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The Central Bank and the Government Throughout the
Last Quarter of the 20th Century: The Case of Argentina
Hernán E. Gil Forleo1
Universidad Argentina de la Empresa
Economic History Society
Annual Meeting 2012
Saint Catherine College
Oxford University
March 30th – April 1st
United Kingdom
Abstract.................................................................................................................................................... 1
The Monetary History of Argentina .......................................................................................................... 2
Twenty Five years of Economic History, or a Century? .......................................................................... 2
Inflation: a local custom legacy from an exhausted model, 1973-76 ...................................................... 4
Discrecionality and Weak Institutions, 1976 – 1985 ................................................................................ 6
Monetary Policy and Structure’s rigidity, 1976 - 77 .............................................................................. 6
The Financial System Reform, 1977 .................................................................................................... 7
Orthodoxy and Crawling Peg, 1977 - 1981 .......................................................................................... 9
Disequilibrium, external crisis and inflation, 1982-85 ......................................................................... 12
Autonomy and Institutionality, 1985-2002 ............................................................................................. 14
Heterodoxy and Diffuse Boundaries, 1985-91 ................................................................................... 14
Structural changes, International openness and monetary policy rules, 1992-2002 ......................... 16
Lessons from Argentina’s Economic History ......................................................................................... 18
Conclusions ........................................................................................................................................... 18
Bibliography ........................................................................................................................................... 20
Official Publications ............................................................................................................................... 20
Abstract
Since the depletion of the schemes of nationalization of deposits (1977), to the end of the Currency
Board and the Second External Debt (2002), the Central Bank of Argentina periodically changed their
functions, instruments and targets of monetary policy, being a key player in the adjustment plans
(Australito & Primavera), and stabilization programmes (Tablita) and economic growth (Austral),
unilateral trade and financial openness (Currency Board), varying degree of dependence on the
government decisions. The purpose of this work is to determinate the participation and evaluate the
performance of the Central Bank in the last quarter of the twentieth century: In the first section we will
analyse the transition from and scheme of nationalization of deposits to a Free Banking System
guaranteed by the government (The Tablita), the second section develop the attempts to stabilize
prices and outputs under the first debt crisis, while the third section corresponds to the Central Bank’s
role in the scheme of unilateral liberalization and the fixed exchange rate (The Convertibility Plan).
Economist. Secretary at Economic Research Commission’s of Buenos Aires Economic Sciences
Council (CPCECABA), Member of the Chilean Association of Economic History (ACHHE).
[email protected]
1
1
The Monetary History of Argentina
This work attempts to increase scientific work in a little-known research line and sparsely used in the
recent Argentina’s monetary history: the aprioristic method rather than other methods (e.g. cliometry)
whose use is common in the investigations of the argentine economic history2, as well as to contribute
to the scarce research encompassing periods recent exceeding the validity of stabilization plans and
their corrections3.
And so, what is the purpose of our work?4
First, establishing in that measure the link during the quarter century under study was decisive
for the success or failure of various attempts to adjustment and stabilization prices. Second, will be the
evolution of qualitative restrictions (inflationary habits, democracy) and quantitative (external opening,
Balance of Payments crisis) that allowed the CB to execute monetary policy with bias towards the
rules or discretion. In third and last place, will be to establish the institutional evolution of the Central
Bank (in later CB) as an autonomous organization in the implementation of monetary policy and its
association with the inflationary paths that characterize the period under analysis, which has a turning
point in the relationship in the year 1985: the principle of autonomy of the CB.
The first subperiod corresponds to the years 1977 - 85, during which monetary policy
decisions corresponded to the Federal Government, relegating the CB to be only a mere executor of
the same. This period that we call Discretion and Relaxation Institutional, except for brief intervals is
characterized precisely in the constant exercise of discretion in the implementation of such a policy,
mainly in the issuance of currency to cover budget deficits in the public sector, as well as the
interference of the Government in the management of financial risks; the results were not unrelated to
the previous experiences (1946-76): inflation and Balance of Payments crisis, this last greater than the
previous ones, because the effect of the unilateral opening on a high public weight and closed
economy.
The next period: Autonomy and Institutionality (1985-2002), has the hallmark for the first time
in its history as a public institution, the CB acquires the decision-making autonomy to run monetary
policy set forth explicitly and establishing rules for financial assistance to the Government. The
beginnings of autonomy consisted of decision-making disposition of the Government in the
establishment of the objectives of monetary policy and the limits compatible with the objectives of the
Government: the balance of public accounts.
Twenty Five years of Economic History, or a Century?
An example can be found in Cortés Conde, R. and Mc Candless, G. ‘Argentina de colonia a nación:
experiencias monetarias y fiscales en los Siglox XVIII y XIX’. [Argentina: from colony to Nation. Fiscal
and Monetary Experiences throughout eighteenth and nineteenth centuries]. Serie Documentos del
CEMA, (1998).
2
For example, the Austral Plan, the Australito and the Springer Plan covering the period 1985 – 89, or
the Convertibility Plan and the Coordinated adjustment after Tequila (1994), the Fiscal Adjustment to
Growth (1999) and the Bigswap (2001), covered the 1991-2002 period.
3
4
Primary sources on monetary policy are abundant and reliable, but heterogeneous within the same
source represented by the Central Bank. This heterogeneity is reflected in consulted instruments prior
to the new system of emission of existing circulars since June 1980. Therefore, there is an edition and
redaction method over the monetary field and the frequency of publication before and after this date.
2
Since the enactment of the Act Nº 21.495 of Decentralization of Deposits, the Act Nº 21.526 of
Financial Institutions and the Act Nº 21.572 corresponding to the Account of Monetary Regulation (in
later AMR) during the first quarter of 1977, until the repeal of the Convertibility of the Austral Law Nº
23.928 and the modification of Act Nº 24.144 Charter Law and General Regime of the Central
Argentina Republic Bank in the first days of 2002 the CB lived with:

Central plans of adjustment and stabilization of prices: 1) The gradual implementation5 d
of the Monetary Approach of the Balance of payments in two stages: a) the monetarist
phase through the use of monetary aggregates (M1 and M3) as objective during the
period 1977 – 78, and ; b) the Stabilization Plan of December 20th, 1978, also known as
"La Tablita" which, based on the course of inflation convergence with respect to the
Developed World6 determined the growth of prices under the scheme of an active crawling
peg, it covered the period between 1978-81; 2) The Austral Plan (1985), which on the
basis of a strategy of shock or eleven for all budgetary balance using the seigniorage
under the objective of zero fiscal deficit used price controls to remove the inflation that
accelerating the price-wage spiral, an Heterodox Plan that reflecting the heyday of Latin
American Structuralism, and; 3) The Currency Board Impure (1991) 7 , a return to the
principles of the Gold Standard during the Belle Epoque, but this time with the dollar as a
reserve value.

Corrective transition plans: Implemented during the changes of Government or to dilate
the institutional crisis. These were three: 1) The Counter-Reformation, measures
implemented by Authoritarians Governments aimed to minimize the impacts of imbalances
in the period 1977-81, reversing the reforms of opening of goods and capital (1981-82),
deepening through the liberalization of prices (1982) and returning to the Classic
Economic Policy of Argentina for the second half of the Twentieth Century (1982-85) 8 ; 2)
Bounded Structuralism, Australito (1987) and the Ppring Plan (1988), aimed at partially
solve macroeconomic imbalances through adjustment of relative prices allowed by the
Government, and; 3) The Orthodoxy at the wrong time, while maintaining the basic
economic policy of 1989, the Tax Adjustment to Growth Plan (1999) and Frozen Expenses
& Debt Structuring (2001) were applied at the wrong time, the first reversing the economic
5
The gradual implementation was the only feasible after the crisis of governance that produced the
unexpected devaluation shock in 1975.
6
In this case, opening movements of autonomous capital through the strategy used the exchange rate
that implicitly the differential with respect to foreign domestic interest reflects a differential of inflation
that decreases over time. In other words, the second phase of the gradual adjustment while
maintaining the monetary approach of the Balance of Payments, price (exchange rate) adjustment
based on the axiom of convergence as set forth in the Theory of the Parity of Purchasing Power
(PPP), taking the experience of United States and other members of the OECD in the 1960s as a
benchmark.
7
The description of the term Impure to the Currency Board was made by Luis Secco and Miguel Angel
Broda, economists to make distinction between the Currency Board explained in handbooks of
economy and adopted in Argentina due to the definition and support with external assets in article 4
the Law of Convertibility of the Austral No. 23,928, and the article 33 of the Law 24.144, the CB Act.
8
This classical economic policy is an observable phenomenon when the current economic policy is
unsustainable, so step between June - 1982 and December 1983, January - 1990 and March - 1991,
and between September 2001 - April 2002. This consists in bringing the economy to the autarky and
control of voluntary capital, close to foreign trade imports, induced exchange rate overshooting,
making prohibitively expensive and, in some cases, the total centralization of deposits in the financial
system and the temporary confiscation of property rights (e.g. The Bonex Plan of 1989 and The
Corralón of 2002). The results of the classical economic policy Argentina, has as a result periods of
stagflation and a reversal of Gresham's law.
.
3
recovery and the second, boosting the replacement of assets, capitals outflow
exchange rate delay.
and

Two Debts Default: The first was in 1982, originated by the combination of declines in the
terms of trade and a sharp increase in international interest rates, Latin America's
economies receiving capital since the middle of the 70s were unable to serve their debts
by the primary fiscal surplus or the refinancing voluntary markets for maturities of debt;
while the second default in 2001 9, was also a combination of factors, but with greater
internal weighting, the degrees of freedom that had the policy of then were scarce: fiscal
imbalances, deterioration of the real exchange rate, contractual rigidities of prices and
wages incompatible with exchange rates fixed and persistent unfavorable external shocks
since 199710.

Two Debt Restructuring: In 1992, Argentina achieves a voluntary agreement of reduction
and restructuring of its foreign debt in default through the so-called Brady Plan, while in
2001 the voluntary agreement was the restructuring of capital and the lengthening of the
maturity of debt short term whose service was normal.

Unsustainable inflation: The average annual changes for the CPI index between 1977
and 1988 was 257%, as a prelude to the hiperinflations in 1989 and 1990, years in that
such variation amounted to 3.079,5 % and 2.314% respectively.

Inflation similar to the OCDEs Countries: Upon implementation of the Currency Board and
then the pass through effect (14 months), the annual average inflation between 1993 and
2001 was 1.05%, with a maximum monthly 1,2 % and minimum - 0,7 %.
Inflation: a local custom legacy from an exhausted model, 1973-76
Nothing more than Argentina of being a distant country to implement Keynesian paragons and
theories Centre - Periphery and Impoverishing Growth11 to dominant of Latin American thought since
the end of the Gold Standard, relegated the importance of monetary policy to the background. A clear
example of the application of these theories as well as the power of discretion of the Government lies
in the organic Charter of 197312, which established their functional dependence on the Government
(Art.1º), changes the priority for the achievement of its objectives (Art.3º, inc.a):”… create conditions
for maintaining an orderly and growing economic development with social sense", then for " keep the
the purchasing power of the money". Lacking decision-making autonomy to run monetary policy:
"...The performance of the Bank shall be subject to the directives handed down by the national
Government, through the Ministry of economy, in economic, monetary, exchange rate and financial
policy…” (Art.4º), and indirectly delegating to the Government the possibility of limiting the actions of
the CB to submit the budget for wages payment. (Art.14º, inc.b.)
The CB discretionality can be subdivided into two segments:
The official explanation of the causes that determined the end of the second argentine’s currency
board can be found at: Ministry of economy and Public Finances of the Nation, Economic Report Nº
40, (Buenos Aires, 2001).
9
10
These shocks are transmitted through the mechanism typical of an open economy with fixed
exchange rate: the interest rate. We can highlight the crisis of Southeast Asia (October, 1997)
following the devaluation of the Thai Bath, the default partial of Russia (August, 1998), and the
devaluation of Brazil (January, 1999) to prevent a speculative attack to its currency (Real) and to the
Balance of Payments.
11
This term was coined by Jagdish Bhagwati at the end of the 50's to explain mathematically the
decline in the terms of trade of emerging economies, including the Argentina, before the replacement
of imports of more developed nations. See, Bhagwati, J. ‘Immisenizing Growth: A Geometrical Note’.
Review of Economic Studies. 25, 201-205, (1958)
12
The Act Nº 20.539: Financial institutions. Organic of the Central Bank Charter promulgated on 2
October 1973, meant a return to the monetary policy of 1946.
4

Limited to the CB and Treasury Balance Sheet: Taking the art 29º, "The Bank may make
temporary overdrafts to the Government, to an amount that does not exceed 30 per cent
of the resources in cash that it has obtained in the past twelve months. All advances made
by such a concept should be reimbursed within twelve months of incurred. If any
advancement of this nature would be non-payment after that deadline, you can not return
to use this power to the Bank until the sums due have been reintegrated. "On these
developments the Government will pay an interest to be agreed with the Bank, not higher
than the minimum rate of discount window in force. Put another way, the Government
could request financial assistance equivalent to a full quarter of tax revenues during the
last 12 months. Being this restriction an average cell phone, any increase in public
revenue by the inflation tax, it allowed again request assistance to stay the restriction
under the maximum permitted limit; While article 51º allows another source of
discretionary funding for the public sector belonged to the value of the total of deposits the
Bank may have in its portfolio public securities whose amount does not exceed of thirtyfive percent (35%) of the total of deposits received by banks, on behalf of the Central
Bank.

Unlimited to the magnitude of the fiscal deficit: (Art.18º inc.i) "..."Buy and sell in the market
public securities for the purpose of regulation, “The Bank may invest in these operations
up to 15% of the amount in circulation of the public values with current trading on the
market, but such limit may be extended through the allocation of special reservations or, in
cases of emergency, with the unanimous vote of the members of the CB Board…"
Following the described paragons, the Government closed the domestic market to the
competence, allowing the existence of a structure of offer, composed by public monopolies in the
sector services and mixed monopolistic competition in the production and trading of goods, tending to
distort domestic prices which enhance the swings in the Balance of payments; in turn, they
compensated by increases in public spending - financed monetary emission -, when it was impossible
that the economic policies adopted avoided intertemporal consumption substitution giving rise to
contractionary phases of the business cycle. Initial increases in the supply of real balances and
decrease in demand in an economy whose external sector ranged from high Regulation (current
account) and closing (capital account), had dual effect: partially increase the consumption - by the
decline in the real interest - and raise prices, by the combined effect of closure to the flow of capital,
fiscal deficit and supply aggregate structure of the market, determining the relative prices.
The consequence of this conduct imposed on the Monetary Authority is easily deductible in
quantitative terms as we did in the preceding paragraph: the emergence of the inflation phenomenon
that constantly distorting relative prices. But rarely in the monetary history Argentina stands out the
qualitative relevance as a result of this phenomenon:

The first phenomenon corresponds to the CB: the financial system lacked during more
than three decades of a CB. Was absent the function of preserving the value of the
currency and the supervision of entities and, was present of lender of first resort by the
Government, while they alienated practices manage risks in financial institutions.

The second, to the individuals: daily living with inflation, the habit of optimizing
consumption with negative real interest rates as well as maintain its portfolio fixed assets
(houses and apartments) in greater proportion and, on the other hand, in the formation of
expectations, resulting in adaptives because the high inflation index from 1973 onwards.

The third and last phenomenon correspond to the Government: The custom of finance
budgetary imbalances by means of issuing currency, allow the existence of structures of
production away from the competition to be the domestic production13 to meet domestic
demand distorting relative prices, and to use the CB to ensure coverage of the various
risks in economic and financial (e.g. Corporate non quantifiable risk to select the bank
where deposit funds, as the Government through the CB guaranteed the return of the
13
Allow structures distant competition had return the tax planning in the time without depending on
external demand.
5
same). The existing institutional structure, mainly the relationship between the
Government, the CB and the financial system, as a result of the nationalization of deposits
and the addressing of the credit, to the discretion of monetary policy distorting
mechanisms of natural transmission of this constituting the banks, which lacked the
Customs to manage risks, which were guaranteed (not managed) by the Government.
To pass the time, Customs will make inapplicable the adjustment gradual forcing the adoption
of stabilization shocks not expected.
Discrecionality and Weak Institutions, 1976 – 1985
Monetary Policy and Structure’s rigidity, 1976 - 77
The economic plan of April 2nd 1976, had among its objectives to reverse the prevailing
Crowding Out , meaning in the monetary field: 1) minimize the distortions of Government’s power over
the inside exchange value – domestic prices and inflation – the value for allocation resources – real
interest rate – and the value that reflected the abroad exchange – exchange rate –, and; 2) Restore
the CB as executor of monetary policy.
Prior to the attempts of stabilization which contained a theoretical framework clear –
monetarism – latent hyperinflation (1976) and the persistence of the lagged inflation (1977), was
approached by the Government (and not by the CB) through price liberalization and the crawling
peg passive scheme so that, through the contraction of domestic demand, decrease inflation whose
fall would continue as the gap in the public finances was closed in the capital market, and through the
promotion of competition with the unilateral opening to foreign trade flows. However, at the end of the
1st quarter of 1977 was necessary to sign a truce of prices between the Government and firms
in order to avoid the appearance of the inflation phenomenon. The question was why inflation
didn't truce? On the one hand, the rates of expansion of the monetary aggregates were all higher
than 100% 14 ; and on the other, the beginning of the reform of the financial system in this period
generated the required uncertainty so that, in a recession economy which began to the dollarization
process, the issue moved at one faster rate; These two causes offset the efforts of external openness
and reduction of the public deficit.
Although the validity of Act Nº 20.539, it was expected a passive role in the management of
monetary policy, the conduct of the CB shows that this was not the case, and that it can assign an
active (and Government’s dependent) role; prior to the reform of the financial system, the Monetary
Authority adopted the following measures:

Increase in the required maturity for loans from abroad, to minimize fluctuations in the
monetary market of the external sector and reduce the inelastic in the domestic interest rate
on the foreign resources.

Allow the acquisition of foreign currency, which coupled with the determination to the interest
rate by market forces, acted as limit in fact the acceptance of excess domestic currency by the
public, to have allowed the diversification of financial asset

When running a crawling peg passive allowed the tradable sector to keep domestic
purchasing power and avoid speculation about abrupt exchange rate devaluations.

Use Treasury Bills auctions fixing the coupon rate to estimate the expected inflation.

Decrease up to cancel CB’s guarantees repo operations and begin to phase out some of the
coverage of risks by the Government in the financial operations promoting banks takes risk.
Crawling peg passive came to an end with the implementation of Financial System’s Reform in
June 1977 and the change in the auction’s method of the Central Bank: auctioning Treasury Bills by
tender fixing only the funds to absorb; the time of monetarism had come.
14
Explained by the variation in the money supply which in turn, their behaviour was explained mainly
by hefty capital income.
6
The Financial System Reform, 1977
Before the changes of Monetary Policy Instrument15 and pursuant to provide a greater degree
of individual economic freedom, the Government carried on a complete reform of the Financial
System.
The new system would have as object return to financial institutions their financial
intermediation function and the regulation of the money supply process made simpler through two
monetary policy instruments: a) The implementation of reserves requirements, and; b) The Open
Markets Operations (OMA); Replacing the instruments used under the system of centralization of
deposits: a) Overdrafts lines with limits to its issue options and over the guarantees assigned, and; b)
Arbitrary selection of resources allocations, relegating to a lower order, the sustainability of credit
assigned.
Until June 1977, the financial system was a hybrid in which coexisted a formal subsystem with
lace of 100% and an informal subsystem that governed a minimum cash of 0% 16, causing the loss of
control of financial intermediation by the Monetary Authority.
The implementation of change demanded a new legal framework: the Act Nº 21.526 of
Financial Institutions that gave the Central Bank the powers of supervision and management and
monetary and credit policy, gradually reduce the intermediation of resources made with instruments
used in the previous system and reverse the initially effects of the system’s change, to keep the
process of money supply limits to avoid the acceleration of the rate of inflation. The transition required
the following changes:
15

The minimum requirements (Banks reserves allocated at CB): The sense of the reform was to
have a financial system where the banks change the passive role and they were monetary
policy transmission channels, from a hybrid of highly dispersed legals reserves requirements
(0 - 100%) established a uniform value of 45% due to the need to change practices in the field
of risk management and its applicability does not imply autonomous changes in the process of
market supply.

The Monetary Regulatory Account (MRA): The parameter of legal bank reserves applied in a
system open to international capital markets, acted directly over the domestic interest rate
reinforcing inflationary and risk component, carrying prices of resource allocation problems for
real activity, as well as initial losses expected at the beginning of the learning curve about risk
management. It is for both reasons that the Government passed the 21.495 Act that offset to
banks by fixed funds (reserve requirements) and charged by the use of the capability to assign
funds, whose source of funding are the current accounts (sight deposits), the CB is
responsible for determining the value of the charges. This account was applied with the
purpose of stimulating the term deposits and avoid short-term interest rates to encourage the
sight deposits, decreasing the value of the transmission channel of monetary policy to an
outflow of deposits at the briefly time of implemented the new system. The result was in favor
to the banks, and when the accrual was assigned into the current account of banks held at the
CB, being an expansive factor of monetary base until the relationship between sigh deposits
and term deposits (which accrual interests) is less than the value of reserves requirements
ratio17.
Prices (Exchange Rate) for Quantities (Monetary Aggregate).
16
The development of the time deposit system, which although formally operated within the framework
of centralized deposits, in fact worked independently, since that was allowed to banks grant loans
automatically and in relation to the amount of collected resources. At first, this latter scheme was
subject to regulated rates, but from June 1975, banks to freely determine the interest rate on loans
and deposits.
17
A negative externality not contemplated a priori, was the obligation to fully use the prestable
capacity in order to reduce the financial cost for the implementation of charges. This hampered the
management of liquidity and increasing the value of the inelastic interest rates respect to those.
7

The capability to assign funds:: Its operation was determined by the Government, establishing
a general framework: "the credit to people and businesses... should be directed to finance the
investment, production, marketing and consumption of goods and services required both for
domestic and for export demand" for which repealed rules that established restrictions on the
granting of credits, even those which imposed certain selectivity in the distribution of portfolios.
Eliminate taxes on borrowers applied to neutralize the inflation subsidy by negative real
interest rates. To ensure exports to support the external opening, the CB was responsible for
enabling preferential lines of credit with interest rates to ensure the financing of the production
and trading processes in some exports commodities (industrials), being optional for financial
institutions to participate in these promotional lines. The transition was impeded by the
differences between the capability of funds assigned and the overdrafts granted, in the case of
an automatic liberalization according to the capability of funds assigned, many banks had
seen with net worth unexpectedly high or negative product of reassigning determined the Act.
To ensure a transition which not abruptly changing its operational capability of fund assigned,
established that if the new resulting lending capacity of the implementation of reserve
requirements was greater than the amount of discount at the beginning of the transition
(Underexpanded Banks), the difference would be unavailable as a deposit in the CB, whereby
they would receive interest, when on the other hand, the difference was negative (Bank
Overexpanded), the initial difference would remain as the only limit remnant of discount,
paying fees to the CB18. This gradual adjustment would come to its end at within 2 years date
adopted by the CB for the definitive cancellation of discount and the liberalization of the
surplus of lending capacity.

Homogenization of price calculation, indexing and communication: Regulated rates and
uniforms that prevailed for years, allowed the proliferation of technically incorrect methods of
calculation and perception of interests19. The new operations demanded, among other things,
that only can charge interest on balances effectively rendered and the time that have been
available to borrowers. Clause of adjustment loans, only indexing can be done through the
implementation of IPM (wholesale price index), rather than random and disparate rates to
quantify the monetary deterioration. Finally, to the information in the allocation of resources is
homogeneous and comparable for all participants of the market, was established as
benchmark the use of annual effective rate to express the price of intertemporal resource use.

Risk coverage: The CB extended guarantees deposits in local currency to all banks, this
allowed cancel the risk of default of the domestic currency of the banking, and decrease the
risk premium of the rates offered for the capture of deposits, waiting for a spread of lower
intermediation (and therefore active rates).

Recovery of the Lender of Last Resort’s property: The CB continued using the Overdraft
Discount Loan Line, but modifying the allocation criterion, reprising the role of Lender of Last
Resort: the overdraft has been assign to the Banks with transitory liquidity troubles 20, because
that was high the elasticity of the nominal rate of interest to changes into the rate of observed
inflation [( Rt /  t-1)> 1]21.

On Balance Restrictions: The last two significant changes were using balance restrictions to
maintain sustainability and liquidity of banks through the integration of minimum capital, limit
leverage and the incorporation of fixed assets, and prevent these act as free riders on the side
18
Los intereses por los defectos y excesos de capacidad prestable serían compatibles con los de
mercado.
19
For example, arbitrary and different basis applied like actual/360 or actual/365
The requirements for access to the discount window line should ensure temporary: they could only
be used 45 of 365 days of the year, and each operation had a maximum of 7 days; banks paid a
higher rate to the market cover its gap of liquidity with funds from the CB
20
21
The value of elasticity was in turn caused by the CB with the application of charges to capability to
assign funds whose sources of funding were the sigh deposits.
8
of the active (over the asset balance side), limiting the allocation of loans for each bank or by
all of them.
What involvement had the Government?

The transition from a financial hybrid system towards one of fractional reserves through the
paying over these reserves and replenishing the expansion of the monetary base.

Delegate the handling of monetary policy in the CB and gradually to replace a system
centralized by one of fractional reserves.

The payment or the Collection of the MRA.

Determine the capability to assign funds of each bank, netting the overdrafts assigned during
the previous system.

Assume the payment of the cost of the monetary regulation through the interest payments of
the Variable Interest Bonds and Treasury Bills.

Manage the operation of monetary regulation instruments used in open market operations.
(Treasury Bills, Variable Interest Bonds)
What involvement had the CB?

Determine the reserves requirements coefficient: value, method of application, the fees
charged and paid in the debits and credits of the MRA; take profits or loss by the application of
the rate of market interest to banks under and overexpanded.

Establish a homogeneous method for the calculation of interest and indexation of funds
assigned and borrowed, e.g. the general basis: Actual/365

Return to the role of "Lender of Last Resort" for transitional situations of illiquidity.

Keep purposes unrelated to the nature of Central Bank through the promotion of exports to
ensure that current account surpluses during the period of unilateral external opening.

Exempt some Public Banks 22 the compliance of the new financial system allowing their
obligations with the Central Bank to cancel in a natural way.
Orthodoxy and Crawling Peg, 1977 - 1981
The second attempt to solve the inflation problem keeps the gradualist strategy for its
realization based on the Chicago Monetary School, whose axioms postulate the direct relationship
between the money supply and the price level. Taking the successful experience of Chile 23 , the
Government believed should implement a similar programme to solve the inflation problem. Although
the School of Chicago posits the decrease in the creation of money as a prerequisite for the reduction
22
The Banks were: National Bank of Development, National Mortgage Bank and Caisse Nationale of
Savings and Insurance.
23
Unlike the 80s with the Austral and Cruzeiro Plan, Spring and Cruzado Plan (Heterodoxy) and the '
90s with the Convertibility and the Real Plan (Currency Board and Orthodoxy), in which Argentina’s
monetary policy preceded those applied in Brazil, the 60s with the crawling peg and the 70s with
monetarism have Argentina and Chile as similar cases, with the caveat that monetarism is first applied
in Chile.
9
of prices, the monetarist period exhibited a degree of complexity greater than the theoretical of the
axiom statement primarily because the structural transition from the financial system impact on the
speed of currency circulation. The monetarist attempt covers the years 1977 - 78 having two different
stages on which it was implementing: 1) from June 1977 to May 1978 in which Central Bank
orientated control over the simplest monetary aggregate: the monetary base, and; 2) Between May
and December 1978 in which control was carried out on the secondary expansion (multiplier).
In the first stage, the external opening and liberalization of nominal interest rates whose
overshooting on prices reestablished after a decade the positive real interest rates, allowed the net
income of external funds - via borrowing by public and private enterprises - becoming the main factor
of expansion of the monetary base. The abundance of international funding, in a system in which
prestable capacity should allocate in its entirety in order to avoid charges for the MRA, forward eluded
the assessment of risk, increased the domestic risk premium, and increased the speed of movement
of the domestic currency. The increase in the premium hit again in the nominal interest rate and the
process is perpetuated to make them unsustainable, both its value and the lack of custom by
economic operators allocate resources with positive prices. As well described at CB Balance and
Memorandum (77s):
‘(…)as a result of policies pursued in terms of interest rates, that to restore the balance
between financial and real assets, bringing the first yields, increased the opportunity cost of
maintaining inventory of goods’
Economic downturn, increase the supply of funds and the speed of movement were three
results of this first stage are usually presented in the quantity theory of money, the fourth variable
(prices) reflected the disparate behavior of the same (second figure of Chart 1).
The strong expansion of the monetary base as a result of the net external inflows during the
transition system of multipliers close to one, caused the feedback between inflation and nominal
interest rates; To increase their value multipliers, the expansion of supply produced by these in
addition to the monetary base; and the real appreciation of the exchange rate by the net external
inflows and domestic inflation (effect between tradable and non tradable goods), led to the limit the
normal capacity of external payments of Argentina, and the CB restricted entry of external funds,
giving rise to the second monetarist phase.
Is in the second stage, in which the Central Bank takes the main measures on monetary
policy, then, we can make our question: What did the CB?

Increase the individual portfolio diversification opportunities: to allow the purchase of up to
U$D 20,000 without the need to justify the origin of funds, i.e. 19 times more than in 77s,
thereby accelerating the speed of movement of the domestic currency.

Establish restrictions on external financing: The deterioration of the current account, limited
the normal capability to serve the external payments in the country.

The low of legal reserve requirements: From a 45% initial value at the end of December 1978,
the value of the reserves had reduced to 35 per cent, increasing the secondary credit
expansion and at the same time, reducing the growth in the monetary base by the lesser
compensatory balance of the MRA.

Expand the limits of intermediation of banks: they could intervene on the purchase sale of
securities values, documents and certificates of deposits, which impacted again and form
positive in the velocity of movement.

Decreased restrictions required to allocate funds; indirectly calling on banks to improve
efficiency to assess credit risk.

Decreased restrictions on access to the discount by temporary illiquidity to a lower supply of
external funds, eliminating the use of 45 on 365 days ceiling
While the Government, he steps outside to the nature of the CB, for example: Continue reducing
the deficit in the public accounts as well as continue funding in the capital market.
¿Why ended abruptly the Monetarist experience?
10
Because it was impossible, given the measures taken to carry out the transition from the
financial system, close variations of the monetary aggregates (M1 and M3), to levels below 1%
per month. The monetary base while decreased growth, was never less than 2% per month by the
MRA and the supply of external funds, which had justified the expansion in the previous phases,
contracted and falling lace allowed coverage with domestic credit demand for funds. In other
words, the increase in the monetary aggregates multipliers had a greater effect on the supply to
the contraction of the monetary base.
The graphic nº1, shows the inflation rate during the Crawling Peg passive and the two
monetarist stages. Although they shrank considerably when compared with the 1973-6 stretch,
and tended to be stable in time, its variation in annual terms was greater than 100% in all cases.
The 3 lessons from stabilization we can classify them in secondary that evaluated ex-post, the
purpose of the Government was avoiding a hyperinflationary burst at the beginning and carry out
the reforms aimed to reverse the lagging Crowding Out; only after this, only after this, a
stabilization program that is priority in economic policy could address.
11,00%
9,73%
Chart 1: Inflation in Argentina: Monthly Values
10,00%
9,42%
9,00%
8,00%
7,59%
7,79%
7,00%
6,00%
5,00%
4,00%
2,35%
3,00%
Average Rate
1,34%
2,00%
Standard
Deviation
1,00%
0,00%
Crawling Peg (76 - 77)
Monetarism: part 1 (77-78)
Monetarism: part 2 (78)
The third attempt to stabilizing the inflation known like La Tablita backs to the Crawling Peg.
On December 20, 1978, to reduce and eventually eliminate the high inflation rate, the Government
brought into force the price stabilization program based on an instrument (exchange rate) and a new
openness to international capital movements. The exchange rate would increase over time to a default
rate of devaluation (4.5% monthly), delegating to the CB compliance. The Government employs
other prices in the economy (non tradable and tradable goods and wages), that it would increase in a
similar proportion. The inflation convergence to international standards, would be done through the
exchange rate and the nominal interest rate. Since that was selected the exchange rate as an
instrument of convergence and inflationary stability, the CB was outside the use of domestic credit or
external assets to change the money supply. The exchange rate policy according to the ex-ante
devaluations, left to the external inflation as the only factor that explained local inflation after the
convergence. The key to carry out La Tablita required an adequate (maybe strong) stock of reserves
for the exchange rate management and to deal with distortions that would generate about relative
prices (tradable and non tradable) after the new external opening. During this stage, it was the CB
11
who had the greater responsibility of the final effects of the program: explosive devaluation, stagflation
and an effect that did not appear since 1890: the external debt crisis.
What did the Government done?
Throughout this period, the Government continued reducing budget deficit approaching balance, and
introducing tax changes to avoid the forfeiture of rights, for example: the inflation adjustment to
calculate the value of corporate and individual tax gains. Lesser reserve requirements allowed to
reduce the payments of the MRA and the updating of prices of public services prevented the
recurrence of debt markets.
What did the CB during these years?
Taking advantage of the net income of funds by the spread of positive rates and insurance
exchange rate meaning La Tablita, the CB made the mistake of using the multiplier of monetary
supply through the reserve requirements low (between 1977 and 1979, decreased them in 2/3), It
would also expand the offer for pushing down domestic interest rates and given the expected rate of
devaluation, both the nominal rates of interest and inflation would tend to be reduced. The abundance
of liquidity via the base and the multiplier increases, could lower interest rates, but the risk premium –
that quantify the program continuity – determined that continue in high values and the net income of
funds is conditional to increase these risk premia.
The second CBs mistakes was trying to evade two basic axioms: a) that the external inflows is
unlimited after the external opening, and; b) that the risk premium has limits beyond which funds do
not enter.
El segundo error del CB fue tratar de eludir dos axiomas básicos: a) Que el ingreso de
capitales es ilimitado tras la apertura externa, y; b) Que la prima de riesgo tiene límites más allá de los
cuales los fondos no ingresan. For example, following the increase in payments for financial services
that produced the current account deficit, the CB removed restriction of stay of one year for capital,
increasing the speed to which external capital entered in and out. The third mistake was to allow
greater proportion of the portfolio in default of banks with regard to their Net Equity (increasing it by
50%) and eliminate the requirement of guarantees, leaving free banks decisions. The fourth mistake
was the few requirements that banks should meet to apply for overdrafts by temporary illiquidity,
allowing this line of funding be used for arbitration, being as a potential source of domestic credit
expansion.
This set of errors, mainly the expansion of supply via the multiplier of the base during the
stage of strong capital income, resulted in considerable distortions in relative prices of tradable and
non tradable goods24 and while that within the current account deficit, the financial services account
was greater than the net income of capital, the CB allowed the allocation of credits in foreign currency
to not tradable activities that impacted in the risk premium and interest rates; the final effect in 1981
was double: the inability to sustain a fixed exchange rate with previously announced devaluations
increased the risk premium to reverse the net income of funds, with increasing speeds of movement of
money by low preference of the public by the domestic currency and interest rates that caused a
recession affecting the public accounts. The circle adverse started: capital outflows, expansion of
domestic credit, public deficit, contraction of economic activity. Adding the contraction of export prices,
bringing the capacity to pay of the debt services, impact again on the risk premium, and the default of
debt was the corollary of the discretion with which monetary policy was badly handled.
In terms of the relationship between the CB and the Government, the crisis resulted an
unprecedented link between both institutions: the CB used discretionary erroneously the possibility to
manage monetary policy after several decades, should the Government intervene and again regain its
authority in accordance with the Act 20.539, associating with the CB as an institution whose autonomy
would be equivalent to the exercise of discretionally in monetary policy and the Government as a limit
to this.
Disequilibrium, external crisis and inflation, 1982-85
24
That he pressured by a greater devaluation of the exchange rate to correct this distortion.
12
This period has two distinctive features: to) the recovery of their powers in the administration
of monetary policy by the Government cancelling much of previous reforms in a context of double
crisis: external by the failure to regularly meet financial obligations and internal by the prevailing
stagflation; (b) restore the selection of public goods to economic agents (Democracy, 1983).
In 1982, the Act 22.510 handed down to avoid the internal default of the private sector, forced
the refinancing of credits in domestic currency for labour-intensive activities by banks in return for
loans to the CB would without paying any interest; These funds were invested in the "Financial
Economics Consolidation Bond” whose interests were paid by the Government. The swap between
the Government and the CB allowed the first, to use the public budget to avoid one decline of
economic activity, as a counterpart to the income of this Outflow Money following single “La Tablita”
increased inflationary expectations in an economy legally indexed, maintaining the variation of prices
at levels of 100% per year.
The final default debt that led the Financial System to operate financial autarky, and, with a
further decrease of external assets and costs associated with the multiple risks both the CB and this
covered, led to the decision to undo all the reforms of 1977 onwards. In July 1982, produces a new
regulation of rates of interest and concentration of deposits for less than 90 days operations 25, given
the validity of the Act 21.495, its effect by the MRA was expanding the supply of funds. For deposits
exceeding 90 days the socket was null and interest rates could negotiate freely. The CB allocated a
credit line called Basic Loan or Préstamo Básico to transform the portfolio of loans from banks and
then issue another credit line called "Additional Loan or Préstamo Adicional" so that banks could
refinance the appropriations allocated under the reform of the ' 77, grouping both in the Consolidated
Loan or Préstamo Consolidado; parallel to the economic turmoil was the accounting mess, and the CB
accredited the Consolidated Loan in November producing additional expansion of the monetary base.
The failed experience of 1977-81 took the Argentina to a scheme similar to the 1973 monetary policy,
with the difference that external restriction (for the debt default and the contraction of exportable goods
prices), and the inadequate management of monetary policy that marked the recent experience, was
an adverse factor for the explicit separation of the functions of the Government and the Central Bank,
as it was doing in the OECDs countries.
The external crisis (1982), sold out not only the institutional relationship between the
Government and the existing CB, they associated erroneously Orthodox Policies and openness to the
free movement of capital in the expectations of economic agents as endogenous causes of those,
leaving the path to the Structuralist School and Heterodoxy, when already they could indirectly
selecting the provision of public goods (Democracy, 1983).
25
This meant a return to the hybrid system of 1975-76 with the additional remuneration of reserve
requirements through the MRA.
13
16,00%
Chart 2: Steps of The Tablita and External Crisis
15,00%
14,63%
14,00%
13,00%
12,00%
Average Rate
11,00%
10,00%
Standard
Deviation
8,81%
9,00%
8,00%
6,51%
7,00%
6,00%
5,43%
5,00%
4,00%
3,00%
2,12%
1,25%
2,00%
1,00%
0,00%
The First Tablita
The Second Tablita
Disequilibrium
Autonomy and Institutionality, 1985-2002
Heterodoxy and Diffuse Boundaries, 1985-91
By 1985, the mainstream 26 advocated the independence of the CB on the Government in the
management of monetary policy; the Argentine case required a limited independence because
while Structuralist Thought starting that the public deficit is the cause of the inflation phenomenon, it
was necessary for that act as a coverage of implementation of the strategy, recourse to the assistance
of the Monetary Authority; to any restrictions on financing for a country that just might turn out to have
Compensatory Inflows, in other words, given the cessation of external payments, and the shortage of
foreign exchange, it was difficult to wean the CB of the Government according to the mainstream of
those years.
But with unfavorable results, testing of autonomy in regards to the implementation of monetary
policy served as experience for the new structuralist essay: The Austral Plan of 1985, which combined
a mix of economic policy in the past, such as the control of public spending and price controls.
What did the Government done?
The main objective of the Government was to deprive the economy of stagflation in which was
after the first debt crisis ('82), first achieving budgetary balance to avoid resorting to the CB as Lender
of First Resort, second the initial fixation and subsequent price controls (commodities and wages) as
a prelude to the fiscal adjustment (tariffs and taxes increases) and monetary (fixed exchange rate) to
act on the inflationary inertia, decrease it considerably to allow positive real interest rates and, after
almost five years, the inflow of short term autonomous capital; and third achieving trade surpluses
needed to cancel the current-account deficit balances.
See for example Sejersted, F. (1994). On the so-called “Autonomy” or “Independence” of Central
Banks: Reflections of the Norwegian Case of Minimal Formal Autonomy. Oslo: University of Oslo.
26
14
On this occasion, and under the Act 20.539, the discretionary power of the Government was
limited to assistance once for all at the beginning of the heterodox plan to cover a deficit prior to the
adjustment of prices of non-tradable goods (public services) 27.
What did the CB during these years?

Give more independence to the banks by reducing the minimum reserve requirements of
100%.

Change the method of reserve requirements calculation: a) from one rate for type of deposits
and a marginal rate by their increased amount for an average monthly rate by type of deposit
only; b) The criteria for geographic places has been replaced by the types of Financial Entity,
and; c) a greater openness to calculate the reserve requirements adding the Term to Maturity
factor.

Extinguish lags of the previous stabilization plans whose cost paid it the Government: the
payment of financial assets to banks through the MRA.

Promote the uniform indexation of financial assets that inflation is no longer the main price for
portfolio optimization.

Segmenting the market according to the type of interest rate: the rate would be agreed freely
between the parties when the destination of funds from repos with Public Bonds will be assign
funds to On Balance Sheet work Capital, while to finance the rest of the activities or other
balance sheet accounts, the rate would be determined by the CB.

Implement new global approaches to limit internal expansion using the criterion of Top
Portfolio, the CB determined that growth of credit to the non-financial private sector be lesser
that 5% per month.

Use the discretion of the Organic Charter of 1973 and allocate the necessary credit towards
the primary export sector and reduce current account deficits: to) The Meet Export Industry; b)
The National Board of Grains.

Discretionally remove the Top Portfolio restriction of loans to other activities: fishing and
livestock.

Start the financial normalization of obligations owed to the outside world through the repo’s
mechanism.

Use previous experiences of transition: re-establish the criterion of entities over and under
expanded (1977) and decrease the cost of the MRA and its expansive effect on the monetary
base through pay only voluntary reserves; that while originally the expansion was significant
because the banks over expanded kept the difference balances under a special regime paid,
the trend was declining at the time.
CB & Government relationship
The Government delegated the administration of monetary policy in the CB again and this in
turn, executed the same in accordance with the economic policy objectives set out by the
Government. It was the first time since 1946 that both public institutions coordinated with
some degree of decision-making autonomy, the entry of capitals, bias towards the financing of
traded goods and the fiscal discipline that allowed the drastic reduction of inflation and
economic growth.
27
For these reason we call this period Diffuse Boundaries: we can not establish the limits between the
power of the Government and the CB by Law or Act, only with the Government’s commitment to limit
the monetary discretionally.
15
After the initial success, the negative terms of trade shock in 1986-7 threatened to unleash the
wages spiral-prices so the Government ordered its freezing and the adjustment of the exchange rate
(The Australito Plan of 1987) which allowed, along with improvements in tax administration, stabilize
the effects of shock over the prices indexes. The reverse happened in 1988 (The Springer Plan), with
the improvement of external prices, domestic adverse factors: imbalance in the provincial public
spending and changes in domestic and external sector prices: increases in the rate of international
interest and absence of compensatory capital forcing the Government to loosen the fixing of prices
and wages and to rely on funding from the CB to cover public accounts. The change of Government in
1989 only accelerated inflation in an indexed economy without access to international credit and
insufficient external assets even with devaluation of the exchange rate culminating in the first
hyperinflation of 1989 whose resurgence in 1990 was only a replica of the earlier plans based on
financial assistance from the CB to the Treasury.
Structural changes, International openness and monetary policy rules, 1992-2002
The Act 23.928 of Convertibility of the Austral and the Act 24.144 Charter Act and Regime
General of the Central Argentina Republic Bank, were two standards by which legally established the
links (and limits) in between the CB and the Government.
In a context of abundant external credit, Argentina produced a strong structural change in the
administration of monetary policy to establish a Currency Board like in 1890, this time tied to the trust
money (dollar) instead of the Gold Standard and promoting the opening of capital that was initially
ensured by the external assets inflows by the privatization of public enterprises and the budgetary
balance which in turn allowed, the standardization of debt in default of 1992 (The Brady Plan).
What were the functions assigned to the CB in this time?

Following Lybek 28 (2004), the CB obtained, following the legislative reform of 1992, the
necessary independence of the Government exercise autonomous implementation of
monetary policy in agreement with Congress. The Autonomy acquired has three kinds of it:
a) The Target Autonomy, to maintain the nominal exchange rete fixed; b) The Goal Autonomy
, the price stability, and; c) The Instrument Autonomy, open market operations in those
financial assets qualified with "A" or upper level in domestic and foreign markets.

The primary goal was to Preserve the Value of the Money, developing a monetary policy
directed to safe the functions of the money like: reserve of value, standard price and exchange
unit.

The lender role, this time was of Last Resort, that only advanced funds to banks by
situations of non periodic illiquidity, and such banks ensure that funds received.
What did the CB during these years?

The main activities of the CB were: to) adjust the money supply, restricted to the increase in
net external assets to bimonetary demand; (b) establish a system of contingent repos with
international banks in situations of systemic illiquidity, and; (c) intervene in crises (e.g. Tequila,
1994 and Asian, 1997), doing more inelastic the relationship between interest rates and the
money supply to initial expectations that impacted on the rates risk premium, have an initial
overshooting bounded and the maintenance of monetary base with active external coverage
such a premium shop to stabilize at values prior to the crisis in the short term.

In contrast to other experiences, the cost for the regulation of the money supply was in charge
of the CB. Assuming the Monetary Authority that cost, he avoided the Government's
intervention to be an endogenous factor of inflation acceleration and Balance of payments
crisis.
What did the Government done?
28
Lybek, T. (2004). Central Bank Autonomy Accountability and Governance. IMF Seminar
16

Started with the removal of legal indexing, during the first years the Government successfully
tax policy and its relationship to the CB, both branches of the economic policy had Orthodox
bias which allowed leave periods of budgetary imbalances and Balance of payments crisis, its
main objective was the change in the tax structure replacing the inflation tax resources of real
activity. The mistake was to allow the persistence in the administration of public property
(Constitutional Reform of 1994) which demanded increases in current expenditure when
income of capital by privatizations exhausted, was necessary to regularly resort to
international markets. This led to real exchange rate appreciation to press in the risk premium,
turning all economic policy on the maintenance of the Currency Board via debt, given the
impossibility of balancing a growing fiscal deficit, which, through debt restructuring, was
untenable in time under a fixed exchange rate scheme.
CB & Government relationship

During the period 1992-2002, the relationship of monetary policy between the Government
and the CB was based on rules; These were 3 and met successfully:
1. Assistance to the Treasury, by article 20: "The only bank may finance the national
Government through the purchase of, at market prices, of negotiable securities issued
by the General Treasury of the Nation." The growth of the holdings of Government
securities of the Bank, at nominal value, shall not exceed ten percent (10%) per
calendar year, nor exceed the maximum limit laid down in article 33 ".
2. The Backing of Monetary Base, article 33 º stated that "Up to a third of free availability
reserves held as common garment, can be integrated with public bonds valued at
market price".
3. The segnioriage, and by means of article 38º: "The utilities that are not capitalized be
used for the general reserve fund and the special reserve funds until they reach fifty
percent (50%) of the capital of the Bank." "Once reached this limit earnings not
capitalized or applied in the reserve funds should be transferred freely to the account
of the national Government."
50,00%
Chart 3: Heterodoxy, discrecionality lags and autonomy start
45,62%
45,00%
40,00%
Average Rate
35,00%
36,83%
Standard
Deviation
30,00%
25,00%
20,00%
15,00%
13,10%
6,05%
10,00%
7,07%
8,63%
5,86%
2,11%
5,00%
0,37%
0,00%
Austral: 20 months
Australito: 16 months
Primavera: 6 months
0,87%
Hiperinflationary period: Convertibilty: 11 years
2 years
17
Lessons from Argentina’s Economic History
1. The intervention of the Government through addressing the credit for prolonged periods (three
decades), distorts the natural role of the financial institutions: the risks management. This
distortion being a determining factor for the unsuccessful outcome of the successive attempts of
reduction and stabilization of the rate of inflation.
2. The initial credibility of a new program of stabilization after persistent and failed attempts, is highly
restricted by the so-called adaptive expectations forcing the policymaker (centralbanker) to that in
these programs the gradual adjustment is supplanted by strategies of shocks that the inertia of the
same override quickly, such is the case of the Austral Plan (June 1985) and convertibility of the
Austral (April 1991).
3. The impossibility of selection by individuals of the public goods that the economy should have
(Democracy) and institutionally control them (Congress), relegates to second place the natural
goal of monetary policy: preserve the value of the currency.
4. Without freedom of choice of public goods, the adjustments of expectations cannot be conducted
various stabilization programs making inconsistent.
5. Economic autarky is unsustainable over time, although in the short term you can avoid external
shocks (Balance of Payments), the change in customs affects efficiency in the allocation of
resources, and in monetary economies, inflation is the typical sign of crisis and stagnation.
6. In the phases of the economic cycle in which reverses the expansionary phase, is custom of the
Government intervene in the management of monetary policy, expanding supply at higher rates
than the demand for money in order to maintain a stable or eliminate interest rates hikes,
distorting the intertemporal allocation of funds whose final result translates into increased nominal
interest rates and devaluation of the currency due to risk premium
7. The independence and autonomy of the CB to execute monetary policy established by the organic
Charter or in their absence, the Congress is a prerequisite for the coordination of the economic
policy of the Government.
8. The coverage of multiple risks jointly by the Government or the CB, like the exchange rate risk,
inflation and default of deposits risk, announces the discretion of monetary policy.
Conclusions
1. On monetarism of the biennium 1977-'78, is manifest the little willingness of the Government to
reduce the deficit of public enterprises and the mistake in trying to finance in the capital markets at
a time when external interest rates accompanied the start of the second oil crisis. The cost of
borrowing demanded a greater amount of public resources to serve the interests of debt, as well
as the increase in interest rates caused contractions in economic activity that were reflected in a
demand for money. The decrease in supply (supply rigidities) wasn't enough and the excesses of
currency moved to prices
2. Between 1973 and 1976 the Government replaced the Central Bank as the institution in charge of
designing and implementing the monetary policy of the Argentina, latter being a meaningless
institution of autonomy to provide limits to the spurious emission of currency, and following the
structure of the Central Bank Act (20.539) responsibility for the episodes of high inflation is
Government and not the Central Bank.
3. Attempts at reduction and stabilization of prices during the period 1977-83 were conditioned by: 1)
the objectives of monetary policy, which were established by the Government, being the CB a
single implementer of it.; 2) The impossibility of determining public goods that should occur by
economic operators granted ad infinitum discretion in the management of the public budget to the
18
Government, and; 3) The transition from a scheme of financial intermediation whose biggest
problem was the lack of existing risk management practices for three decades forced the
Government to assume the costs of the same through the MRA, to minimize the risk of mismatch
of a financial system in its initial phase of transition before a potential leak of deposits, most
bearing in mind the context (recession) and outdoors (second oil shock) unfavorable.
4. The custom that the constant expansions of the money supply maintained low interest rates, was
an argument used by the Government to monetize budget deficits and consequent inflation that
appreciated real exchange rate forcing successive devaluations to avoid external bottlenecks, is
by this custom whose maximum expression was the devaluation of 1975the first attempt to solve
the inflation phenomenon was with the monetary approach to the Balance of payments, taking as
a reference the experience of Chile.
5. During the last quarter of the 20th century, the external opening was initially associated policies of
stabilization of prices (and not for economic growth) due to the inability of the Government to
maintain the inflation rate on a monthly digit values.
6. Capital income is associated with expansions of public spending and the real exchange rate
appreciations. Two cases are presented in the Argentina of the fourth last of Twentieth Century: a)
In the first case (1976-81), monetary policy was expanded in greater amount than the net income
of capital causing the real exchange rate appreciation is higher than the rate of previously
announced devaluation rate (La Tablita), program which in turn acted as a counterweight to the
velocity of money to capital net outflow, being its recessionary effect on the real economy than
during the Currency Board, and; b) the second period (1992-2002), the money supply expanded at
a rate approximately equal to the capital and income in the absence of price (exchange rate)
adjustment counterweight, capital net outflow was one major recessionary impact.
7. Inflation and hyperinflationary episodes in the Argentina were legally insured by rules that allowed
a broad discretion in the management of monetary policy, and the wrong perception of economic
operators, since the CB was perceived as an institution whose sole function was the uncontrolled
emission of money, while you were considered the Government who limited the discretionary
power of the CB.
8. During the Twentieth Century, the first crisis of debt (1982) had as main cause to discretionary
policies of the CB, while the second (2001) had as major causes of Government Budgetary
Imbalances.
19
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20
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21