Históricamente, en América Latina ha sido muy difícil tener una  posición regional. Las posiciones regionales se montan y se construyen antes de las COP, y aquí claramente no hay una. En ese sentido, la Unión Africana es un muy buen ejemplo sobre una posición de consenso frente a negociaciones de cambio climático. Pero la falta de unión en América Latina es muy grande, también sobre el tema amazónico. 

    Por ejemplo, Lula Da Silva se negó en la Cumbre Amazónica a considerar la propuesta de Petro de que Brasil suspendiera las exploraciones de petróleo en esa región, y dijo que iba a seguir usando carbón y gas o gas y petróleo en los próximos años. Y de hecho ha aumentado la exploración y explotación de estos. Humildemente tenemos que reconocer que quien tiene mayor peso en las negociaciones sobre todo el tema de la región amazónica es Lula Da Silva y Brasil.  

    CaG: ¿Cuál es su lectura, en general, sobre la utilidad de las COP para lograr consensos alrededor de metas globales para luchar contra el cambio climático?

    MRB: La Convención ha tenido poco éxito, para decir lo menos. En 1992 su meta fue disminuir las emisiones de gases de efecto invernadero en tal monto que hacia el año 2000 estas no superaran las del año 1990. Treinta años después de firmada la Convención en 1992, las emisiones se han incrementado en un 60 por ciento con respecto a 1990. 

    De acuerdo con cálculos basados en las actuales tendencias de emisiones, a junio de este año restaban tan solo ocho años y diez meses para alcanzar el límite de aumento de temperatura de 1,5 grados centígrados que se estableció en el Acuerdo de París, luego del cual se espera que los eventos climáticos extremos se intensifiquen aún más. 

    Uno de los argumentos es que si esas medidas no se hubieran tomado, el resultado actual sería peor. Pero ese no es el punto. El punto es que estos acuerdos estaban pensados para evitar eventos climáticos extremos que hoy, sin duda, ya estamos viviendo en todo el mundo, como las olas de calor en Europa de 2022 o las inundaciones en Colombia entre los años 2010-2011, por citar algunos. 

    CaG: Finalmente, ¿cuál es su lectura sobre a qué acuerdos se llegaron al finalizar las reuniones en el escenario de la COP28?

    MRB: Yo he participado en unas nueve COP, y además estuve en la legislación de la Convención de Cambio Climático. El único tratado que tuvo en cierto vigor y que estaba muy bien diseñado y con bastante fuerza jurídica fue el Protocolo de Kioto. Pero este colapsó en el año 2009 y en muy buena parte porque Estados Unidos, si bien fue un gran arquitecto de este protocolo, quedó sin ratificar en el gobierno de George Bush. A raíz del colapso del Protocolo de Kioto, se comienza a construir el Acuerdo de París, que se va a firmar en 2015. 

    Si uno mira de 2015 a hoy, pues no hay razón para ser optimista. Claramente las emisiones de gases de efecto invernadero han aumentado. Con las estimaciones de explotaciones de fósiles que están en marcha, el umbral de 1.5 grados centígrados tiene una altísima probabilidad de que se traspase antes de finalizar el siglo, etc. Entonces, claro, no se ve que haya una actitud por parte de los países desarrollados. Hacen los acuerdos, pero no los cumplen. 

    Entonces, claro, en esta COP se va a celebrar como un logro que se le puso plata al Fondo de Compensación y Daños, pero ese fondo ya se había creado desde la COP27. Este tipo de anuncios generan esperanza y se presentan como logros, pero el problema con todo esto es la implementación. Por ejemplo, en Copenhague, en 2009, los países desarrollados se comprometieron a aportar 100 mil millones de dólares al año a partir de 2009 para mitigación y adaptación. Ya han pasado 13 años y nunca se cumplió esa meta. Además, es un valor insuficiente. Por decir algo, los africanos estiman que ellos necesitarían montos para mitigación y adaptación del orden de 700 mil millones de dólares de recursos concesionales, o sea, siete veces ese monto. 

    La pregunta es, si no están cumpliendo adecuadamente con el Fondo de Mitigación y Adaptación, ¿por qué van a cumplir con este de Pérdidas y Daños que lanzarán como uno de los triunfos de esta reunión?

  5. Petro at COP28

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    Lea esta entrevista en español aquí.

    Upon entering office in July 2022, Colombia’s President Gustavo Petro voiced a strong stance against fossil fuels, marking a contrast with other left-wing leaders in Latin America who rose to power through resources gained from extractive economies. Petro’s emphatic critique of oil and gas was apparent at the United Nations Climate Change Conference (COP28) held this year in Dubai, United Arab Emirates, the world’s sixth-largest oil exporting country. 

    At COP28, Colombia announced its commitment to the Fossil Fuel Non-Proliferation Treaty, drawn up in 2019. Until now, the only countries to sign on were Pacific island nations, in response to their extreme vulnerability to the effects of climate change. Colombia has now became the first and only continental country to agree to the treaty. In addition to his environmental focus, Petro controversially linked climate change inequalities and the war on Gaza in his address to world leaders. 

    Petro’s rhetoric at COP28 has signaled a transformative climate agenda, but how does this translate to domestic environmental and energy policies in Colombia? And given the changing political dynamics in the region, what is the Colombian government’s role in influencing broader climate policy in Latin America?

    Manuel Rodríguez Becerra served as Colombia’s first Minister of Environment from 1993 to 1996 under President César Gaviria. He was part of the World Commission on Forests and Sustainable Development and co-founded the National Environmental Forum in 1988, a coalition of non-governmental organizations (NGOs) that promotes environmental protection and sustainable development in Colombia. He recently published The Present and Future of the Environment in Colombia (2023). In the following conversation, Rodríguez Becerra analyzes Petro’s address at COP28, Colombia’s shifting role in global climate discussions, and the differing—and often conflicting—climate policies of Latin American leaders. 

    An interview with Manuel Rodríguez Becerra

    Camilo Andrés garzón: One of the Colombian government’s major objectives in COP28 was a global agreement on the suspension of fossil fuel usage. Is this goal realistic?

    Manuel rodríguez becerra: Achieving a majority-supported commitment to suspend the exploitation of carbon, oil, and gas on a specific date is not something that was going to happen during this COP. President Petro, with very respectable political reasons, said that Colombia would adhere to the Fossil Fuel Non-Proliferation Treaty, promoted in 2019 by the islands that are most at risk in the Pacific. Colombia is the first continental country to join this treaty, but that does not guarantee that it will find great consensus, given the fact that developed countries have repeatedly refused to establish a specific date to cease fossil fuel exploitation. 

    We already have a significant precedent: at COP26 in 2021, seventy-seven countries promoted to gradually eliminate the use and production of coal. The plan envisaged that more developed countries would give up the use and production of coal by the 2030s, and that the poorest countries would do so in 2040. The proposal was not approved. China and India supported this idea, but it is not clear whether these objectives will be met, since available data shows that the world is heading in quite the opposite direction: since then, fossil fuel consumption has actually increased. 

    A recent report published by the Stockholm Environment Institute found that the twenty governments responsible for more than 80 percent of global emissions are currently planning to produce by 2030 more than double the amount of fossil fuels that are necessary for the 1.5 degrees Celsius limit to be maintained. According to the study, the world is in fact on the path towards producing more hydrocarbons. Projections for 2030 estimate a 460 percent increase in coal production, an 83 percent in gas production, and a 29 percent increase in oil production. After twenty-eight COPs held between 1994 and 2023, there has yet to be a formal agreement to properly reduce the use of fossil fuels in the world.

    CAG: How do you interpret Petro’s speech before the presidents’ forum at COP28, in which he compared the war on Gaza and global climate displacement likely to occur in the future? In his speech, he stated, “Hitler is knocking on the doors of European and North American middle-class homes, and many have already let him in.”

    MRB: Petro is absolutely right when he points out that, in the future, there will be millions of migrants as a consequence of climate change. This is an issue we should all continue to insist on, since the displacement will affect the most vulnerable countries. However, it doesn’t seem so appropriate to compare this to the scenes of suffering in Gaza, since it is a very different problem with its own set of causes.

    Similarly, Petro’s comparison to the rise of the right in Europe and in the United States was not well received by the German Chancellery, which protested against the speech for “making crude comparisons with the Nazi era which ultimately relativize the Holocaust,” as was said in a statement. It is also interesting to note that when the Colombian government produced a written text based on Petro’s intervention, the President’s allusions to Hitler and Gaza were removed—a major lack of transparency. 

    In the same speech, President Petro stated that his administration was able to reduce deforestation in the Amazon by 70 percent with their own resources—but this is not entirely true. Colombia has received significant resources for deforestation through international cooperations with Norway, Great Britain, and Germany. On the other hand, it is good that donors know that their resources can successfully be translated into effective data on deforestation reduction.

    It’s still too early to see this as a definitive reduction, as it remains somewhat circumstantial. We need to know if the government’s plan will substantively reduce deforestation. I’ll remind you that there was also a significant one-year reduction in deforestation under President Iván Duque, Petro’s right-wing predecessor, but deforestation drastically rose in the following year. In that sense, we can’t celebrate a one-year reduction as definitive. I believe that donor countries monitor deforestation very carefully so that governments can meet these goals in the long term. 

    Cag: How do you view the Petro government’s emphasis on deforestation in the Amazon?

    MRB: The government has done well to focus its efforts on reducing deforestation in the Amazon basin and seeking active international cooperation around this initiative. This is true not only for broader climate change impacts, but also because the Amazon is the region with the greatest biodiversity in the world. Protecting Amazonian forests and surface water sources is of great importance.

    Colombia’s Minister of Environment and Sustainable Development, Susana Muhamad, also announced the National Restoration Strategy, with the goal of restoring more than 753,000 hectares of forest in the country by 2026. This is the most ambitious goal ever seen in a development plan; Colombia already had set a goal of restoring one million hectares of forest by 2030, but the Petro government is significantly speeding up this initiative. The real question is whether the Ministry and its environmental authorities will have the capacity to keep those promises. If met, these two environmental achievements—deforestation reduction and forest restoration—would be one of Petro’s greatest legacies. 

    In his COP28 speech, President Petro also spoke about the exploitation of gas and oil in the country, especially in the context of the Fossil Fuel Non-Proliferation Treaty. Many of us believe that suspending fossil fuel exploration in Colombia would be a major issue.

    Cag: Why do you say that?

    MRB: Different regions of the world vary greatly when it comes to greenhouse gas emissions. While agriculture, forestry, and other land uses account for 24 percent of the whole world’s total greenhouse gas emissions, in Latin America they account for more than 50 percent. In Colombia, deforestation, agriculture, and forestry represent 59 percent of the emissions of these polluting gasses. For these reasons, Colombia’s emission-reducing priorities should not necessarily be in decarbonizing the economy, but in stopping deforestation and transforming agricultural activity, even though advancing decarbonization is clearly an important objective.

    Furthermore, fossil fuels represent 3 percent of Colombian GDP, so suspending their exploration would threaten the country’s self-sufficiency regarding gas and oil—two fuels that the world will still consume to some degree for the next twenty or thirty years. The suspension would also sacrifice at least 40 percent of the country’s exports; this involves a considerable sacrifice of economic growth in areas that are vital for many social programs. Finally, the policy of suspending oil and gas exploration in Colombia may not have any substantial benefit for the planet as a whole: as long as an international demand is still at large, and without global agreements to meaningfully reduce the exploitation of fossil fuels, the resources that Colombia ceases to offer will simply be supplied by another country.

    Cag: Regarding climate policy, how does Petro’s influence compare to other Latin American leaders? Could he have developed a unified regional position on environmental issues at COP28?

    MRB: We are in a very diverse political context. In Argentina, Milei denies the reality of climate change, while in Brazil, Lula is striving for a difficult balance between extractivism and the defense of indigenous peoples. In Latin America, forming a regional position has been a historically arduous task. Regional positions are typically assembled and constructed ahead of the COPs; we clearly lack one at the present. The African Union is a very good example of a consensus regional position regarding climate change negotiations.

     There is a considerable lack of unity in Latin America; this is evident in discussions around the Amazon. During the Amazon Summit, Lula refused Petro’s proposal that Brazil should suspend oil exploration in the region, stating that Brazil would continue using coal and gas or gas and oil in the coming years. What is more, the exploration and exploitation of both has increased. We must recognize that Lula and Brazil hold the greatest weight in the negotiations around the Amazon region.

    Cag: Do you think COPs are useful in achieving a global consensus to battle climate change?

    MRB: The Convention has had little success, to say the least. In 1992, its goal was to reduce the amount of greenhouse gas emissions so that by the year 2000 they would not exceed the amounts emitted in 1990. Thirty years after the Convention was signed in 1992, emissions have increased by 60 percent since 1990.

    According to calculations based on current emission trends, as of June of this year, there are only eight years and ten months left to reach the temperature increase limit of 1.5 degrees Celsius established in the Paris Agreement, after which extreme climatic events are expected to intensify further.

    Some argue that if these measures had not been taken, the current situation would be worse, but that’s not the point. The point is that these agreements were designed to avoid a series of extreme climate events around the world which we have already been experiencing beyond any doubt. The heat waves in Europe in 2022 and the floods in Colombia in 2010 and 2011 are just a few examples. 

    Cag: Finally, what is your overall evaluation of the agreements reached during COP28?

    MRB: I’ve participated in about nine COPs, and I was also involved in the legislation of the Convention on Climate Change. The only treaty with reasonable vigor, an adequate design, and sufficient legal force was the Kyoto Protocol. However, it collapsed in 2009, largely because the United States—a great architect of this protocol—left it unratified during the government of George Bush. Once the Kyoto Protocol collapsed, work on the Paris Agreement began until the signature 2015 agreement. 

    Looking at everything that’s happened since 2015, we honestly don’t have reasons to be optimistic. Greenhouse gas emissions have clearly increased, and with the estimates of fossil exploitations currently underway, we’re very likely to surpass the 1.5 degrees Celsius threshold before the end of the century. It seems that developed countries don’t have the right attitude—they sign agreements, but they don’t keep their word.

    Of course, the major takeaway from this COP is the Loss and Damages Fund. This will be celebrated as a great achievement, but that fund was created during COP27. These types of announcements are meant to foster hope and testify to progress, but the problem of implementation remains. Back in 2009 in Copenhagen, developed countries committed to provide $100 billion a year starting in 2009 for mitigation and adaptation. Thirteen years have passed since then, and that goal has yet to be met. On top of that failure, it’s an insufficient sum. To illustrate the point: Africans estimate that they need around $700 billion in concessional resources for mitigation and adaptation—seven times the committed amount.

    The question is: if developed countries are not complying with the Mitigation and Adaptation Fund, why would they comply with the Loss and Damage Fund? Without resolving the compliance question, how can we claim the Fund as one of the great triumphs of this meeting?

  6. Governing the Climate

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    The twenty-eighth UN climate change conference, which took place in Dubai over the course of the last two weeks, has now come to an end. Like previous conferences, this COP took the form of a series of negotiations between countries to find an effective and legitimate approach to reducing dangerous warming. The entire architecture of the 1992 UN Framework Convention on Climate Change was built around differentiating between the rich industrialized OECD countries of the global North and the developing countries of the global South, attempting to account for the different needs and responsibilities of various nations. Conflict over money, machines, and how soon countries should phase out coal, oil, and gas have once again been at the forefront of negotiations. Remonstrations of the conference outcome’s gross insufficiency in the face of the climate crisis have come from many quarters, especially since the full phaseout of fossil fuels has not been enshrined as a requirement.

    The shared goal of negotiators at Dubai is to triple renewable energy globally by 2030. Such a commitment implies breaking through the financing barriers for developing countries, and creating political coalitions that can drive necessary national policy changes. At stake is something more fundamental: can the world historical process of “uneven and combined development” be decarbonized under the terrifying acceleration of anthropocenic crises?

    Navroz Dubash is a professor at the Centre for Policy Research in New Delhi and has been a key figure in international climate diplomacy for as long as there has been such a thing. Dubash was instrumental in setting up the Global Climate Action Network in 1990, and recently was coordinating lead author of the IPCC’s Sixth Assessment on Climate Change. He is the author of India in a Warming World: Integrating Climate Change and Development (2020) and Tubewell Capitalism: Groundwater Development and Agrarian Change in Gujarat (2002). Tim Sahay spoke with Dubash about the changing narrative of climate-oriented national development, and how past mistakes might inform a more resilient future.

    An interview with Navroz Dubash

    TIM SAHAY: You’ve been involved in international climate diplomacy since 1990, when the Cold War was nearing its end and the unipolar world was taking root. Now that we exist in a messier, multipolar world, how is climate diplomacy changing?

    Navroz Dubash: In the early years, there was a very strong cognitive lock regarding the design of the process. It was expected that we would simply follow the Montreal Protocol, which encouraged richer countries to produce substitutes for ozone-depleting chemicals, while transferring technology to poorer countries. 

    That somewhat simplistic protocol was later applied to the climate process, and I think it was damaging. In the case of the climate crisis, it’s of course not about finding substitutes for one chemical. It’s about ending the historical coevolution between fossil fuels and industrial development. 

    That line of thinking led to the top down approach of carbon rationing, set out in the Kyoto Protocol. When the US Senate unanimously refused to ratify Kyoto in 1998, arguing that it violated US sovereignty, it became clear that it could not work politically. That led to a period where climate negotiations were oriented around finding a way for the US to be brought back in. I think that was damaging because, as I like to say, other countries have politics, too. During that window—say from about 1998 to 2008—China was coming up in the rearview mirror. It was becoming the most important global determinant of whether we would be able to address climate change, and we weren’t thinking enough about how to structure the agreement so as to incorporate China.

    With little money or technology being transferred, much of the developing world saw the agreement as dysfunctional. The industrialized countries, for their part, wanted developing countries to prioritize cutting emissions. This resulting impasse led to the agonizing failure at Copenhagen’s COP in 2009. The negotiators still produced a statement because, as a former Indian negotiator once told me, the first rule of climate negotiations is that they never fail. But between Copenhagen and Paris, the only question that was possible to ask was: how do you get everybody on board? 

    What enabled the breakthrough at Paris in 2015 was a pre-deal between the US and China. The key phrase was “common but differentiated responsibility and respective capabilities.” They added a clause that basically said, as national circumstances change, this has to shift. And that language was carried verbatim into the Paris Agreement.

    TS: Since there is no planetary leviathan that can enforce decisions, the Paris Agreement was entirely bottom up and iterative. Countries submit a voluntary plan to cut emissions, they take stock every five years and ratchet up their ambitions. Much of this agreement was underpinned by a “G2” deal between the US and China. Is it the case that once the US and China stop agreeing on things, the Paris Agreement will blow up?

    ND: I agree that the guardrails of the Paris Agreement were set by the US and China. But it does not follow that their weakening relationship means blowing up the deal; we do still have the Paris Agreement. It has multilateral buy-in from a lot of actors—it survived the setback of Trump pulling the US out of it. That suggests Paris has a “political ratchet” mechanism in addition to the bottom-up ratchet. How smoothly those are implemented is, of course, affected by the US-China geopolitical confrontation.

    As it happens, I was in an India-US Track 2 meeting, when we got word of the pre-Paris China-US agreement. In the meeting we agreed on a bottom-up approach that would involve each country making Nationally Determined Contributions (NDCs). However, very soon the “High Ambition Coalition” of small island countries, which were very worried about the existential threat of climate change, intervened to alter the agreement. Thanks to their work, instead of limiting warming to 2 degrees Celsius, the Paris Agreement insisted on the need to limit warming to 1.5 degrees.

    Source: Global Carbon Project

    This had the effect of bringing the deadlines forward. This is because to limit warming to 1.5 degrees, everyone’s emissions would have to peak sooner and fall more steeply. The wager behind the Paris Agreement was that countries would come up with very generous NDC pledges and, upon implementing them at home, find that cutting emissions is in fact cheaper than they had initially thought. This would in turn contribute to a new green economy that would foster political coalitions domestically—going on to stimulate competition between countries, which would prompt some to go faster than they otherwise would have. At the next COP, their pledge would become even more ambitious.

    For some, this all relied on naming-and-shaming those that don’t meet their pledges. To me, the domestic implementation of NDCs—the national churn—was the more important part of the story. Once the target became 1.5 degrees, there wasn’t enough time left for that national churn. So, as soon as countries came up with their pledges, everybody was asked to up their pledges before anyone could get home to actually figure out their politics of implementation. 

    As for the current COP, I think there is a reckoning because we’ve now realized that the 1.5 degree target is really out of reach. We are in an overshoot scenario, and as soon as you get to an overshoot scenario you could overshoot by a little, you could overshoot by a lot. So that forcing mechanism of having a target—in a sense, it’s no longer there. To my mind, that means refocusing attention on the national story.

    Linking national development and climate action

    TS: How do different priorities of North and South play out? India often speaks in terms of climate justice, arguing that it has polluted very little over the course of its history and so deserves “carbon space” for development. Meanwhile, the lead US climate negotiator Todd Stern infamously once said “if equity is in, we are out.”

    ND: As you say, India has been the standard bearer, both at the governmental and the non-government level, for climate justice. Very early on, in 1991, Sunita Narain and Anil Agarwal wrote a pamphlet called “Global Warming in an Unequal World,” which had a huge impact. Even today, India continues to argue that there is a finite carbon budget that should be allocated to less developed countries. 

    For my part, I think the fact that the North has historically emitted much more than the South has consequences for how we should proceed. That said, I’m not sure that allocating a global carbon budget is the best way to operate. First of all, how do you allocate who gets to emit how much? The most important thing is to ensure that countries have access to the carbon required to meet their developmental needs while pivoting to a low-carbon future. 

    This is important because if a country gets locked into a high-carbon future, it will probably be an uncompetitive economy within ten or twenty years. Too much carbon now means shooting yourself in the foot with stranded costs, failure to develop new technologies, and so on. If there’s only so much fossil fuel we can burn and the rest we have to keep in the ground, then the principle should be maximizing global welfare, which means that if Nigeria needs to exploit some of its gas as a bridge measure, it should have first dibs on doing that, not Norway. 

    Where the rubber really hits the road is in figuring out ways to have capital infusions going from the North to the South. Climate action is going to be highly capital intensive. One of the implications of the climate equity story is how do you manage these massive transfers.

    Let me come back to a hobby horse of mine. So much of the climate conversation is dominated by Northern analysts—that’s where the research money is—so their interests end up dominating the discussion. For example, there is much more research on decarbonizing heating than on cooling, but given that the majority of buildings in tropical, developing countries are yet to be built, the future of cooling is the much bigger story. 

    To take another example, there’s a lot of conversation about pathways to net zero, which makes sense if you’ve already peaked. But for those who haven’t, they need to avoid locking-in at a high peak. Emissions trajectories should look like a hill, not a mountain. We should be thinking in terms of the idea of avoided emissions. What you do from a policy point of view to avoid emissions is quite different from what you do to reduce emissions. A carbon tax or a cap and trade system, for example, isn’t going to do much to help you avoid emissions because much of that is actually from infrastructure yet to be built like power, urban construction and transport. If 80 percent of future emissions are going to come from the developing world, we need to frame our questions accordingly.

    TS: Everybody’s talking about linking climate and development. You’ve written a book on the topic, but “co-benefits” like economic competitiveness or reducing air pollution are now broadly linked to national goals. Many countries are embarking upon a green project as one of national development. What do you make of these new varieties of governing climate?

    ND: I definitely see the shift in countries like India, Brazil, South Africa, and China thinking about climate as part of a larger project of remaking national economies. In a sense, I think that’s productive. The old framing of a “collective-action problem” that sought to distribute the “costs” of climate action was never going to work. Arguably, many of the developed countries have not delivered on climate finance or on phasing out fossil fuels first, so the North-South tensions have come roaring back. 

    I think co-benefits are a productive turn, but it’s yet to be seen how they will work. Broadly, we have two competing approaches. One is a European-led narrative that says the mitigation imperative is an existential one, and so should be first priority. We have, however, seen in the UK and Germany for example,  the extent to which climate goals by themselves are politically fragile. When something like the Ukraine war happens, or when energy prices spike, climate goals seem to take a back seat.

    The other approach is the idea that developing countries like India would pursue low-carbon development projects—public transport, for example— that would make for more liveable cities. This approach to climate is convergent with development; the choice between roads or railways are development choices but also climate choices. What’s really interesting to many of us is that the US Inflation Reduction Act implicitly adopts this approach; it wasn’t just for the developing world. This approach, what I call embedded—as opposed to standalone—climate framing, is an alternative to the European carbon-centric regulatory model, which is based very heavily on counting up and pricing carbon.

    TS: For decades the neoliberal project has gutted state capacity. A really interesting aspect in your work is the question of how states must be re-energized for green world-building. Bidenomics has called for a “whole-of-government” approach. A national developmental state is one thing, but one of the ways we’ve been thinking about the polycrisis is that the twenty-first century state needs to develop new eyes, ears, arms, and hands to intervene, listen, predict, and actually change the ways in which states are organized. What does that “climate-ready state” look like to you?

    ND: If a state wants to push a particular development agenda, it needs to have state capacities that can see the project out. A good example of such an institution is the Climate Change Committee in the UK, which is tasked with recommending five-yearly carbon budgets. It doesn’t have executive authority, but it has a kind of normative authority to set those budgets, which ministries are meant to align with; Parliament plus a few external actors drawing on the CCC’s analysis to hold those ministries to account. It charts a course not because it’s empowered to do so, but because it’s a place where a lot of ideas get digested and then injected into the public discourse with some credibility. Of course, that kind of vision isn’t enough. You need a strategy-setting body, but that has a much more complex analytical task.

    Another feature of such a state would be putting an end to what are currently siloed ministries, be they transport, or agriculture, or water usage or what have you. These departments need to work together. Take transport, for example: building transport infrastructure relies on a combination of urban planning and technology, plus, importantly, behavioral shifts. All this can’t just be dumped in the lap of a national transport ministry. In countries that are federated, it’s even more complex, and you have to also think about relationships between federal and provinces.

    Given all this, how do you develop mechanisms to coordinate? One way to do it is around existing epistemic communities. In the US, these take the shape of climate “task forces.”

    It is important to realize that there will be winners and losers as a result of these low-carbon transitions. Big shifts are on the horizon: phasing out the internal combustion engine, for example, means a whole new set of economic actors coming in around battery technologies and manufacturing. Land usage is bound to change, which is tied to powerful political interests. In the wake of Covid, there is also a shake-up of commercial real estate. How can these distributional conflicts be negotiated? 

    Some countries do a better job of this than others. South Africa has a deliberative tradition coming out of the post-apartheid era that can be used to work through thorny questions. In South Africa, the future of their electricity-mineral complex Eskom needs careful discussion. If it is to be dissolved, how is that going to happen in ways that bring labor unions along? South Africa’s Presidential Climate Commission has been a really interesting experiment.

    This returns us to earlier debates about varieties of capitalism. How does the nature of the capitalist enterprise in different countries make it easier or harder to make the green transition? In each case, one needs to start with the historical institutions that already exist, whether it’s corporate structures or forms of voting, first-past-the-post systems or proportional representation.

    TS: Developing countries at COP28 have pushed hard to get financing for a Global Goal on Adaptation. Adaptation to extreme climate, unlike energy transition, is not going to make anyone money. It requires a lot more grants, as everyone seems to agree. Has the political economy of adaptation gotten enough attention or is it just assumed that governments have an obligation to save citizens’ lives?

    ND: It is, I think, under-baked. Adaptation is distinct from loss and damage which received a political fillip at the last COP. Adaptation is, in many ways, conceptually much more complex than mitigation, which can be measured with an emissions trajectory. You can’t measure your progress towards adaptation using a single metric. You have to build a more resilient economy and society.

    The message coming  from the North is, we’re reasonably happy where we are, so we want to have systems that allow us to bounce back in the event of climate extremes. In the developing world, you already have massive loss and damage from floods, from weather events, and so on. It’s not about bouncing back, but about developing and building economic and social systems in ways that make it more resilient to both non-climate-triggered and climate-triggered shocks, understanding that one exacerbates the other. 

    To bring it back to the question of state capacity: it’s imperative to anticipate areas of vulnerability upfront. You might have to rethink your entire pattern of what, in India, we call minimum support prices for agriculture. Which crops are you supporting and therefore incentivizing? India’s Council of Agricultural Research has done good work on identifying climate-resilient crops. The government typically incentivizes rice and wheat, and there’s a big push towards incentivizing millets, which are more resistant to weather events.

    Similarly, water resources planning is going to be huge for South Asia going forward. There’s an existing debate about surface water versus groundwater, about so-called river interlinkage projects, whether large storage structures like dams make sense or not in the context of heavy rain runoff. All these developmental questions are inflected with a climate imperative, and part of that is the coordinating story I talked about earlier. 

    There are, to use the terminology of  my colleague Sharad Lele, multiple stressors and multiple objectives. The multiple stressors—in addition to climate change, you have land use, industrial usage, urban patterns, and so on— are currently dominating, though they will soon be surpassed by the climate tipping points. The multiple objectives carry over from mitigation, things like job creation, urban livability, and so on. This, and the question of adaptation, implicitly raises important questions: What kind of development do you want? What kind of economy and society do you want to build?

  7. La Argentina de Milei

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    This interview can be read in English here.

    El 10 de diciembre Javier Milei juró como presidente de Argentina, fecha que también marca el 40 aniversario de la redemocratización del país. Milei—economista de extrema derecha que se autodenomina “anarcocapitalista,” negacionista de la dictadura militar y fan declarado de Trump y Bolsonaro—ganó las elecciones argentinas en la segunda vuelta con casi el 56 por ciento de los votos, después de una campaña marcada por la promesa de dolarizar la economía y recortar el gasto público. El perdedor fue Sergio Massa, actual Ministro de Economía y representante del bloque peronista.

    Tres coaliciones políticas se encontraban al centro del proceso electoral de este año: La Libertad Avanza, bloque de extrema derecha cuyo único candidato fue Javier Milei; Juntos por El Cambio, coalición de la derecha liberal encabezada por el expresidente Mauricio Macri, en donde se postularon durante las primarias Horacio Rodríguez Larreta, actual intendente de Buenos Aires, y Patricia Bullrich, diputada y exministra de Macri; y Unión por La Patria, en la que Sergio Massa, actual ministro de Economía, compitió en las primarias contra Juan Grabois, militante y líder político que representaba un ala más de izquierda dentro del bloque, integrado también por el actual presidente Alberto Fernández y la vicepresidenta Cristina Kirchner.

    En la primera vuelta compitieron Javier Milei, Sergio Massa y Patricia Bullrich.1 Milei y Massa pasaron a la segunda ronda. Bullrich y el expresidente Macri declararon su apoyo a Milei. Massa se concentró en asegurar el apoyo de la izquierda en un sentido amplio y, en particular, de las fuerzas que integraban su bloque político, especialmente el peronismo y el kirchnerismo.2

    Con la victoria de Milei y la consecuente derrota de la coalición peronista-kirchnerista, los apoyos políticos comenzaron a ser reclamados. La dolarización, principal propuesta de Milei durante la campaña, ya se volvió improbable debido al nombramiento de Luis Caputo, nombre vinculado a Macri, como Ministro de Economía—cargo que también ocupó durante la gestión del expresidente. No obstante, el futuro económico y político se caracteriza por la incertidumbre. 

    Mercedes D’Alessandro es Doctora en Economía por la Universidad de Buenos Aires y referente de la economía feminista en América Latina. Fue la primera Directora Nacional de Economía, Igualdad y Género en el Ministerio de Economía de Argentina (2020-2022), y la responsable de la implementación del primer Presupuesto Nacional con Enfoque de Género del país, una herramienta de innovación pública.3 Contribuyó a la puesta en marcha de políticas económicas sin precedentes en Argentina para reducir los efectos negativos de la pandemia en las clases trabajadoras de bajos ingresos.4

    En la siguiente entrevista, D’Alessandro discute la crisis económica y política, las posibilidades para el gobierno de Milei, y el futuro del peronismo.

    Entrevista con Mercedes D’Alessandro

    maria fernanda sikorski: Javier Milei ganó la segunda vuelta de las elecciones argentinas con más de once puntos de diferencia en relación a Sergio Massa y la participación de los votantes fue la segunda más baja en las últimas cuatro décadas: sólo 76 por ciento. El candidato peronista ganó sólo en tres provincias de las veinticuatro jurisdicciones del país e incluso en la provincia de Buenos Aires, el bastión del peronismo, Massa ganó por una diferencia muy estrecha: 50.73 por ciento de los votos contra 49.26 por ciento de Milei. Los resultados, pero también la ausencia de gran parte del electorado revelan cuán profundamente insatisfechos están los argentinos con el gobierno actual, especialmente en lo que tiene que ver con la economía. 

    ¿Cuál es su análisis de la situación que llevó a este nivel de insatisfacción y de la conducción de la política económica por parte del gobierno de Alberto Fernández hasta ahora?

    mercedes d’alessandro: Quedó en evidencia que no tuvo los resultados esperados. Hubo una serie de shocks externos que sucedieron durante la gestión, como la pandemia, la guerra entre Ucrania y Rusia (y su impacto sobre los precios internacionales) y, en Argentina, una sequía histórica que contrajo el saldo exportador y el PIB en niveles inéditos. Lo cierto es que no se puede pensar la economía sin esta secuencia, pero tampoco sirve justificarse: no se tomaron las medidas necesarias para contener los efectos de esta situación. Cuando hay crisis y no hay contención, no hay una mirada del Estado en términos redistributivos, se tiende a amplificar la desigualdad, ampliar el descontento social. Creo que es evidente que el equipo económico no estuvo a la altura de las necesidades de Argentina, y tampoco la conducción política, que son dos cosas muy pegadas. Hubo muchas diferencias en el gobierno. Hay al menos tres grupos que conforman el Frente de Todos (Unión por la Patria) que son el Kirchnerismo y La Cámpora, por un lado; Massa con el Frente Renovador y los apoyos que logró condensar en el último tiempo; y el Presidente y sus apoyos. No hubo acuerdo entre estos grupos durante gran parte del período de gobierno, hubo muchas idas y vueltas o acciones que no se llevaron adelante, y eso también fue parte del descontento social. 

    mfs: ¿Cómo calificaría esta crisis política interna en la coalición entre Fernández, Cristina y Massa?

    mDa: Es una crisis de liderazgo político. En los últimos meses, parecía que Massa era quien lideraba el proceso. Pero esto sucedió más tarde, cuando se convierte en candidato y empieza a tener un rol más protagónico. En el período anterior hay una crisis interna (y abierta) dentro del Frente. Desde las elecciones de medio término de hace 2 años hasta ahora se expresaron desacuerdos gigantescos, donde el Presidente y la Vicepresidenta no se hablaron durante mucho tiempo y donde se pedían renuncias de ministros, se iba uno y venía otro, no se sabía bien cuál era el horizonte. 

    Mientras tanto, la nación viene saliendo de cuatro años del Macrismo que fueron malos en términos económicos y terminaron con el endeudamiento récord de Argentina con el FMI. Hace mucho tiempo que el pueblo argentino tiene dificultad para llegar a fin de mes, para planificar su vida, y se perdió la posibilidad de soñar con un ascenso social, una mejor calidad de vida. Los jóvenes tienen muchas ilusiones ya frustradas, entonces creo que son problemas económicos, políticos y también la falta de un horizonte. 

    mfs: ¿Y cómo respondió la candidatura de Milei a esto?

    mDa: Creo que Milei pudo construir un horizonte y proponer algo, aunque ese horizonte no sea el ideal desde nuestra perspectiva. Por ejemplo, la promesa de la dolarización de la economía apela a una fantasía de que se pueden resolver los problemas que afectan  nuestro día a día: no tenemos plata, no llegamos al fin de mes y la inflación es muy alta—este año de más de 140 por ciento. Creo también que el rechazo a la casta, entendida como los políticos enriquecidos y alejados del mundo que mientras vos estás cerrado en tu casa sufriendo durante la pandemia ellos hacen una fiesta. Como la mujer del Presidente, que mientras se moría tu abuelita, ellos tenían vacunatorio VIP para sus amigos; mientras viajas en un tren apretado a las 6 de la mañana, ellos usan helicópteros y tienen choferes.

    Yo mismo he dicho en entrevistas, a mí también me molestan estas élites con este tal comportamiento pero no por una cuestión moral solamente, sino porque creo que se separan mucho de lo que pasa en la vida cotidiana de las personas, no muestran empatía con sus problemas. Entonces se pierden en peleas palaciegas y políticas desacertadas. Entonces Milei tiene dos cosas con las que logró empatizar, la fantasía de una economía que funcione y el resentimiento hacia los políticos, la casta.

    mfs: Bueno, ahora le toca gobernar. Ya en la semana posterior al domingo de las elecciones, los argentinos amanecieron con un aumento del 25 por ciento en los precios de los alimentos y 30 por ciento en los productos de limpieza en los comercios mayoristas. ¿Cómo pueden ser afectados los argentinos por las propuestas de la dolarización, la reducción del gasto público y del rol del Estado en la protección social? 

    mda: El 22 de noviembre, Milei concedió dos entrevistas en las que dijo que hay un riesgo muy alto de hiperinflación y para que eso no suceda hay que hacer un ajuste rápido y profundo en el Estado. 

    Este ajuste significa parar más de 2000 obras públicas en el país. Dijo que vamos a proceder a la privatización de algunas empresas en las que el Estado tiene participación y también los medios públicos. Dijo que va a hacer recortes en el Estado, sobre todo en la casta, los cargos altos, que va a sacar toda la estructura de chofer y seguridad a nadie que no lo necesite explícitamente, etc. Pero además, dijo que si no le dan la posibilidad de hacer todo esto vamos a tener hiperinflación y la mayoría del país caerá en pobreza. 

    Lo que pienso es que aún si Milei pudiera hacer todo esto que se plantea, vamos hacia una crisis muy profunda. No hay manera que con las medidas que propone no entremos en una recesión muy grande, una recesión que, por ahora, no tiene prevista ninguna medida de contención, sobre todo para los sectores más pobres. Una recesión sólo aumentará la pobreza.

    En todas las medidas que toma no menciona ni una sola que diga cómo va a contener el efecto en los trabajadores despedidos de las obras públicas, del Estado, en los precios que ya aumentaron. Ya hay un montón de gente que es más pobre hoy y mañana va a ser más pobre todavía. Y entonces llegó a la pregunta: ¿va a tener gobernabilidad para llevar adelante estas cuestiones? ¿Qué apoyo va a tener de las provincias, de las intendencias, en el congreso? 

    mfs: Respecto a la formación del Congreso, en la Cámara de Diputados, el partido de Massa, Unión por La Patria, tiene 109 representantes contra noventa y tres de Juntos por El Cambio, de Macri y Bullrich, y treinta y ocho de La Libertad Avanza, de Milei. Eso significa que los liberales son la mayoría en la cámara. En el Senado, Unión por La Patria tiene treinta y cuatro representantes, contra veinticuatro de Juntos por El Cambio y ocho de La Libertad Avanza. Los peronistas tienen una ajustada mayoría de representantes, sólo dos más que los liberales. ¿Qué podría significar esto?

    mda: Puesto así, los liberales son mayoría pero todavía no sabemos cómo se van a agrupar porque Juntos por El Cambio hoy está en crisis, la coalición tenía varios grupos y hoy solamente una porción de la Propuesta Republicana (PRO) apoyó a Milei. Entonces no sé si esto va a seguir siendo un bloque homogéneo. Y dentro del peronismo también, por ejemplo Florencio Randazzo, que fue ministro de Cristina Fernández de Kirchner en su momento, parece que va a jugar para Milei, es decir, este escenario que hoy vemos así pintado amarillo y celeste, yo esperaría ver como realmente se posiciona. Creo que va a depender de los primeros pasos del gobierno y como cada uno esté previendo el avance. Y obviamente el kirchnerismo más duro va a tener que oponer resistencia y defender las banderas históricas, no entregarlas tan fácilmente.

    mfs: ¿Y las otras fuerzas políticas que puedan ofrecer resistencia?

    mda: Está también la calle. Por un lado hay que ver las cuestiones institucionales y por otro cómo va a reaccionar la gente. Mucha gente sólo lo votó porque no dio más con la inflación, con su situación de vida, su sobreocupación sin poder llegar a fin de mes. En el verano en Argentina va a hacer mucho calor y va a haber cortes de energía, van a cambiar los ánimos, vamos a tener más desempleo y pobreza. Hay que ver como las calles resisten a esto. Uno de los que sueña con unirse a su equipo, Benegas Lynch, dijo que se revocaría la ley de aborto por ejemplo. ¿Va Milei a disponerse a tener 500 mil mujeres en la calle peleando por el aborto? ¿Va Milei a disponerse a tener cortadas las calles donde están los medios públicos? ¿Avanzarán con el juicio contra Cristina? ¿Va a abrir muchas batallas? Quizás le conviene hacerlo, distraer, dispersarnos en las luchas de resistir a distintas cosas mientras se privatiza el YPF (empresa argentina​ de energía en la que Estado argentino posee la mayoría), por ejemplo.

    También me queda una duda acerca de su equipo, de cómo se va a conformar. Macri quiere poner fichas propias, no tienen las mismas ideas. Entonces ¿Va Milei a continuar con los discursos de su campaña o va a moderarlos? Y la pregunta es, también, si va a poder implementarlos, porque decir “voy a frenar todas las obras públicas”, no es tan fácil de hacer esto, hay leyes que tienen que pasar por el Congreso.

    Llevar adelante sus políticas puede generar una crisis sin precedentes. Los escenarios son malos en general. Entiendo que todo esto lo diga una economista que es contraria a la agenda de Milei y que además fue funcionaria del Estado suena mal. No es que yo quiera ser apocalíptica, pero tenemos experiencias históricas en nuestro país y en Latinoamérica demuestran que estos programas económicos no dan un resultado positivo y nos hacen retroceder en muchos planos, desde lo productivo a lo simbólico y cultural.

    mfs: También quiero preguntarte sobre los partidos políticos y los movimientos sociales. El peronismo fue trágicamente derrotado en estas elecciones. ¿Qué significa la victoria de Milei en términos de lucha social y política partidista en Argentina? ¿Qué significa para el futuro del peronismo?

    mda: Sí, el peronismo vivió una derrota muy grande, pero también Juntos por El Cambio, entonces creo que la cuestión es más amplia que mirar solo al peronismo. Fracasaron los dos partidos en dar respuestas y fueran rechazados en las urnas, y creo que no se perdió por más diferencia porque realmente muchos sectores que en otro contexto votaban blanco, como la izquierda más tradicional, acompañaron a Massa, por el miedo del riesgo democratico que suponen a Milei y sobre todo Villarruel.5

    Pero creo que dentro del peronismo ya existía ese problema de liderazgo, las urnas terminaron de mostrar que la crisis de liderazgo fue total. Cristina tampoco venía haciendo un gran rol, no lograba resolver las cosas con el Presidente, ni con otros sectores del Frente de Todos, aún cuando gran parte de su organización política ocupaba lugares importantísimos, como la Administración Nacional de la Seguridad Social (ANSES), el Instituto Nacional de Servicios Sociales para Jubilados y Pensionados (PAMI), YPF, el Ministerio del Interior, entre otros, todos lugares centrales en la toma de decisiones, y ella misma en el Senado. De todos modos, el intento de magnicidio contra Cristina Kirchner, que sucedió el año pasado, fue un momento que transformó toda la escena y terminó de opacar esa figura de conducción.

    Creo que va a tener que pasar un poco de agua bajo el puente para ver cómo se configuran nuevos liderazgos y conducción política. Massa, de hecho, es un nombre joven con una carrera política muy larga e intensa, pero también lo es Axel Kicillof.6 Juan Grabois tuvo una batalla importante en las primarias de Unión por la Patria, expresando un sector que estaba disconforme con que Massa fuera candidato, y hay también que mirar las provincias donde se han consolidado líderes y gestiones interesantes. Creo que ahí se viene una época que a mí me interesa ver cómo la vamos a procesar y ojalá sea de una manera inteligente y creativa.

    mfs: ¿Puedes hablar un poco más sobre la crisis interna del gobierno y la relación con el resultado electoral?

    mda: Para mí es un gran tema que este gobierno no tuvo épica, no tuvo una narrativa. Cuando decía que Milei pudo poner un horizonte, es porque al peronismo le faltó horizonte. Intentó sostener sus bastiones clásicos pero los vació de contenido. Cuando por ejemplo en la pandemia no se abrían las escuelas, era necesario darle una contención narrativa a esto, además de soporte. Había mucho sufrimiento de los chicos, de las madres y de las maestras, había que explicarles más y mejor por qué estamos haciendo esto. Perdimos en ese momento la bandera de la educación.

    También hablamos mucho de democracia, y se cumplen cuarenta años de la democracia en Argentina en el 10 de diciembre, el día en que asume Milei junto a Villarruel, una dupla que niega nuestros 30 mil desaparecidos en la dictadura militar. Pero mirando hacia este lado, creo que la democracia en Argentina perdió la representatividad. Se convirtió en una democracia elitista en donde no hay mujeres, no hay sectores populares. En nuestro gobierno, las mujeres tuvimos los roles que conquistamos nosotras mismas, como la paridad para ingresar en las listas electivas, y así avanzar en el Congreso. Sin embargo, aún hay varias posiciones de poder, incluso en el gabinete ejecutivo y la corte suprema de justicia, en donde los varones dominan. Entonces no es una democracia en la que estemos todos. Hay muy pocos jóvenes en la política.

    mfs: ¿Tiene Milei una base electoral sólida o su elección parece más bien una elección desesperada por una alternativa al gobierno actual o a la “política tradicional”?

    mda: Por supuesto dentro de los votantes de Milei hay personas que están radicalizadas en la derecha, que tienen odio al Estado, que están a favor de mayor control y represión, que incluso son negacionistas de la dictadura militar en Argentina, que están en contra de los derechos de las mujeres y de las minorías. Pero no creo que este grupo sea mayoritario entre los votantes de Milei, sino que lo veo más como una expresión de la necesidad de rechazar a la casta política y la fantasía de mejorar las condiciones de vida y querer un cambio. 

    Esta es la segunda elección a la que se presenta Milei y se duplicó casi su base votante. Además, pierden los dos partidos que gobernaron en los últimos ocho años. Milei tampoco tiene mucha representación territorial, en las provincias, pero tenía una estrategia muy fuerte de redes sociales. Los jóvenes votaron masivamente por Milei y lo conocen por Tik-Tok. De alguna manera es un hombre que no tiene estructura política, o al menos no tiene la estructura política clásica, la tradicional. Obviamente ahora tiene la oportunidad de armar una fuerza, hoy tiene la oportunidad de que esta fuerza encuentre un espacio para crecer pero eso va a depender de cómo va a poder gobernar, de cuanto va a poder gobernar.

    mfs:  ¿Cómo puede organizarse la izquierda a partir de ahora?

    mda: Va a haber una crisis muy difícil en Argentina en que el Estado va a terminar mucho más chico y la sociedad va a terminar con un tejido social más roto, entonces cómo nos reagrupamos va a depender también de lo que podamos proyectar. Si nuestro proyecto es remontarnos hace 20 años, no sé si a la gente le atrae el pasado. El gran desafío que enfrenta hoy el peronismo es si quiere volverse mejor, si quiere poder mirar hacia adelante y hacer una oferta que entienda el presente y construya el futuro. Eso no significa ser una tábula rasa, hay que aprender del pasado, sin negarlo, pero también hay que tener en mente que gran parte de los votantes de Milei son jóvenes, y a los jóvenes no les estamos respondiendo porque no los estamos escuchando siquiera. Hay que empezar a dialogar con ellos. 

    No creo que haya una derechización de la sociedad argentina, creo que si hay una derecha que se expresa en todo el mundo con gran fuerza, pero creo que este núcleo duro de los votantes de Milei son muchas cosas, no es solamente esta derecha. América Latina está llena de estas expresiones, hemos tenido un golpe de estado en Bolivia, pasaron Bolsonaro en Brasil, Kast en Chile, y Rodolfo Hernández en Colombia. Creo que hoy la derecha está logrando capitalizar la frustración de gobiernos que no han podido satisfacer necesidades y generar un camino hacia adelante durante mucho tiempo. Para mí no es solo derecha o izquierda porque si no, no se explica que estén ahora Petro, Lula y Boric, por ejemplo. También está la cuestión de la pandemia, que expulsó a la mayoría de los oficialismos, la necesidad de cambio, la búsqueda de un “outsider” que represente algo distinto.

    mfs: El resultado aún es muy reciente, pero ¿qué cree que significa la victoria de Milei considerando la integración regional, y cómo sus declaraciones ofensivas hacia los líderes progresistas afectan las relaciones exteriores y comerciales de Argentina?

    mda: Con respecto al comercio internacional habrá que ver, porque una cosa es lo que dicen y después lo que hacen. Argentina tuvo relaciones diplomáticas buenas con Brasil, con el gobierno Bolsonaro, hay cosas que son de diplomacia que van más allá de un comentario efusivo. Ahora, sí creo que hay un realineamiento y que Milei tiene mucha más empatía por los Estados Unidos que por cualquier país que sea tildado de progresista, entonces vamos a tener que esperar para ver cómo serán estas relaciones, pero no es tan fácil romper relaciones comerciales con China o con Brasil, porque son socios comerciales importantísimos de Argentina.

    Y con respecto a las luchas feministas, yo estoy preocupada. Algunos compañeros dentro del peronismo piensan que se perdió porque nos pasamos de progresistas, pero creo que hay un problema mucho más estructural que esto, y que incluso muchas de estas agendas son las que permean la juventud y son las que nos traen muchos votos y mucha militancia.

    El feminismo ha sido fundamental para el peronismo con Alberto y Cristina. Alberto tuvo una campaña abiertamente feminista y el voto de las mujeres en la primera vuelta inclinó la lideranza de Sergio Massa. Pero tanto Milei cuanto su Vice, Villarruel, tienen un discurso muy antifeminista, muy misógino, están en contra el aborto legal, el matrimonio igualitario, y esto hace que también ocurran más manifestaciones de odio con respecto a estos temas. Creo que vamos a necesitar, nosotras, las feministas, mucho apoyo de las redes internacionales que hemos construido.

    Argentina es el país de Ni Una Menos7, es el país de la marea verde, y esto hoy puede estar corriendo riesgo, vamos a estar muy expuestas, incluso en el día a día. Las instituciones y políticas que armamos de género se van a cerrar o vaciar, todo el trabajo que pudimos hacer este tiempo a nivel nacional retrocede, se cierra la dirección de economía e igualdad de género que yo ayude a crear. Se cierra el Ministerio de las Mujeres, se cierran las oficinas de género en todas las dependencias del Estado nacional. 

    Además, sabemos que las crisis económicas afectan más a las mujeres, por su precaria inserción en el mercado laboral. Por esto mismo, creo que el proyecto de futuro tiene que incluir a las mujeres, a la militancia por el cambio climático, a la juventud y a la economía popular. Todos los ejes hoy desplazados por una agenda de derecha que se instaló en el debate público y nos ganó espacios.

  8. Milei’s Argentina

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    Esta entrevista se puede leer en español aquí.

    On December 10, the fortieth anniversary of Argentina’s redemocratization, Javier Milei was sworn in as the country’s new president. Milei—a far-right economist who calls himself an “anarcho-capitalist,” denies the existence of the military dictatorship, and claims to be a fan of both Donald Trump and Jair Bolsonaro—won the second round of the Argentine elections with almost 56 percent of the vote. Promising to dollarize the economy and cut public spending, he defeated Sergio Massa, current minister of finance and a representative of the Peronist party, Unión por La Patria. 

    Three political coalitions were at the core of the campaign trail. Javier Milei was the sole candidate for La Libertad Avanza, a far-right party. Juntos por El Cambio, the liberal right coalition led by former president Mauricio Macri (2015–2019), had two candidates in their primaries—Horacio Rodríguez Larreta, current chief of government of Buenos Aires, and Patricia Bullrich, deputy and former security minister under Macri. In the primaries of Unión por La Patria, headed by current president Alberto Fernández and vice president Cristina Kirchner, Massa defeated Juan Grabois, an activist and political leader representing the party’s left wing. 

    After losing in the first round in August, Bullrich, along with Macri, pledged support to Milei.1 Representing Unión por La Patria, Massa focused on consolidating the left and integrating the forces of Peronism and Kirchnerism.2 Milei’s victory and the defeat of the Peronist-Kirchnerist coalition has inaugurated a political transition. Milei appointed Luis Caputo as the minister of finance, a position he also held during Macri’s center-right administration. This perhaps surprising decision has made dollarization—Milei’s main proposal during the campaign trail—significantly less likely. Nonetheless, the economic and political fate of the country remains uncertain. 

    Mercedes D’Alessandro holds a PhD in Economics from the University of Buenos Aires and is a feminist activist in Latin America. As the first national director of finance, equality, and gender of the Ministry of Finance of Argentina (2020–2022), D’Alessandro led the implementation of the first national gender-based budget in the country.3 She also helped implement unprecedented economic policies that worked to reduce the pandemic’s effects for the working classes.4

    In the following interview, D’Alessandro discusses the current economic and political crisis, possibilities for the forthcoming Milei administration, and the future of Peronism.

    An interview with Mercedes D’Alessandro

    maria fernanda sikorski: Javier Milei won by over 11 percent in the second round, while the voter turnout was the second lowest it had been in the last four decades, at 76 percent. The Peronist candidate, Sergio Massa, won in only three of the twenty-four jurisdictions of the country; even in Buenos Aires, the bastion of Peronism, Massa won by a very narrow margin: 50.73 percent against 49.26 percent. The results demonstrate a profound dissatisfaction with the current government, particularly in regards to the economy.

    How has the current situation led to such a deep level of disaffection? And how do you view the economic policies of Alberto Fernández’s government? 

    Mercedes D’Alessandro: It’s clear that Fernández’s policies did not have the expected outcomes. There was a series of external shocks during his administration—the pandemic, the war between the Ukraine and Russia (and its impact on international prices), and an unprecedented drought in Argentina which reduced the export balance and GDP to new levels. While we can’t analyze the economy without considering these events, justifying the response isn’t useful either: the government did not take the necessary measures to contain the effects of this situation. When there is a crisis and the state fails to engage in redistributive measures, inequality and social unrest will rise. I believe that the economic team did not meet the needs of Argentina, and its political handling of the situation was poor. These two aspects were closely linked. 

    There were many conflicts in the Fernández government. At least three groups form the Frente de Todos (Unión por la Patria): Kirchnerism and La Cámpora; Massa with the Frente Renovador and the support he gathered during the last campaign; and President Fernández and his supporters. These groups failed to reach an agreement during long periods of governance—arguments and stalled actions partially led to the current social unrest. 

    MFS: How do you assess the domestic policy of the Fernández-Cristina-Massa coalition?

    MDA: We are in a crisis of political leadership. Over the last few months, as Massa emerged as the party’s candidate, it seemed that he wanted to lead the process. In the previous period, Frente de Todos (Unión por la Patria) had an open domestic crisis. From the midterms two years ago until now, the party has seen considerable disagreement, including periods when the president and the vice president did not talk to one another, when ministers resigned in quick succession, and there was no clear political horizon.

    Under Fernández, the nation was coming out of four years of Macrism with a struggling economy and a record amount of debt owed to the IMF. For a long time, the Argentine people have been unable to make ends meet, plan for the future, and work towards a better quality of life. The youth in particular are frustrated. This is an economic problem, a political problem, and represents the absence of a political horizon.

    MFS: How has Milei’s candidacy responded to this moment of crisis?

    MDA: I think Milei was able to build that horizon and propose a solution—though that solution may not be ideal from our point of view. For instance, the promise to dollarize the economy indulges in the fantasy of solving day-to-day problems: we don’t have any money, we can’t make ends meet and inflation is really high—over 140 percent this year. Milei also represents the rejection of the elite—wealthy politicians who are isolated from the real world, throwing parties while people confined at home are suffering from the pandemic. It’s the president’s wife who, while your grandma was dying, had a VIP vaccine station for her friends. While you’re packed like sardines in a train on your way to work at 6 am, they have helicopters and chauffeurs. 

    I have said such an elite demeanor bothers me, not simply as a moral issue, but also because it shows the elite don’t consider the problems of the majority. Instead, the politicians are tangled in palace intrigue and unwise policies. Milei took advantage of two major issues: the fantasy of an economy that works, and the resentment towards politicians and the elite classes. 

    MFS: The Milei government is now in power. In the week prior to the elections, Argentines woke up to a 25 percent increase in food prices and a 30 percent increase in cleaning products in wholesale commerce. How will Argentines be affected by the proposals of dollarization, public spending cuts, and the role of the state in social welfare? 

    MDA: On November 22, Milei gave two interviews in which he said there is a high risk of hyperinflation, and preventing it would require deep and quick adjustments to the state. 

    These adjustments mean halting more than 2,000 public works in the country. Milei also stated that he would privatize certain companies with state participation, such as public media; enact spending cuts to high-ranking positions; and fire all chauffeurs and security employees for those who do not explicitly need them. But he has also said that if he is not allowed to implement these policies, the country will experience hyperinflation, and the majority will fall into poverty.

    In my view, even if Milei does accomplish each of these these proposals, we are nevertheless headed for a very deep crisis. With the measures he is proposing, there is no way that we don’t enter a deep recession, one which, for now, does not have foreseeable containment measures, particularly for the poorest sectors. A recession will only increase poverty.

    From all the measures Milei is proposing, not a single one explains how he’ll contain the effects of firing workers from public works, the government, or manage the prices which have already increased. So I ask: will Milei have the adequate governance to tackle these issues? Will he receive support from the provinces, the municipalities, and Congress? 

    MFS: In the House of Representatives, Massa’s party, Unión por La Patria, has 109 seats; Macri and Bullrich’s party, Juntos por El Cambio, has ninety-three seats; and Milei’s party, La Libertad Avanza, only has thirty-eight seats. This means that the liberals—Juntos por El Cambio and La Libertad Avanza—have the majority in the House. In the Senate, Unión por La Patria has thirty-four representatives, while Juntos por El Cambio has twenty-four and La Libertad Avana has eight. Peronists have a tight majority of seats, barely two more than the liberals. What does this power distribution entail? 

    MDA: Put like that, the liberals are currently the majority, but we don’t know how long they’ll remain so because Juntos por El Cambio is in crisis. The coalition had several groups, but currently just a portion of Propuesta Republicana (PRO) supported Milei, so I don’t know whether they will continue as a homogeneous bloc. Within Peronism, Florencio Randazzo, minister during Cristina Fernández de Kirchner’s government, now seems to support Milei. This is the yellow and blue composition we are currently seeing, and I would wait to see how it settles. This will depend on the government’s first moves and what progress is being made. Obviously, the most extreme Kirchnerists will oppose and defend their historic banner, and not give in as easily.

    MFS: Can any other political forces offer resistance?

    MDA: There’s also the streets. On the one hand, we have institutional issues, on the other, the people’s reactions. Many people simply voted because they could not stand inflation any longer, because of their life situation, because they are concerned about not making ends meet. The summer in Argentina will be very hot, and there will be power outages. The mood will change, and we’ll see more unemployment and poverty. 

    We’ll see if the streets resist. Benegas Lynch, who hopes to be included in Milei’s administration, said he would revoke the right to abortion.5 Is Milei ready to have 500,000 women protesting in the streets to defend abortion rights? Are they going to continue with the trial against Cristina? How many battles will he spark? It will probably benefit Milei to distract us and scatter us between different struggles, so that we’re not paying attention when he privatizes the YPF (Argentina’s majority state-owned energy company), for instance.

    I have doubts about Milei’s team. Macri wants his own people, but Milei and Macri don’t share the same ideas. Will Milei insist on his campaign promises, or will he become more moderate? The question is whether he’ll even have the ability to implement these promises. Halting public works is not an easy thing to do—such a policy would need to be passed by Congress. 

    Carrying out these policies may generate an unprecedented crisis. The prospects are dim in general. I realize that hearing this from me, an economist against Milei’s agenda, does not sound reliable. I don’t mean to be apocalyptic, but historical experiences in our country, and in Latin America in general, have proven that these economic models have not yielded any positive results. They have made us go backwards on so many levels, from the productive to the symbolic to the cultural.

    MFS: Peronism was tragically defeated in these elections. What does Milei’s victory suggest for social struggle and party politics in Argentina? What does this mean for the future of Peronism?

    MDA: Yes, Peronism suffered a great defeat, but so did Juntos por El Cambio, so I think the issue is broader than the fall of Peronism. Both parties failed to provide answers and were rejected at the polls. The only reason that they didn’t lose by an even greater margin is because many voters who otherwise would have submitted a blank vote, such as those in the more traditional left, went with Massa. Milei, and especially Villarruel, represented a risk to democracy for them.6 

    While the leadership problem already existed within Peronism, the polls ultimately demonstrated that there is a total leadership crisis. Cristina was unable to manage working with the President and with other factions of Frente de Todos, even when many of her political allies were appointed to important roles in the National Administration for Social Security (ANSES), the National Institute of Social Services for Pensioners and Retirees (PAMI), the YPF, the Ministry of the Interior. These were all pivotal places for decision-making, and she herself was in the Senate. But the attempted assassination against her last year transformed the political landscape, ultimately hurting her leadership.

    We’ll need to see how the new leadership is configured. Massa is a young man with a long and very intense political career, but the same can be said of Axel Kicillof.7 Juan Grabois waged an important fight during the primaries of Unión por la Patria, expressing the bloc that was dissatisfied with Massa. We also need to see the consolidation of leadership in the provinces. Hopefully we’ll process this moment in an intelligent and creative manner.

    MFS: Could you elaborate on the internal crisis of the government and its relation to the election results?

    MDA: The Fernández government had no epic narrative. Milei could establish a political horizon because Peronism lacked one. Peronists tried to maintain their classic bastions, but those bastions were void of content. When, for example, schools couldn’t open during the pandemic, they offered no narrative argument for that decision. Kids, mothers, and teachers alike suffered a lot, and we failed to explain the reasons for closing the schools. We lost the banner of education during that time.

    We talk a lot about democracy. This year, the tenth of December marks the fortieth anniversary of Argentina as a democracy. On this same day, Milei and Villaruel take office, a duo who deny that 30,000 of us disappeared during the military dictatorship. But in considering this, I think that democracy in Argentina has lost representation. It has become an elitist democracy where there are no women, there are no popular sectors. In the Fernández government, women had roles we achieved ourselves, such as gender parity to be eligible candidates, as well as to have more representation in Congress. But men dominate many positions of power, especially in the executive cabinet and in the Supreme Court. So this is not a democracy that welcomes all. There are very few young people in politics.

    MFS: Does Milei have a solid electoral base? Or is his victory a rather desperate alternative to the current government or “traditional politics”?

    MDA: There are of course right-wing radicals among Milei’s voters who hate the state, support more control and repression, deny the military dictatorship in Argentina, and oppose the rights of women and of minorities. But I don’t think they represent the majority of those who voted for him. I rather see his victory as an demonstration of the desire to reject the elite political class and the fantasy to improve quality of life.

    This is Milei’s second election, and his voter base almost doubled. Meanwhile, the two ruling parties of the last eight years lost. Milei does not have much support in the provinces, but he had a stronger strategy in social networks. Youth voted massively for Milei; they know him through Tik Tok. This man who does not have a political structure, or at least in the classic sense, now has the opportunity to establish a force to strengthen. But this will depend on the extent to which he’ll be able to govern. 

    MFS: How can the left organize from here onwards?

    MDA: Argentina is headed towards a very tough crisis. The state will weaken, society’s social fabric will become more and more frayed, and our ability to regroup will be dependent on what we can project for the future. If our project is to go back twenty years, I don’t know whether the past will appeal to people. The great challenge to Peronism today is making a proposal to understand the present and build the future. This does not mean starting from scratch—we certainly must learn from the past, undeniably—but we also need to consider that the great majority of Milei’s voters are young people, and we are not responding to young people because we are not even listening to them. We need to start establishing a conversation with them. 

    I don’t think Argentine society is shifting towards the right, but I do think the right is expressing itself more loudly. I think the hard core of Milei’s voters is formed by many things, not only by the right. Latin America is full of these right-wing expressions—we had a coup in Bolivia, Bolsonaro in Brazil, Kast in Chile, and Rodolfo Hernández in Colombia. I think the right is capitalizing on the frustration with governments that have been unable to satisfy people’s needs and generate a change towards the future. To me, it is not only the right or the left, because otherwise we couldn’t explain the existence of Petro, Lula and Boric, for example. We also must consider the pandemic, which discarded the majority of state norms, the need for change, and the pursuit of an outsider who represents something different.

    MFS: Although the result is still very fresh, what does Milei’s victory mean for regional integration? How will his offensive statements towards progressive leaders affect foreign and commercial relations with Argentina?

    MDA: One thing is what you say and another is what you do. We’ll need to wait and see what happens to international trade. Argentina had good diplomatic relations with Brazil under the Bolsonaro administration—there are some things in diplomacy which go beyond a gushing commentary. Now, I do think there is a realignment; Milei is much more empathetic to the United States than to any other country deemed progressive, so we’ll see how those relations evolve. But it’s not easy to break commercial relations with China or with Brazil, because these are very important commercial partners for Argentina.

    I am concerned about feminist struggles. Some colleagues in Peronism think we are losing the battle because we are far too progressive, but I think there is a more structural problem. These agendas are popular amongst the youth, and the youth bring lots of votes and supporters.

    Feminism has been pivotal for Peronism with Alberto Fernández and Cristina. Alberto had an openly feminist campaign; the women’s vote in the first round tilted the leadership of Sergio Massa. Both Milei and his vice president, Villarruel, espoused very antifeminist, misogynistic discourse. They oppose legal abortion and gay marriage, inciting more hate speech around these issues. I think we, feminists, are going to need a lot of support from the international networks we’ve worked with. 

    Argentina is the country of the Ni Una Menos (Not One Less) movement8, it is the country of the green wave. These may be at risk, and women are going to be very exposed, even on a day-to-day basis. The gender institutions and the gender policies we have built are going to be halted, and any work we may have achieved at the national level will be reversed. They will close the national directorate for the economy and gender equality which I helped create. They will also close the Ministry for Women, as well as gender offices in every level of the national government.

    We know that economic crises affect women more, due to their poor position in the labor market. As a result, I believe that future projects need to involve women, climate activists, the youth, and the popular sectors. Right now, this whole axis is being displaced by a right-wing agenda that has begun to dominate the public debate. 

  9. Rules of Restraint

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    The majority of countries in the world have some sort of fiscal rule: an institutional constraint on fiscal policies to discourage government overspending and reduce political influence on state expenditure. But these rules have their own politics. As Clara Zanon Brenck and Pedro Romero Marques write in their recent Phenomenal World essay:

    Fiscal policy can help resume economic activity and maintain social stability—a precondition and ultimate policy aim of a social democratic pact. But when rigid and ostensibly apolitical fiscal rules moralize the public spending debate in favor of sound finance, responding to changing economic conditions with blunt compliance mechanisms, such a path cannot be pursued.

    In October, Zanon Brenck and Romero Marques were joined by Max Krahé for a Phenomenal World panel on the politics of fiscal rules in Brazil, Germany, and the European Union. Romero Marques is the research coordinator at MADE, the research center on macroeconomics of inequalities at the University of Sao Paolo. He has a PhD in Economics from the University of Sao Paulo, and his research focuses on the distributive aspects of contemporary Brazilian financialization, as well as the international monetary system. Zanon Brenck is an associate at MADE and holds a PhD in Economics from the New School. Her work focuses on inequality, debt dynamics, and taxation. Krahé is the Research Director of the Dezernat Zukunft, which he co-founded in 2018, and received his PhD in political economy from Yale University.

    The conversation, moderated by Alexandros Kentikelenis, analyzes the evolution of fiscal management over the past two decades, in the aftermath of the Eurozone debt crisis and the resurgence of the Workers’ Party ( the Partido dos Trabalhadores, or PT) in Brazil. The panelists discuss the increasingly legal nature of fiscal rules, their relationship to party politics, and prospects for reform, demonstrating how technical debates hold major consequences for the working classes. A recording of the event can be viewed here. This transcript has been edited for length and clarity.

    A discussion on fiscal rules

    Alexandros Kentikelenis: The fiscal rule is a long-lasting constraint on fiscal policies through limits on budgetary aggregates, like limits to the fiscal deficit. The IMF, the world’s guardian of fiscal orthodoxy, says that “fiscal rules typically aim to correct government incentives to overspend and to ensure fiscal responsibility and debt sustainability.” We can recall limits of 60 percent debt-to-GDP ratio or 3 percent deficit limits that many countries did not comply with in the EU. Fiscal rules are prevalent across the world.

    Fiscal rules are intended to provide incentives for governments not to overspend—especially during good times—but they also have key drawbacks. Strict fiscal rules may reduce the scope of governments to adjust policy in response to unexpected shocks like economic crises. Equally importantly, they may limit available spending necessary for making economies more resilient, not least, to the risks posed by climate change. In Latin America, evidence shows that public investment is the category of spending that is most adversely affected by fiscal rules. For these reasons, understanding the political economy of fiscal rules is more important than ever. Fiscal rules form part of the infrastructure of contemporary capitalism, both in the global North and in the global South. 

    Max, can you speak to the role of fiscal rules in Germany?

    Max Krahé: The history of Germany’s fiscal rules begins with debate in the late 1980s and early 1990s. Germany used to have a golden fiscal rule that said the state had to balance the budget. However, the state was allowed to enter into a deficit through the volume of investment spending. The Constitutional Court was frustrated with this, because nobody could delineate what precisely was an investment and what wasn’t. In 1989, the court ruled that the state had to provide a more precise definition. While this led to some reforms, there were no significant changes. The Maastricht Treaty process occurred in parallel to this domestic German contestation, linking notions of German reunification and European Monetary integration. The Maastricht process introduced quantitative fiscal rules—the famous 3 percent extent limit on annual deficit and the 60 percent on debt-to-GDP-ratio. As history moved forward, and frustration with the German fiscal rules bubbled up again, another ruling by the German Constitutional Court later expressed the court’s displeasure with government policy. In the early 2000s, both Germany and France broke the 3 percent limit or deficit. In response, European fiscal rules were reformed to allow a temporary breach of the 3 percent rule, quantified as a 0.5 percent limit on your structural deficit. 

    In 2006-2007, a commission was instituted to examine German federalism, in particular, how the fiscal relationship works within the federation. The European reform of 2005 had introduced the possibility of a structural deficit limit. In 2008, the Schuldenbremse (“debt brake”) federal constitutional reforms—instituted ahead of the 2009 elections—marked a decisive moment for Germany’s debt/deficit protocols. During the financial crisis of 2008, the conservatives agreed to a fiscal stimulus on the condition that the state harmonized them with the quantitatively precise European rules, as opposed to the loose golden rule of the Constitutional Court. 

    This moment resulted in the shortened versions of the debt brake, which are still in place in the Constitution, making them incredibly difficult to repeal. In Germany, you need a two-thirds majority, requiring the conservatives, namely the CDU and CSU. The German debt brake is a limit on the deficit that completely ignores debt levels. It has no interest in the debt stock, only in the annual deficit, and it limits the annual deficit to a structural deficit of 0.35 percent of GDP. There’s also a cyclical component: if you’re in a recession, you can spend a little bit more, and if the economy’s doing well, you have to tighten your ship a little bit. 

    The operationalization of that is a complicated story. Today, European rules have a preventive arm, to prevent countries from getting into trouble in the first place. The centerpiece of that is the so-called medium-term objective. This tells the state to run their fiscal policy so that they have a 0.5 percent of GDP structural deficit. If you’re kind of getting out of hand, this kicks in. This means you have to have a deficit of plain deficits, not cyclically adjusted, that is less than 3 percent, and your debt-to-GDP ratio should be lower than 60 percent. If you violate those rules, an excessive deficit procedure (EDF) will be initiated. Unlike the European rules, the German rules are immediately binding—the German government can immediately be brought in front of the Constitutional Court for breaking the rules. It’s a hard quantitative limit with a legally-binding nature. Breaking the European rules initiates a long and complicated procedure, which involves the political voting of states. 

    AK: Are reforms necessary? If so, what are their prospects? 

    MK: In the 2000s and 2010s, the Eurozone suffered from slack, high unemployment, very low interest rates, and very low inflation. All the macroeconomic indicators indicated that there was plenty of spare capacity that was not being used. Monetary policy was at the zero lower bounds, or the effective lower bound. Even quantitative easing couldn’t push the economy to full employment, and instead have side effects on asset prices such as housing. There was a clear case for more fiscal stimulus, but it kept running into the fiscal rules. 

    While the high-level structure of Germany’s fiscal rules is written in the Constitution, the cyclical component is government by decree—it’s easier to change than the Constitution. We at Dezernat Zukunft looked to see if there’s space for improvement. The way that it currently works is that you have a projection of potential output, and you have a projection of what you expect actual GDP to be. If your projected, actual GDP is significantly below your projected potential output, you have a so-called output gap—that generates additional spending space. Potential output, however, is unobservable, and the calculations involve a high degree of discretion. Depending on the macroeconomic situation, reform ideas can yield significant additional spending space. We’re currently in conversation with the government which has decided to look into research, and we’re also engaged in bureaucratic trench warfare with the relevant civil servants and the relevant ministries that do these calculations. We’re trying to convince them that there’s a better way of doing this.

    The European level also has a reform effort around the fiscal rules. The European Commission has tabled a proposal, which would put a new tool in the fiscal rules toolbox. This new tool, the debt sustainability analysis (DSA), originally came from the IMF. It’s worth highlighting the extended timeframe of the reform effort. DSAs are meant to work with spending plans ranging from four to seven years, put forward by member states. The DSA begins at the end of those spending plans. At the end of the timeframe, your debt-to-GDP ratios—projected from fourteen to seventeen years—must be lower. Those projections are going to be extremely assumption-driven. 

    How do we fix these reforms? The current rules are very strict, but killing this reform effort means that when they come back next year it might be so politically untenable, that this could be a reset button and space could be created for a better version of the reform. If that’s not possible, then at least prevent the worst—Germany’s currently pushing for quantitative benchmark, meaning if you’re not meeting the targets then automatic tightening takes place

    We also look at the interest rate assumptions inside the DSA given the long time horizon. Market-based interest rate assumptions bring a risk of doom loops. Let’s say Italy’s expected interest rates look bad, and there’s a DSA. The DSA based on bad interest rates gives even worse results, and the markets look at those results, and drive up spreads even more. To prevent this kind of doom loop, you should not use market interest rates in your assumptions for the DSA. 

    The framework for DSAs needs to evolve. The current European rules are determined by a so-called output gap working group, staffed by civil servants from various national ministries. Extremely important discussions happen there—they are very technical, but highly politically consequential. It is important to replace that body with something more political and more transparent. These discussions need to take place out in the open, not in the shadows. They must be held publicly and own up to their politics.

    AK: Pedro and Clara, can you speak about the debate around Brazil’s fiscal rules?

    pedro romero marques: Since 2016, Brazil’s fiscal rule prohibited the government’s spending to increase in real terms for twenty years, effectively freezing state spending. Of course, some economists and specialists argued that the state’s finances would not be able to keep up with the state activity with this rule, but the consensus around the difficulty regarding the spending cap only came in 2020 during the pandemic, when it was clear that the spending cap wouldn’t be able to accomodate emergency expenditures. It was already expected that the winner of the 2022 election would propose an alternative—now that responsibility is with Lula’s Workers’ Party.

    How did Brazil adopt this strict rule? The origins of the spending cap are around 2013–2014 when fiscal surpluses became fiscal deficits in Brazil. The fiscal responsibility law of 2000—not a constitutional rule—was established to complement the inflation-targeting regime in Brazil. It required the government to define fiscal results targets each year, leading to some predictability in fiscal policy. The PT came to power in 2003. It’s important to note that the fiscal responsibility rule was enforced during the whole period of PT rule, with no difficulty in complying until 2013. There were fiscal surpluses, and the debt-to-GDP ratio had fallen. But in 2013, fiscal deficits led to a sharp increase in the debt-to-GDP ratio in Brazil. This mobilized an austerity discourse, motivated by right-wing opposition and traditional media that accused the PT government of being irresponsible and fiscally negligent, despite the trajectory of the debt-GDP-ratio in the decade prior. This discourse was powerful in Brazil; it was a key factor in the changes to Brazil’s political system. It was also responsible for the spending cap approval.

    Brazil’s debt-to-GDP ratio and Federal Govt borrowing requirement (Dec 2001 to June 2023)

    Source: Brazilian Central Bank Data. *The PSBR series is displayed on the secondary axis. It shows the accumulated flux during the year.

    The economic dynamics that caused this pro-austerity surge are very interesting. Looking at the literature, we can see that distributive questions related to the PT’s growth model were important. In the 2000s, Brazil was part of the “Pink Tide” in Latin America, in which left-wing governments profited from international and domestic favorable conditions to increase government expansion in social policy to reduce poverty and inequality levels. During this period, it was common that social spending, both in real terms and share of GDP, increased. The problem began when the economy started to decelerate around 2011. Consequently, the falling revenues and the increasing trajectory of social spending compromised the Fiscal Responsibility Law around 2014–2015.

    The trajectory of social spending in Brazil is resilient. This is related to several redistributive mechanisms placed in the Brazilian constitution that allow government spending to increase with policies like the increase of the minimum wage value. The PT’s redistributive model was structurally placed in practice, making it difficult to stop only through politics or policy action. 

    The actions taken to remove the fiscal structure of the Workers’ Party came in two ways. First, the reaction came politically and President Dilma Rousseff, Lula’s successor, was removed from power in 2016, due to charges of committing fiscal crimes. Secondly, the spending cap ultimately stopped the process of increasing social spending. From 2016 to 2022, a constitutional rule of the spending cap was the fiscal rule in Brazil. In 2022, Lula was reelected over Bolsonaro with a very small margin. He won with a large coalition, but also with a Congress not politically aligned. Under these conditions, Lula is preparing the new fiscal rule. 

    CLARA ZANON BRENCk: Now, the PT needs to meet certain conditions in order to gain trust from their coalition that they won’t “break the country” again. This discourse around the PT almost “breaking the country” is why we have debt caps in the first place, and the new PT government is tasked with proposing an alternative.

    The PT’s new proposed rule is very restrictive. It’s very dependent on tax revenues and contradicts Lula’s promises for greater social spending. The need for social spending and investment will not fit into the new rule. The new rule makes the government dependent on the private sector to foster growth for greater revenues, which will then allow for social spending. 

    The proposed rule allows real growth that establishes a minimum of real primary expenditures growth of 0.6 percent. It connects the real growth of expenditures to the real growth of revenues, allowing expenditures to grow 70 percent of the growth rate of revenues of the previous year, if the government meets the target. Just like the fiscal responsibility law, the government needs to establish a target for the primary result. However, this target is a bit more flexible, because it has a range that can be + or – 0.25 percent. It’s already a surplus rule because you’re limiting 70 percent of expenditure, but there’s a counter-cyclical mechanism that requires the 70 percent to be within a range of 0.6 percent and 2.5 percent. So if the economy is growing too much, and if your revenues grew 5 percent in the previous year, 70 percent of that would be 3.5 percent, but then you have a cap of 2.5 percent. If the economy is growing rapidly, you cannot increase your expenditures rapidly. 

    During a crisis, in which revenues decrease, there’s a limit of 0.6 percent. You don’t need to cut expenditures, you can grow 0.6 percent in real terms. Consequently, it guarantees a minimum but it also has a limit that makes this counter-cyclical movement. If you don’t meet the primary target and you’re less than -0.5 percent of your target, then some things must change. Wages of public servants cannot increase. If the primary targets are not met, you also have to grow 50 percent of the revenue growth while also staying between 0.6 percent and 2.5 percent. This is a complicated rule, but it allows real growth, it has a counter-cyclical movement, and more importantly, it establishes a minimum for investment. In Latin America, investment is the first to be cut when we cut expenditures. 

    The expenditures of this rule are much lower than the expenditures of the previous PT governments. The government has much less space, and the rule reduces the size of the state related to GDP over time, because it restricts expenditure growth to 70 percent of revenue growth. Even in the more optimistic case of GDP growth, the government is shrinking. The counter-cyclical rule limits the growth of the state. 

    The size of the State under the Sustainable Fiscal Regime

    This is a complicated situation—we will not be able to sustain this rule in the long term, and if we do, we will have to change public spending. The rule needs to change to give a minimum for spending for health and education, or it will force us to cut government benefits such as Bolsa Familia. The minimum wage is linked to government expenditures, because many benefits are tied to the minimum wage. If you increase the minimum wage, public expenditures also increase. If you increase revenues, you also have a rule that connects health and education to those revenues. However, the cap doesn’t allow the overall spending to increase. In the end, investments will be left out, despite the budgetary minimum. You can cut investment if revenues are less than expected. 

    This new rule is still a very strong austerity rule, but the debate around it was limited. The functioning of the rule was barely discussed, because the consensus was that we needed a rule that restricts government spending in some way. The PT, a government that increases spending and thinks about the importance of government spending in the economy, is actually the one proposing this rule. This shows you the strength of the pro-austerity discourse. 

    Growth is left to the market, because public spending will not be enough for investment beyond social spending. To finish with a quote from our Phenomenal World essay, “The fiscal rules claimed to insulate fiscal policy from political influence, but this is its own form of politics. So it constrains and reduces the space for the working class whenever in power to influence fiscal policy and pursue distribution redistribution.” 

    AK: What is so concerning is how fiscal rules exit the state’s fiscal architecture and enter its legal architecture by being constitutionalized. They fundamentally transform the political economy and the ways in which different politicians as well as civil society can engage with these rules. As Max described, the part of the Schuldenbremse that relates to the structural deficit cannot be touched. We can only play with how we understand the cyclical component. The constitutional dynamic yields a set of pressures and politics of its own. 

    In principle, I agree with Max’s recommendations on transparency and high-level politics, but doesn’t transparency also yield unwanted politics? Of course, we remember the discourse around the lazy Southern Europeans and the hard-working Germans and Dutch people subsidizing them. If we have this high-level political approach, won’t this invite that sort of politics, on which political parties build their entire raison d’etre? 

    MK: The politics of discussing fiscal roles within Europe has been ugly in the past. Things got very, very ugly in the 2000s, and over the 2010s they improved a bit. It took a lot of time, longer than in the Anglosphere. But eventually, the European discussion has accepted that this form of austerity is destructive. By 2019, we had reached a place where the old fiscal rules were viewed quite skeptically, even in countries like Germany and the Netherlands. During Covid-19, both German rules and European rules were suspended very quickly. Moreover, significant stimulus packages, which, as in the US, led to a far faster exit macroeconomically from the crisis. Politics, especially in the early 2010s, were really ugly, but discussing them made it better over time. 

    The politics of not discussing the fiscal rules are arguably worse, especially since the rules as they are currently being proposed will not succeed, especially if they’re too tight. There are two outcomes. The first is a terrible rule that would wreck Southern European economies that attempt to stick to them, and in turn create huge resentment in the South. The second option is that these countries fail to abide by these rules, out of realism. In the German and Dutch political sphere, people will say that “no one is sticking to the rules,” this will cause political troubles in the North. 

    Going forward, I do think that the 2020s look much better for fiscal rules in Europe than the 2010s. I attribute this largely to a pivot in the French position. In terms of public debate, the French have been in favor of more reasonable fiscal rules. However, when push came to shove in the 2010s, they didn’t stick up for this position, because they didn’t really need it and it would have been politically costly. I think in the 2020s, the French are very keen on fundamentally refurbishing the nuclear fleet. That’s precisely the kind of thing that’s very effective, safe, and able to be quickly financed through debt. These are extremely long-lived assets that allow for higher leverage. If the French really pushed for allowing higher leverage, they should have that financial conversation publicly and build trust. Hopefully, we will get better fiscal rules through this process. 

    AK: Pedro and Clara, you ended by arguing that fiscal politics limit the ability of governments to spend on the working class, ultimately preventing them from living up to the fiscal promises they make during their electoral campaigns. If cuts need to happen, could they be made to disproportionately affect those with higher incomes, who are able to purchase health services or educational services on private markets, thus protecting those of lower socioeconomic status? If the pie of social spending has to remain the same in real terms, is there distributional space? 

    PRM: You make an interesting point on the changing nature from the economic to the legal character of fiscal rules. I want to make two observations. In Brazil, this legal side was diminishing. Dilma’s government was punished with regards to its budget management, and then the constitutional law in the spending cap that halted our capacity to conduct public policy.

    The new fiscal rule is not constitutional, and its punishment is not legal but economic. Both fiscal rules and social expenditure interact with the constitution and are at stake. This new rule is a policy option by the government to endorse social assistance programs, such as the Bolsa Familia, while entering a trade-off, which means that they will probably have to reduce provisions related to public health and education, as well as pensions and social security. This is related to the Brazilian state’s new form of social policy— opting for social assistance and income transfer policy, rather than public health and education in a way that would remind us of the welfare state. This would punish the poorest classes—social assistance can take people out of extreme poverty, they can remain poor. Importantly, Brazil needs free, universal, and well-funded public health and education. To me and Clara, adapting the size of social spending in the new rule will lead to a significant reduction in these provisions.

    AK: There’s an assumption around some degree of coordination between fiscal policy, administered by ministries of finance, and monetary policy, dictated independently by central banks. Can fiscal rules work in tandem with monetary orthodoxy, and if so, to what extent? Can we reform fiscal rules without reforming the central bank? 

    Also, why is Brazil so worried about deficit and debt? Brazilian debt is mostly denominated in Reals, and its domestic debt. Is the concern pure ideology or does it make economic sense? Is the government just terrified of having to go back to the IMF? 

    CZB: The answers are related. The origin of the fiscal rules in Brazil is the inflation-targeting regime. We had a period with very high inflation rates in the 1990s, and to control that, we had a change in our currency and system that ended with what we call the macroeconomic tripod. This is the inflation-targeting regime on the monetary side, and the fiscal responsibility law on the fiscal side. There’s the idea that you must control government spending to control inflation. 

    At the beginning of this year, we had nominal interest rates at 13.75 percent, in real terms around 8 percent. The central bank maintained that rate as they waited for the fiscal rule. We have a difficult situation where the inflation-targeting regime holds monetary dominance over the fiscal policy.

    If you reduce interest rates to control debt, you change the whole macroeconomic tripod. This would move the exchange rate and affect inflation—our biggest fear in Brazil given our past experiences. Consequently, all the discourse revolves around controlling inflation. The fear of growing debt was employed during Dilma’s presidency for her impeachment. As an ideological discourse, there was no actual evidence our debt was exploding and that we were going to careen off into high inflation. The Brazilian state is quite well positioned economically regarding rampant high inflation, but inflation is used ideologically. 

    AK: Max, I also wonder if you can speak to the coordination between monetary and fiscal policy. Given the current policy priorities around the green transition, what are the immediate next steps for strengthening the EU’s fiscal capacity? One option, of course, is reforming the fiscal rules. Another option could be to establish a permanent fiscal capacity through some kind of permanent investment fund that may be modeled after the Recovery and Resilience Fund (RRF). 

    MK: In a well-functioning macroeconomic regime, you would absolutely coordinate fiscal and monetary policies to achieve desired macroeconomic outcomes. In the European context, the European Central Bank (ECB) has actually been a fairly cooperative player. They’ve put in place the “transmission protection instrument”—a protective umbrella for states like Italy, whose interest rates might increase through spreads over Germany—which I’d argue is a key component for improving the European macrofinancial architecture. The ECB has said that as long as you meet certain criteria, including abiding by the fiscal rule, they will buy your bonds. The weight is then on sticking to the rules, which can put states in a difficult position—either you chop your leg off in order to abide by the rules and get the ECB protection, or be at the mercy of the bond markets without ECB protection. The operative issue that’s preventing reasonable cooperation between monetary and fiscal in Europe right now is the fiscal rules. It’s not the obstructive or excessive conservatism on the ground. 

    I don’t see the potential for a permanent RRF in Germany—both the conservatives and one of the three coalition parties aren’t willing to touch it before 2027. In Italy, a major beneficiary of the RRF, the spending is not fast enough—a result of lack of administrative capacity, which itself owes to a state of near-permanent austerity. I wouldn’t put too much weight on the RRF or RRF replacement. Fiscal rules reform is a much more promising space due to the highly technical nature of its structure. If you get the right players to support Green New Deal financing, you can make projections linked to Green New Deal spending, and so on. I am much more observant of the fiscal rules space. 

  10. Swap Structure

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    Have interest rate swaps (IRS) become the modern repurchase agreements (repos)? In the latest essay in the ongoing series on Market Microstructures, I argue that shifts in the liquidity market have fundamentally altered the function of IRS in the global financial system. Today, IRS are used to fill funding gaps and compensate for failures in the repo market. 

    The following interview with Ralph Axel, an interest rate strategist at Bank of America (BofA), builds on this analysis, providing insights into the fixed-income market. Extensive experience in sales and trading desks has given Axel a thorough understanding of market structures, models, and risks. Below, we delve into the market structure of interest swaps, its connection with the wholesale money market, and regulator responses. 

    An interview with Ralph Axel

    ELHAM Saeidinezhad: Bank of America, which is a big player in the fixed-income market, is known for being one of the largest dealers in IRS—financial contracts in which parties exchange fixed interest payments with floating ones based on a notional amount. They create markets in IRS and sell them to participants such as asset managers and primary dealers, and they also make markets in fixed-income futures, and Treasury securities.

    Let’s examine the market structure for IRS. What is the dominant force that is fundamentally altering the market structure?

    Ralph axel:  In recent years, the Commodities Futures Trading Commission (CFTC) has discussed introducing new regulatory rules. These are aimed at examining the creation of new products for trading and defining capital requirements for swap dealers and major swap participants. The discussions are ongoing, with the CFTC working to ensure that new products benefit the market, while also considering the capital requirements of those involved in transactions. The CFTC aims to promote efficient markets while strengthening participant’s balance sheets.

    ES: These rules are separate from those introduced after the 2007-08 Great Financial Crisis (GFC), which were focused on increasing transparency in the market in the aftermath of GFC. Regulators have now shifted their attention.

    RA: Since the financial crisis of 2008, increasing transparency has been a crucial goal. In order to achieve this, regulators have implemented margin rules for high-quality collateral and clearing rules to push trades towards central counterparties (CCPs). These measures help create visibility, which was sorely lacking in 2008. It took a lot of work to know where IRS were located, who was facing whom, and what collateral types were used. Clearing and margin requirements have been at the forefront of regulators’ efforts to improve risk reporting, measurement, and tracking.

    Recently, regulatory focus has shifted towards strengthening swap participants’ balance sheets through higher capital requirements and closer examination of new products that may be considered swaps.

    ES: As someone who follows the markets closely, do you think these regulations are necessary?

    RA: These additional swap regulations aim to address issues in the repo market, albeit indirectly. I will later explain how the IRS and repo markets are connected. Going back to your question on regulation, in the repo market, current regulatory proposals that aim to push for repo clearing seem unnecessary.  In the swap market, the existing mandates introduced in Dodd-Frank and Basel III have already led to a smooth transition into swap clearing. Clearing swaps involves directly or indirectly submitting the swaps transactions to a Derivatives Clearing Organization (“DCO”) registered with the CFTC. In the government fixed-income market, for instance, the Government Securities Clearing Corporation (GSCC) has played a key role in this, handling government securities swaps with ease. In general, this process has been successful and has led to the development of relatively robust swap markets.

    ES: What is driving regulators to impose more restrictions on the IRS market? I am specifically thinking about capital requirements and new product rules that the industry has criticized.

    RA: The new regulatory interventions, although happening in the swap market, are not intended so much to fix the IRS structure but to stabilize the repo market. The repo market is a crucial wholesale funding market that helps to move cash around the financial system. The swap market plays a major role in enabling the flow of funds through the repo market. Therefore, regulators pay close attention to the happenings in this market.

    In the repo market, regulators, particularly the US Securities and Exchange Commission (SEC), advocate for the central clearing of the repo and US Treasuries to promote transparency. Similarly, the CFTC also pushes for increased swap clearing to enhance transparency in the IRS market. In addition to these mandates, the CFTC has implemented new capital requirements to improve the risk management and risk-absorbing capacity of the swap dealers and major swap participants. These regulatory developments positively impact both the repo and IRS markets.

    ES: You mentioned that swaps are crucial infrastructures supporting the repo market. The relationship between wholesale funding and swap markets is fundamental to the functioning of the financial system. Strangely, this connection is often disregarded in academic discussions. How do swaps make it easier to facilitate wholesale funding?

    RA: It is possible to observe a connection between the IRS market and the repo market by examining the business model of major swap participants. These entities, including asset managers and primary dealers, frequently use repos to raise funds and manage liquidity. In fact, asset managers constitute almost a quarter of the participating firms in the repo market, while primary dealers account for nearly 50 percent of the participation. These entities use interest rate-sensitive fixed-income securities, such as US Treasuries, as high-quality collateral to obtain cash in the repo market.

    Asset managers need to access funding through fixed-income securities. However, their funding depends on these securities’ price, which exposes them to price risks. To mitigate this risk, IRS can be used as a hedging solution. In the meantime, the repo market determines the funding costs for these firms, which are represented by the interest rates. At times, the repo market may offer unattractive or high rates, which interest rate swaps can mitigate. This process, known as interest rate management, enables asset managers to exchange these rates for more desirable and attractive rates. It is important to note that the conditions of the IRS market can impact the functioning of the repo market.

    But again, from an operational standpoint, it is striking how well the wholesale funding functions when you look at repo markets. 

    ES: The repo market is currently functioning well. However, as you previously mentioned, asset managers could use swaps to manage their funding costs if the repo market were to offer unattractive rates. This is a crucial function of swaps in the funding market.

    RA: An IRS is a financial instrument that helps entities manage their interest payments, including those related to activities in the repo market. Additionally, swaps help asset managers manage cash flow. For instance, asset managers can use IRS if they need to adjust their portfolio’s duration. Duration refers to the average time it takes to receive all of a bond’s cash flows, weighted by the present value of each cash flow. It is the payment-weighted point in time at which an investor can expect to regain their original investment. Liquid swap markets partially exist because swaps provide these essential funding-centric services.

    ES: Interestingly, IRS are often overlooked as a funding strategy. 

    RA: Yes, non-practitioners sometimes do not recognize the IRS market’s full potential. Typically, swaps are used either to hedge or speculate, which are their more classic functions. Hedging is an important because it can be used by both financial and non-financial corporate entities. For instance, if IBM plans to issue a bond within the next year and wants to avoid a situation where interest rates rise by 100 basis points, it can hedge today using the swaps market. This enables companies to plan more precisely for the future, leading to a smoother business cycle, even outside financial markets.

    ES: Should we expect spillover effects between the repo/US Treasuries and swaps markets due to regulatory developments such as clearing mandates?

    RA:  It is important to note that anything that limits the accessibility of high-quality collateral, including US Treasuries, for entities such as asset managers will increase the cost of repo funding. This increase in cost will also have implications in the IRS market. This is because the cost of managing the interest rate risks associated with these fundings will also increase. Similarly, any factor that increases the hedging costs will also cause an increase in the funding costs. Therefore, it is crucial to be meticulous when creating clearing/regulatory rules that affect the expenses of derivatives and repos. The functioning of the swaps and repo market are closely related.

    ES: The costs from the swap market, where interest rate management takes place, spill over to the repo market, where access to funding is provided, and vice versa. Regarding the new regulations on clearing mandates, are practitioners concerned about the costs that the restrictions may bring?

    RA: A more important question that needs to be addressed—who bears the costs? Specifically, when it comes to clearing, regulators must clarify who is responsible for bearing the costs. Are clearing house owners or capital owners on the hook? Additionally, how is the cost distributed among the participants? These are important questions.

    ES: Our focus has been on asset managers, but the Silicon Valley Bank (SVB) failure shows that banks also extensively use IRS. Can you explain banks’ applications for swaps?

    RA: The banking system holds approximately 17 trillion in deposits and frequently adjusts its fixed and floating rate exposures on both the asset and liability sides. Banks may opt for a fixed-to-floating rate swap through the IRS market to match their overall balance sheet interest rate exposure more effectively. The system is functioning well as these entities can trade swaps in a relatively liquid manner without encountering significant difficulties in determining market pricing, executing trades, determining trade size, and exiting positions without disrupting the markets.

    During the pandemic in 2020, swaps functioned properly while the cash market (i.e., the US Treasury market) needed the intervention of the Fed. Because people could not exit the market smoothly and functionally, the Fed had to buy many Treasuries. The current swap market is not in an emergency that requires fixing. However, it should be improved, simplified, and made fairer over time.

    ES: During the pandemic, you mentioned that investors faced difficulty in selling US Treasury holdings while they more smoothly unwound their swap positions. Although financial theories offer various ways for investors to exit swap contracts, what are the most commonly used methods in practice?

    RA: If a client has a swaps position initiated a few months or years ago, they usually approach a “swap dealer.” Like the BofA trading desk, these dealers could be large or smaller swaps dealers. These dealers have standardized pricing methods, crucial for clearing and enabling clients to exit their positions. The client would provide their swap’s payment schedule and maturity date, and the dealers would make a market in the swap. The client could enter or exit the swap, just like trading any other financial asset.

    ES: Earlier, you mentioned that the swap market was resilient during the pandemic because participants could smoothly enter or exit swap positions. Liquidity is a service offered by swap dealers such as BofA, vital in making the market for interest rate swaps. Can you tell us more about their business model and whether there will be any significant changes to their transactions or model due to regulatory changes in the near future?

    RA: We have trading desks for various financial instruments like IRS, repos, treasury securities, mortgages, corporate investments, high yield, commodities, and currencies. Each desk has a different business model. Generally, businesses require a certain amount of capital to operate, which can generate a certain return, making it attractive or unattractive. Sometimes, a business may not have a high return on equity, but it’s still important to keep it running as it provides a vital side service to other attractive businesses. Decision are made not only based on a business’s its return on equity but also on how it fits into the overall capital market operations. Swaps and cleared products are crucial to meet the demands of our client base. Interest rate risk and sensitivity are inherent in the fixed-income market, which makes swap dealers a fundamental part of the financial market infrastructure.

    ES: Standardization is a significant side effect of clearing mandates. Does standardization make the market-making more accessible, attractive, or challenging?

    RA: Standardization is very important. The value of any market lies in how usefully it facilitates trade. You can trade less standardized assets. But as you move away from the standardized products, the markets become less deep. And the pricing becomes more volatile, and liquidity deteriorates. We see that in many markets—Treasuries, mortgages, etc.—that started standardization before the swaps market. That is why important markets, such as mortgage-backed securities (MBS) and Treasury markets, are highly standardized.

    As you move away from standardized products, markets become less deep, and your pricing and liquidity are lower. This is why the IRS market is also growing highly standardized. We only have a financial system because the market can fulfill a need. We have a swaps market because so many entities have financial risk and the need to manage interest rates. They need to exchange fixed payments for floating payments. Everyone benefits if you have a IRS market that exchanges fixed for floating rate payments. But as it becomes more specialized, the number of people open to using the market declines—it becomes less valuable.

    ES: I want us to focus on the hedging momentarily. Some practitioners differentiate between hedging and risk management. In academic and policy discussions, they are often used interchangeably. Are there any differences between these two terms?

     RA: Risk management is a broader concept than hedging. Usually, when hedging, there are very specific instruments whose risk profile is changed. Let’s say a bank has a mortgage-backed security sensitive to interest rates. That’s a specific interest rate exposure, so they might trade a swap specifically geared towards reducing the interest rate exposure on that mortgage-backed security. Risk management more broadly incorporates more generic ideas. 

    Borrowing costs are a function of the overall interest rate level and its specific credit profile. As a corporation borrowing money in capital markets doesn’t know precisely what its borrowing costs will be next year, it can’t perfectly hedge. Likewise, as its credit profile can change in a year, it can’t really hedge—it can only hedge the approximate overall level of interest rates. Risk management tends to be performed by corporations that wants to manage overall exposure to borrowing costs by locking in their costs through a fixed tenure swap. That’s different from hedging the interest rate risk on a specific security.

    ES: I am also curious about the role of CPPs in all of this, including hedging. A CCP becomes a counterparty to trades with clients that are different market participants. Recent reports from the CFTC display concern for the behavioral diversity among CCP clients—hedge funds, asset managers, insurance companies, pension funds, and so on. Should we be concerned about this?

     RA: I think the more, the merrier. If you only had banks in the swap market, they would likely all go the same way—if they are generally making thirty-year fixed-rate loans, they all have similar risk exposure. They will all want to go in the same direction in the swap market to offset it. That would create a lopsided demand; you wouldn’t have many players or entities wanting to take the other side of that trade. When banks, hedge funds, insurance companies, asset managers, and corporations take different risks in different directions, the chances of a balanced market is much greater. Diverse entities spread risks, which is extremely important.

    ES: We started our conversation by discussing regulations and collateral (margin) rules. I want us to go return to that point. One of the things that the CFTC is trying to understand is whether there is a causal relationship between margin requirements and the liquidity of the IRS market—whether margin requirements create funding issues in the market. What do you think about this relationship between margin requirement and liquidity?

     RA: We have seen some problems with margin requirements. In the UK, pension funds struggled to meet margin requirements because the market had huge moves. The prices of assets declined significantly, and they were asked to put more margin in to protect against default. Suddenly, these funds were not able to make their margins. It’s thus important to have somewhat predictable margin requirements. If volatility picks up suddenly, you have margin requirements that were not projected or planned. That can be disruptive; if you can’t meet your margin requirements, you must unwind your position in the clearing house.

    That forced liquidation, sometimes called fire sales, is a risk. You can have caused liquidation problems for other reasons, like suddenly needing to meet liabilities. We want to minimize fire sales because they significantly impact the prices and liquidated assets and carry chain effects. We must figure out ways to reduce the risk of fire sales and forced liquidation by making margining more transparent and predictable. It’s very tough to do that because margin requirements move with volatility, but it is important to make margining less disruptive.

    ES: Finally, I want to discuss the hierarchy of financial instruments, where cash is at the top. CFTC reports mention that market practitioners prefer to hold cash as collateral and seem pretty puzzled about it. Is this the case, and if so, why?

     RA: Cash doesn’t have price risk, and everything else does. If you post treasuries and their price decreases, you might need to post more. That’s the main problem with non-cash—it has this exposure that can make it less valuable. The problem is that to get cash, you often have to borrow it; entities rarely have lots of cash sitting around because it’s an expensive thing to do. So, practitioners face a tough choice on the right collateral to use.

    Treasury bills have minimal price risk, while thirty-year bonds have a lot of price risk. Then you might have other types of securities, like government bonds issued by Germany or Canada, and so on. These might have the same property of moneyness as T bills or cash. It is undoubtedly essential to have some flexibility in the collateral types used. 

    One of the great things about insurance companies in the United States is that they naturally hold a lot of corporate bonds of various types. It’s beneficial that many insurance companies have collateral arrangements that allow them to post those corporate bonds. If something happens with a margin call for an insurance company, they typically will be able to adjust the margin to, let’s say, an increased margin requirement because they’ll post more of the assets that they already own, they don’t have to go out and find these assets to post.