Latinnews Daily - 28 August 2003

Argentina's lower chamber has given its approval to the government's proposals for enhancing the powers of the central bank, the BCRA. Under the proposed changes the BCRA will be able to make larger loans to the government and will have the power to restructure Argentina's financial system. This law represents a key compromise with the IMF as Argentina attempts to secure a new three-year debt deal with the multilateral in September.

Yesterday's reforms, which had already gained approval in the senate on 18 June, will change the central bank's constitution, altering the terms at which the BCRA can advance money to the government. The IMF wants the government to start paying back some of the money owed to international financial organisations under the proposed three-year debt restructuring deal which Buenos Aires wants signed by 9 September. President Néstor Kirchner is, however, against the idea of dipping into Argentina's US$13.3bn foreign currency reserves to do so.

Under the new laws, the BCRA is set up as an organism independent of the government and it can make greater loans to the treasury provided that the money is used to repay international financial organisations. This pleases both parties; the IMF has long campaigned for greater central bank autonomy, while Buenos Aires can say that it is not paying from its reserves outright, but rather undertaking a short-term loan from the BCRA.  

This new system might be put to the test rather soon. If Argentina and the IMF do not reach a deal by 9 September Buenos Aires will have to pay off a debt to the multilateral of US$2.9bn which falls due on that date.

The chamber of deputies also passed a reform of the financial entities law to allow the central bank greater powers to improve the financial system. In particular the BCRA's directors will be immune from prosecution, thereby allowing them greater leeway to bail out or close banks as they see fit, for example. The reforms also made it clear that only the BCRA was able to issue money, and ruled out the possibility of provinces issuing bonds as has happened over the last two years.

The US will be as pleased as the IMF by yesterday's legislation. Washington has so far backed Buenos Aires in its negotiations with the multilateral, but there have been signs recently that the US is growing impatient with the process. Secretary for western hemisphere affairs Roger Noriega said on Tuesday that he wanted Buenos Aires to be more transparent with its economic and political plan.

Yesterday was not, however, a total triumph for the government. The chamber of deputies did not manage even to debate a law Kirchner wants implemented to compensate banks for losses incurred when dollar loans and deposits were converted into local currency.