Argentina: The BCRA charter reform

Research evidence excerpt

Argentina: The BCRA charter reform

t it has not yet been made public. The

cle 3 objectives to include employment and economic devel-

direction is clear. The goal is a narrower, more insulated

opment alongside monetary and financial stability, freed the

BCRA, one designed so that the next government, whoever

government to use reserves to pay public debt, and loosened

leads it, finds it harder to use money printing as a solution to

the Article 20 ceiling on transitory advances, raising the cap

budget shortfalls.

to 12% of the monetary base plus 10% of prior-year tax reve-

nue, with a further 10% permitted in exceptional circumstanc-

The reform rests on three pillars: (i) a single legal mandate to

es, while removing the earmark that had restricted the use of

preserve the value of the currency, reversing the multi-objec-

those advances to multilateral debt payments.

tive framework introduced in 2012; (ii) eliminating the

BCRA's ability to extend transitory advances (adelantos tran-

The practical consequence was a steady increase in Treasury

sitorios) to the Treasury, the historical channel of deficit mon-

draws on the BCRA, financed by money creation, which in

etization, as well as restricting BCRA’s profit transfers and

turn required the BCRA to issue its own sterilization instru-

prohibiting the creation of IOUs (Letras Instransferibles) to

ments, first LEBACs, later LELIQs and repos, to absorb the

access reserves against paper claims; and (iii) a governance

resulting peso liquidity. The interest cost of that sterilization

change requiring Senate consent for the appointment and

stock became a recurring source of quasi-fiscal losses that fed

removal of BCRA board members, intended to insulate the

back into further issuance, a dynamic long identified as cen-