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Prof. Mario Blejer: The ECB is doing everything backwards

Professor Mario Blejer has seen a few things in his professional life. The man who is considered the Argentinean president's leading candidate for the finance portfolio, was the deputy governor of the Central Bank of Argentina and then governor at the beginning of the 2000s, the years of severe economic crisis in the country. Before that, he was for 21 years a senior advisor to the World Bank and the International Monetary Fund.

Blejer, who will be a guest at the 2011 Globes Israel Business Conference, is chairman of a mortgage bank in Argentina and sits on the boards of several companies. He is an observant Jew who took BA and MA degrees at the Hebrew University of Jerusalem and also taught there. In his well-appointed office on Reconquista Street in the heart of Buenos Aires, he presents a penetrating analysis of the global economic situation, different from that of his counterparts in the Old World.

Mario Blejer, what's your projection for the global economy in 2012?

"There is a high risk that we will slide into a crisis. We are not yet in a situation of real crisis. There are three main risks that, should they materialize, will mean that we will find ourselves in a full-blown crisis. The first is the slowdown in growth in the US. The second is the slowdown in growth in the developing economies, and the third is of course the crisis in Europe."

What is surprising in your analysis is your warning about the developing world. What's happening in that quarter?

"The especially large developing countries, like China and Brazil, grew at very high rates even after the crisis of 2008-2009, and this growth is what helped us to emerge from the previous crisis. The problem is that today there is a slowdown in these countries too, and there's a chance that it could be very severe. It's true that there's a consensus around the view that a degree of slowdown is necessary in order to prevent inflationary pressures, and there's a need for contractionary monetary and fiscal policies, but because economics is not an exact science, there is a risk that, when you act in the direction of contraction, things go too far, and the slowdown is actually greater than planned, and that's dangerous.

"It's also important to remember that these countries are dependent on demand in the developed countries, and so there's a risk that they will fall into crisis."

How do you explain the renewed slowdown in these countries?

"There was a deliberate policy aimed at preventing inflationary pressures and overheating, but there were places where it wasn't possible to achieve a soft landing. For example, in Brazil, the policy was too tight and they overshot, and it now has quite serious problems. For quite a long time, Brazil's real interest rate was actually the highest in the world, at 6-7 percent, which caused a complete halt in industrial production, much more than they wanted. It greatly harmed growth, because it's a very important component. There has now been a change in direction: the Central Bank of Brazil has already cut the interest rate several times.