With inflation consolidated above 100%, it is clear that Argentina needs to start a path towards price stability. It’s fanciful to expect that to happen under this government. It lacks political leadership, credibility and horizons. It will be up to the next one. But be careful: not all roads lead to Rome. It will not be achieved by blowing everything up, nor by appealing to extreme and dangerous recipes such as a new convertibility or dollarization. We are convinced that it is possible lower inflation with a macroeconomic stabilization plan that combines fiscal, monetary, exchange rate and income policies in a precise and coordinated way. But this plan needs to be implemented in a new institutional framework that provides clear signals to society that the low and stable inflation target can be maintained over time.
In this sense, it seems essential to build consensus around law reforming the statute of the Central Bank.
There are three aspects that we believe are important to change.
He First it’s the mandate. The current establishes that the purpose of the BCRA is to promote “monetary stability, financial stability, employment and economic development with social equity”. A mandate as broad as it is elusive, with which any measure implemented can be justified. Our proposal is to change it to one with three specific and priority objectives: to seek 1) low and stable inflation, 2) financial stability and 3) normal functioning of external payments. The first two are fairly conventional; almost the raison d’être of all the central banks in the world. We see no controversy here. The third is less common; refers to the requirement that the BCRA not neglect balance of payments developments. In Creole: that avoid excessive exchange arrears which lead to unsustainable external deficits and interest rates that encourage capital inflows are also unsustainable. The reason is simple: both phenomena tend to generate currency crises and, given our extensive experience in the field, their prevention is a desirable goal. The heterodoxy of the proposal is not great: it is the same mandate that regulates the work of the central bank of Chile, an exemplary case.
He second One aspect we propose to reform is the ability to finance the Treasury. The current limits are very lax and help maintain fiscal indiscipline. We don’t want to get into the debate here about the factors that cause inflation – whether it’s a multicausal phenomenon; whether it is due to monetary or real factors or to the distributive struggle, we will only say that it is impossible to dissociate chronic inflation from monetary financing. Given Argentina’s extensive experience in this matter, we believe it necessary to limit the BCRA’s power to finance the Treasury only to exceptional circumstances and in a limited and precise manner.
He third The aspect that we believe it is essential to change is the appointment and dismissal of the members of the BCRA board of directors. The current organic statute establishes that they must be appointed by the Executive with the agreement of the Senate, with a six-year term, although the Executive can appoint them to commission indefinitely and also remove them at its discretion, with the simple preventive process request for advice, not binding for a Senate commission. With a board of directors within the reach of a decree, it is impossible for the BCRA to have any measure of autonomy to fulfill its legal mandate.
Our proposal is that the members of the board of directors are prestigious professionals with proven technical skills, appointed by the Executive Branch with the consent of the Senate, but who cannot be in office for more than six months. It is also important that the formation of the board of directors follows a criterion of political and sectoral representation, with representatives of the government party, of the opposition and, also, of the private sector, trade unionism and the academic world. The appointment of its members should be staggered to preserve the stability of the organization’s management. Decidedly, a technocratic board of directors, with legal stability and balanced representation in political and sectoral termswhich guarantees the autonomy of monetary policy from the needs of the government in power and from the political-electoral circumstances.
As we change one law for another, it seems essential to us to design some form of “legal padlock” which protects the new institutionality that we propose. The 1994 constitutional reform established in its article 75 paragraph 19 that Congress must provide “that which leads to the defense of the value of the currency”. Unfortunately, he did not authorize procedures, special majorities, settlement laws, or a different status for the BCRA, unlike what he has done for other institutions enshrined in the national Constitution. An omission of the time: Argentina lived under a rigid monetary regime —convertibility— and inflation close to zero.
Given the need to seriously address the battle against inflation —perhaps “the mother of all battles”— we believe it is high on the public agenda to discuss and agree on a new institutional framework for the BCRA. Designing a legal mechanism like the one we suggest in this direction will require the knowledge of constitutional experts and the cooperation and determined action of political leadership.
The authors are founding partners of the consultancy firm Equilibra
Source: Clarin
