Sunday, July 22, 2012

Rick Rowden — Argentina's Radical Banking Reforms

At a time when most governments seem incapable of doing anything about unemployment, worsening economic inequality, and continuing financial instability, Argentina has adopted a set of striking new reforms that will enable its central bank to play a much more proactive role in addressing all of these problems. In fact, the reforms, adopted in March, may be the first shots fired in a quiet revolution in monetary policy. If successful, they could threaten to overturn 25 years of conservative central bank policies that have long been considered best practice by the IMF and central banks around the world.
Argentina's new central bank president, Mercedes Marcó del Pont, said the reforms challenge the conservative axiom that central banks should play a very limited role in the economy. The bank is now rediscovering its sovereign capacity to formulate and implement economic policy, she explained, adding that some of the portraits on the bank's hall of fame would be coming down -- "beginning with Milton Friedman's."
Stalwarts of free markets and "central bank independence" were aghast. The Economist proclaimed that the Argentine central bank had become the "piggy bank" of the government, "losing the last shred of its legal independence." It claimed the government's meddling in the central bank would lead to reckless fiscal deficits and spark out-of-control inflation. Similarly, The Wall Street Journal's Mary Anastasia O'Grady reported the state had "stormed the central bank... destroying the last vestiges of independence," and told its readers to "Cry for Argentina."
Read it at TruthOut
The Shots Heard Round the World: Argentina's Radical Banking Reforms
By Rick Rowden, Foreign Policy | News Analysis

10 comments:

miller B said...

" cry for Argentina"

I will, tears of joy

Carlos said...

It would be good to see Argentina succeed with a heterodox economic policy. We could use a good example.

Argentina will have to sort out corruption and end the practice of US$ denominated loans and contracts first.

How badly does the decaying orthodoxy want Argentina to fail and how far are they prepared to go? So far they have just contented themselves with an endless tirade on the perils of 20% inflation.

Trixie said...

Maybe it's just me, but this seems like a really big deal. Especially:

Marcó del Pont argued that economists should also consider additional sources of inflation, such as bottlenecks in supply routes or external factors like price hikes on international markets -- factors that have been known to spur inflation in Argentina and other countries like it. In such cases, simply raising domestic interest rates -- as the IMF often demands -- does little to solve the root of the problem. What's really needed, in many cases, is increased public investment targeted at clearing up supply bottlenecks or buffering against external shocks.

Exactly. Identify the problem and go fix it. You get to own your own "system". And to hell with what the Lizard People say:

Stalwarts of free markets and "central bank independence" were aghast.

Tom Hickey said...

"Stalwarts of free markets and "central bank independence" were aghast."

Right. They get that the jig is up if this catches on. So expect strong push back against it. Just as there is strong push back against "Keynesianism" fiscally.

Edmund said...

I'm full on MMT, but I could see Argentina going very badly.

miller B said...

Time for the neo-liberals to bring back there old Latin friend the right wing military coup. Can't let the Americas go commie. Does Augusto Pinochet have a grandson they can send in or a great grandson of Carlos Armas. There must be someone they give money and guns to destroy this new red scare. Might be not enough, better go with the El Salvidor model.

Ralph Musgrave said...

I favour merging monetary and fiscal policy as advocated by MMT: i.e. just have the central bank create new money and have government spend it into the economy (and/or cut taxes) when stimulus is needed.

Apart from that, I don’t see anything useful a central bank can do.

As to the idea that a central bank can sort out bottlenecks, as suggested by Trixie above, that’s a non-starter.

y said...

inflation's at 25% in argentina.

y said...

officially it's 10% though.

With its history of hyperinflations and poor economic policy I doubt Argentina is the best place to try out heterodox ideas.

Carlos said...

Argentina is trying heterodox ideas, but in a piecemeal fashion. The present Government is popular too. Unemployment and poverty have been reduced despite high unofficial inflation.

Obviously there's a trade off. People accept the inflation while they have jobs, income and food on the table.