Pro economists criticize Caputo's announcement on easing dollar loan rules

Economists Guido Sandleris and Hernán Lacunza, both associated with the Pro party, have strongly criticized Economy Minister Luis Caputo's recent announcement to relax rules on dollar-denominated loans. They contend that the measure, intended to boost economic activity by increasing available financing, is a "bad idea" and risks undermining crucial financial stability.

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I have supported many of the measures that Javier Milei's economic team has taken in these two and a half years. However, I believe that the flexibilization of the rules for granting dollar loans announced yesterday is a bad idea.

Sandleris, former president of the Central Bank under Mauricio Macri, expressed concern that the flexibilization of lending rules erodes a hard-won consensus on strict prudential regulation of the dollar-based banking system. He argued that this regulation was instrumental in helping Argentina navigate currency crises since 2001 without a banking collapse, a lesson learned at a high cost.

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That prudential regulation allowed Argentina to go through all the currency crises since 2001 without suffering a banking crisis. It was not a coincidence, it was the result of having learned a very costly lesson.

While acknowledging the government's aim to expand credit, Sandleris pointed out that the authorized loan amount might be limited, but the precedent set by the policy is significant. He warned against weakening a regulatory framework that has functioned for over two decades simply to address a short-term need for credit expansion.

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We already did that in the late '90s. We ended up with asymmetric pesification. Let's not make the same mistakes.

Lacunza, a former Minister of Finance, echoed these concerns, recalling a similar policy in the late 1990s that ultimately led to asymmetric pesification. He cautioned against repeating past mistakes, emphasizing the risk of dollar appreciation if companies earning pesos take on dollar debt. Lacunza advocated for developing a peso-based credit market for domestic earners to avoid potential future crises.

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And when does that happen? Immediately, no. But in a couple of years, I don't know. Probably no one will be there.