The independence of the Central Bank is a thing of witches: it does not exist, but there is, there is

As he found out Clarionthe Government has two drafts of the project and a third is missing. Then, based on them, there will be a debate to give definitive shape to the project.

The objective of the ruling party is to reverse the reform that Cristina Kirchner promoted in 2012 when Mercedes Marcó del Pont was in charge of the Central. Marcó del Pont herself was one of the first to criticize the initiative this week. Also the former president of the BCRA Miguel Pesce. Milei counterattacked and crossed them, in turn, through the nets.

The underlying discussion for Kirchnerism economists is that the Central Bank has two objectives under its mandate: taking care of inflation and economic growth. For Milei there must be only one: price stability. The President formalized his position by stating the Tinbergen principle or theorem (in honor of the Dutch Nobel Prize-winning economist Jan Tinbergen): To achieve an economic policy objective, at least one policy instrument that is independent is needed and that is fiscal policy.

Therefore, according to the President, the error of the 2012 Organic Charter lies in assigning more than one objective to an economic policy instrument, monetary policy. Therefore, he believes that the acceleration of the inflation rate after 2007 should not be a cause for surprise.

Milei expressed this point of view in X. And at the end of the message he left an enigmatic message: “PS: the reform is not limited to what is mentioned in this post. We will go even deeper.”

Is there also a reform of the capital market coming, in addition to that of the Central Bank?

There is speculation in the Government that this will “pulverize” the country’s risk, which this week closed at around 400 basis points. If the JP Morgan index pierced that floor, the chances of the Government returning to the voluntary debt markets would increase and the reserves would not be affected by the payment of the debt to the bondholders.

The IMF has not only asked Argentina to return to the markets to refinance the capital maturities of its debt, but also to modernize the autonomy and mandate of the monetary authority. This is what he said in the last staff report. “Such reforms should strengthen institutional safeguards that protect the independence of its policies, clarify the objectives of the Central Bank and improve accountability and transparency.”

For his part, the president of the Central Bank, Santiago Bausili, responded a few months ago when he was asked what he thought about independence.

“The question is super philosophical. There are independence in fact y de jure“Sometimes they coexist and sometimes they don’t coexist.”

De jure refers to a situation supported by law. De facto means ‘in fact’.

“This Central Bank has de jure independence because it is provided for in the legislation and de facto as has very rarely been seen. —Bausili continued—, There are other countries where the opposite happens: the bank is de jure dependent because the board of directors in Uruguay is appointed every time there is a new Executive Branch and each time they appoint someone more independent. Sharing a panel with Julio Velarde, president of the Central Bank of Peru, we were once asked about independence. Velarde responded ‘I don’t know because the independence of the Central Bank ultimately matters in an extreme situation’ to refer to when the Treasury faces a financing need that it cannot meet in the market and has to decide to make a payment with fiscal spending or debt payment. And at that moment he knocks on the door of the Central Bank saying ‘I need to monetize that obligation. In that case, the Central Bank can say whether the order is consistent or not with the balance to see if it monetizes or not, and a situation of tension is generated or not. ‘Luckily it never happened to me,’ said Velarde.”.

Bausili went beyond the anecdote and established a relationship with the Argentine case. “It is fiscal discipline that generates an independent monetary policy then and the Central Bank does not face that dilemma of whether or not to monetize the deficit. Here, luckily, the Treasury does not have that need and just as de jure the BCRA should be independent, today it is not independent as long as the coordination of the economic program is total with the Ministry of Economy. This is much more important than trying to build something that someone resists financing the Treasury with monetary issue. For me, in terms of priorities, first we must get out of the bottom of the sea and reach a situation where the Central Bank has a solid balance sheet.”

Finally, during the week, in the United States there was an episode that ratified the independence of the Federal Reserve: the Supreme Court rejected a request from Donald Trump to fire a director of the bank.