Por: Facundo Iglesias

This article was originally published in May 2024 for Revista Anfibia. It recounts economist Federico Sturzenegger’s long political trajectory, scrutinizing the crucial moments in Argentine history when he held office in two administrations that ended in deep economic crisis. Now, the economist is in charge of a new, tailor-made ministry.

Cover art by María Elzigaray Estrada

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Federico Sturzenegger was banging his fist on the monochrome monitor in his office at the Economy Ministry. What he saw was not what he expected. In May 2001, President Fernando De La Rúa launched the Megacanje, a financial operation to postpone debt maturities for three years. For a few months, it had seemed possible, but now, it was becoming clear that it wasn’t: the markets didn’t believe them.

“The country risk should be going down, but it’s going up,” said Sturzenegger, Secretary of Economic Policy at the time, staring at the number on the screen.

At the beginning of that August, the Emerging Markets Bonds Index, referred to as “country risk” in Argentina, started rising again. The indicator measures the chances of a country defaulting on payments. It appears constantly on television, accompanied by music conveying catastrophe. 

Two years later, auditor Moisés Resnick Brenner proved that the Megacanje cost the country around US$55 million. It achieved little more than pushing back the debt’s due date. The judiciary also looked into whether or not the government forced Argentina to carry out the operation in “an abusive manner” to achieve an “undue profit” for the banks involved: Banco Francés, Banco Galicia, Credit Suisse First Boston, Grupo Santander Central Hispano, HSBC, J. P. Morgan and Salomon Smith Barney­. 

Struzenegger was prosecuted in 2013 and acquitted in 2016. 

But let’s go back to 2001. Sturzenegger was 35 and had a PhD in economics from MIT. In March 2001, then-Economy Minister Ricardo López Murphy called him to join De la Rúa’s government. Sturzenegger said he felt his role was like “being in the cockpit of an airplane whose engines start to fail”. And fail, they did. López Murphy resigned on March 20. Sturzenegger followed suit on November 20. The president resigned exactly one month later, after declaring a state of emergency and deploying security forces to put down nationwide protests. Thirty nine civilians were killed.

After resigning from De la Rúa’s government, he approached the PRO and held a string of positions: president of the Bank of the City of Buenos Aires (2008-2013), national deputy (2013-2015), and president of the Central Bank (2015-2018). When Milei became president, he joined as his star advisor. If the economy is the main driver of history, Sturzenegger is a leading figure in Argentina’s recent past — and its present.

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Federico Sturzenegger was born in 1966 in Rufino, an agricultural town of 20,000 in Santa Fe province. His father, Adolfo Sturzenegger, is a member of the National Academy of Economic Sciences with ties to the UCR party.

Federico is, above all, an academic. He is the second most cited economist in the country after Eduardo Levy Yeyati, with whom he has written several texts. At MIT, he was a disciple of Rudi Dornbusch, a German liberal economist who supported dollarization in emerging countries. However, a colleague said there is something the Argentine did not learn from Dornbusch: “Sturzenegger sees things in a very theoretical way, with a theory that descends very quickly to reality.” As a guide to analyze reality and propose policies, he takes “the most stylized theory, with assumptions as abstract as possible and far from practicalities, institutions and history,” the source continues. Throughout his political career, he has seen institutions — especially trade unions — as a hindrance, and theoretical models, as something to impose on reality.

Before 2001 and the collapse of convertibilidad, the system that pegged the peso to the U.S. dollar, he was convinced that what would bring stability to the country was a fixed exchange rate: a hard peg. Years after the convertibilidad model imploded and De la Rúa fled the presidential palace in a helicopter, Sturzenegger told anyone who would listen that he had completely changed his mind: he now believed in floating exchange rate regimes. He even wrote papers detailing the new empirical evidence he had found on the subject.

In one of his books, he defines himself as an “incorrigible optimist.” Those words are not so different from descriptors offered by interviewees: workaholic, Swiss discipline, fundamentalist, hard-headed, and naïve.

“In a sense, he is pretty dogmatic, with a dose of messianism,” said an economist who knows him pretty well. “He says: ‘I have the solution for Argentina’s crisis, I have it all thought out, I have the correct theoretical model’. As president of the Central Bank, he became the most incarnate version of that.”

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In 2002 he resumed his role as dean of Torcuato Di Tella University’s business school. In 2005, he was named a “Young Global Leader” at the World Economic Forum in Davos. He was already getting closer to a new right-wing political party: Propuesta Republicana (PRO), led by Mauricio Macri.

In 2008 Macri became mayor of Buenos Aires and called Sturzenegger to preside over the Banco Ciudad, which he did until October 9, 2013. Milestones of his administration include mass layoffs, a fierce fight against the bank workers’ union, allegations of preferential loans to PRO members (later dismissed by the courts), the construction of new headquarters designed by British architect Norman Foster, and the installation of the first branch of the bank in a non-urbanized community, Villa Soldati.

In 2013, as national deputy, Sturzenegger started going to the media, despite some of his advisors suggesting he keep quiet because he was not a candidate for anything. There’s a regret from that period that haunts him to this day: he voted for the July 2014 pension moratorium law, which allowed 500,000 people to access a pension. He often tells his students of Advanced Macroeconomics in the San Andrés University economics masters program it was a mistake that contributed to making the pension system “unsustainable.”

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Sturzenegger loves film. He famously decorated his Central Bank office with Star Wars figurines: one person who visited frequently to argue with him describes seeing “life-size helmets and gear of Star Wars characters.” But Sturzenegger also takes film courses with his wife, Josefina Roullet. His bachelor pad was a set location for the Juan José Campanella film, La Hija de la Novia (The Daughter of the Bride).

His book Yo no me quiero ir (I don’t want to leave) is littered with cinematographic references: Indiana Jones, Mujer Bonita, Wall Street, Goodbye Lenin!, and Gladiator. He compares Cristina Fernández de Kirchner’s administration with evil forces at play in the Lord of the Rings. “Who will be our Gandalf and our Frodo?” he wondered.

As well as papers and conference presentations, Sturzenegger writes poetry. One of his verses, unearthed by Página12 newspaper in 2011, talks of an old flame, or perhaps something even more ethereal, whom he cannot forget because “everything starts with you and ends with you.” Perhaps he’s talking about himself. 

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On December 17, 2015, Sturzenegger felt confident. Macri had taken office as president a week earlier, and as head of the Central Bank, Sturzenegger had fulfilled one of PRO’s main campaign promises: lifting currency controls, the cepo. He raised the purchase limit to US$2 million per month and removed all restrictions. The dollar rose to AR$13.93. Sturzenegger celebrated the measure at a lunch with the Central Bank’s board of directors. But one of the guests pointed out that the devaluation would immediately translate into higher prices, a phenomenon known as pass-through.

“Pass-through is a myth,” he answered.

In 2016, the Central Bank’s numbers were stark. December’s monthly inflation, at 4%, doubled compared with November. The annual rate was 40%, about 15 points higher than in 2015. In 2017, inflation eased, but a crisis was brewing that would erupt in 2018 and lead to Sturzenegger’s expulsion from the government.

The Central Bank president’s strategy to contain prices was called inflation targeting, which primarily uses interest rates, rather than exchange rates or money supply, as the main anchor. On January 13, 2016, Treasury and Finance Minister Alfonso Prat Gay announced goals for the entire presidential term. “This year, inflation will range between 20% and 25%,” he said. Ultimately, it would be double that.

Macri aimed to decentralize power held by economy ministers, moving away from so-called “super-ministers,” and reshuffled his economic cabinet. In 2016, responsibilities shifted to the Ministries of Treasury and Finance, Production, Agribusiness, Energy and Mining, Labor, Employment and Social Security, and Transport. In 2017, he went further, splitting Treasury and Finance into two separate ministries, all supervised by Chief of Staff Marcos Peña. A Central Bank official remarked: “It was a tangle of internal conflicts. A government full of chiefs, where many officials felt capable of being Economy Ministers or Central Bankers.”

Sturzenegger got caught in the crossfire. This explains much of his failure. But not all of it.

Even insiders weren’t convinced of the inflation targeting scheme: in an October 2017 paper, Columbia University professor Guillermo Calvo, who knew Sturzenegger well, said combating chronic price increases with interest rates would “only temporarily alleviate inflation.”

Yet Sturzenegger persisted. He organized press conferences, wrote reports, and attended congresses. In the October 2017 presentation of the monetary policy report, he doubled down on the floating exchange rate regime with inflation targets. He set an inflation target of 10% for 2018. Instead, it reached 47.6%, the highest in 27 years.

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One of the few times Sturzenegger had to do something he didn’t believe in was recorded for posterity. Politicians and economists know the date — December 28, 2017 — by the notorious shorthand, 28D.

A Casa Rosada press conference: journalists were notified the night before. Spokespersons were nervous and the government representatives were late. There was an uneasy tension in the room. They sat down facing the press: from left to right, Sturzenegger, Cabinet Chief Marcos Peña, Treasury Secretary Luis “Toto” Caputo. One journalist muttered to another that he looked like an indecisive squib while they waited.

The announcement was short: the goal for inflation the following year was increasing from 10% to 15%. The Central Bank would have to cut interest rates to achieve that.

Sturzenegger was against the move. First, it would show that the independence of the Central Bank trumpeted by Macri’s government didn’t exist. Second, an expansionary monetary policy would accelerate inflation. The markets were already looking askance at the government.

In private, the then-Central Bank head said they twisted his arm, that Macri seemed to understand and agree with him but changed his mind when it counted. Sturzenegger later blamed Peña and the president’s inner circle. He would also blame Caputo, who is now Argentina’s Economy Minister.

“If I were in his shoes, I would present my irrevocable resignation,” said a libertarian economist who was beginning to make media rounds, Javier Milei. In an interview with El Cronista, he said the announcement had dynamited Sturzenegger’s reputation.

Less than four months later, on April 25, 2019, the rumblings of the government’s first financial crisis began. J.P. Morgan decided to shed US$800 million worth of Lebac, a short-term bond from the Central Bank, and buy dollars. One of the largest financial institutions in the world, J.P. Morgan had voluntarily taken on US$2.3 billion in debt and had a good relationship with the Macri administration — several representatives had worked in its offices. Hence the bewilderment at the Central Bank.

On that day alone, the Central Bank sold US$1.5 billion to contain the exchange rate, but it wasn’t enough. It was the drop of blood that started a frenzy. Within a week, the dollar went from AR$20 to AR$25. Before the end of the year, it had reached AR$38. 

Days later, Macri got a call from the Caputo which he described in his book, Primer Tiempo. “It’s getting more complicated, I don’t think we’ll be able to get more money,” Caputo told him. On May 8, the president ordered the Treasury Secretary to clinch an agreement with the International Monetary Fund, the 22nd the country would sign with the lender of last resort.

Ten days later, in what seemed like a respite for the exchange rate, Sturzenegger invited to his office a group of young economists, all men, all active on Twitter. There, he gave them the official rundown of what was looking like a catastrophe. Christian Buteler, one of the guests, tweeted extensively about mortgage loans known as UVA by their Spanish initials. Uva, in Spanish, means grape. Since they were tied to inflation, they had shot up during the crisis. The loans being a Sturzenegger creation, he welcomed them with a generous plate of the fruit.

The newcomers amused themselves with the Star Wars model ships that adorned the office. From his armchair, Sturzenegger gave his explanations for everything: he laid bare the government infighting, saying he did not believe in the agreement with the IMF. He denied that the international reserve scarcity or the debt overhang were a problem, and promised that he would invite women next time. But there would be no next time.

“Our model doesn’t contemplate a dollar at AR$25 pesos,” he said.

That was almost exactly the value blinking on display boards across Buenos Aires City: AR$25.05.

That same day, the IMF announced that Sturzenegger’s stated plan of inflation goals hadn’t worked and began to consider a different plan: curbing inflation with a plan that contemplated the amount of money already in circulation. On June 8, Sturzenegger announced a new agreement with the IMF alongside Dujovne — an agreement that included a US$ 50 billion-dollar loan, the largest in the Fund’s 70-year history.

That first iteration of the agreement barred the Central Bank from using the loan money to contain the dollar exchange rate. According to Macri’s book, Sturzenegger believed that the agreement was more than enough, but Caputo did not agree with its limitations. “In two or three days they will come after you again, Fede,” Caputo told him in a meeting in Olivos. “They know you have no weapons to counter it.”

Two days after that clash, the dollar jumped from AR$26 to AR$28. For Macri, that tipped the scales in Caputo’s favor. “Federico, beaten and with no credibility, had to resign,” wrote the former president. 

“Macri’s Macro, the meandering road to stability and growth” is the name of Sturzenegger’s paper analyzing the failure of the Macri administration. His hypothesis: after initial success, all of the government’s economic policies failed due to its “fiscal excesses.”

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Encouraged by Karina Milei, her brother’s old acquaintances created the Institute for Growth in 2022 to produce reports and bill proposals for a potential future government. Javier Milei referred to this in the media as his “shadow cabinet” before taking office. The team was charting their ideal course for dollarization. A source from the institute claims that, in a Zoom call three weeks before the presidential runoff, José Rolandi (who would become number two of the Chief of Cabinet, first, and director of YPF, later) said Federico Sturzenegger would be in charge of making the goals of LLA and the PRO compatible.

But Sturzenegger almost completely took over the wheel.

Since 2021, Sturzenegger had fed economic ideas to Patricia Bullrich’s economic team. “We’re from a political ecosystem, not a technical one,” said a top leader of the Security Minister’s political circle. He said the economist’s mission was to undertake a state reform that, in its original version, had 3,000 articles, decrees, and repeals. The reform of the Argentine state was also a thorough reform of the PRO party.

So far, barely a third of those proposals have been made public: 644 in the DNU that Milei announced 10 days after taking office and 366 in the first version of the Ley Bases.

It sounded like Sturzenegger could be up for the Economy Minister’s seat in the months before Milei’s inauguration, but that went to Caputo — an old adversary with whom he never reconciled. In February, a former LLA member said he did not see Sturzenegger’s hand in the government’s economic policy decisions. “Federico is not there. Knowing Caputo, I don’t think he will accept Federico questioning economic policy.”

Sturzenegger was first offered to head a “Transitory Unit for the Deregulation of the Economy.” But he turned it down and became a voluntary advisor to the president. According to one PRO leader, Sturzenegger does not care about legalities and positions — causing practical problems because, as an informal advisor, he couldn’t sign anything.

Although his public appearances are increasingly vitriolic, there’s a common thread between the Sturzenegger who in 2013 recounted how he heroically docked the wages of striking  Banco Ciudad employees and the one who proposed to “impoverish these interest groups and drain them of resources” in 2024 when he spoke about unions.

After the fanfare of the announcement that the Milei’s decree had taken effect, a no-holds-barred negotiation with the friendly opposition commenced regarding the Ley Bases. LLA and PRO said the economist was not receptive to suggested changes to the text. 

When it was suggested that he omit a controversial change tying pensions to inflation, Sturzenegger was clear: “We will take it out, but we are going to starve the retirees.” The day before Milei’s inauguration, a libertarian representative warned that eliminating solidarity contributions to unions would open a hotbed of conflict with workers. Sturzenegger said he would consider it — but in the first version of the Ley Bases, he eliminated them anyway.

Part of Sturzenegger’s work consisted of receiving demands from different business sectors. In a recent interview on C5N, economist Emmanuel Álvarez Agis revealed that deregulatory aspects of the regime for large investments of the Ley Bases were already circulating as demands in the official offices during former president Alberto Fernández’s administration.

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The approved version of the Ley Bases has many more authors and fewer articles than the original: 232 with more contributions from the Presidency, agreed with governors and opposition lawmakers.

At its core, the new law remains the brainchild of Sturzenegger and his team. It declared four state-owned companies as “subject to privatization,” deducts pay from protesting workers, increases employee trial periods from six months to a year. It imposes a contentious large investment regime which, according to several analysts, goes beyond what companies were demanding. 

Federico Sturzenegger was sworn in by President Javier Milei as the head of the newly-created Ministry of Deregulation and Transformation of the State in a brief ceremony in early July, amid market turbulence fueled by uncertainty over the country’s economic performance.

The decree creating the new ministry also lists its 27 functions. These will include developing projects related to “economic deregulation and state reform,” structural reforms aimed at creating private employment and “ending privileges,” and adapting the organization of state affairs in “accordance with the process of reducing public expenditure.” 

It seems that everything begins, and ends, with Sturzenegger.

This piece originally appeared in Anfibia magazine. Read the original here.