Martin Redrado, Argentina’s former central bank governor, has voiced concerns that his successor will use the institution to fund development projects, instead of concentrating on regulation and monetary policy.
His remarks came after the new central bank leadership pointed to a wider role for the institution, and raised questions about his tenure.
Redrado told Emerging Markets in an interview that the new approach “really shows the difference with these people. They see the central bank as a development bank instead.”
He added: “The central bank should create rules and regulations, but then the rest is up to the private sector.
“If you really want to support the productive sector, you need a development bank. If you want to give subsidized loans to different groups, you have to do it with fiscal resources. There is no free lunch in the economy.”
A central bank official who works with Mercedes Marco del Pont, the new governor, told Emerging Markets that the bank “will take a much more active role than it has taken under prior leadership,” and added that Marco del Pont’s approach will follow the “politics of economic development with social inclusion.”
The source added: “The best way to preserve the value of money is to promote economic development, creating jobs and increasing the capacity of the productive sector. The new director does not have a monetary vision towards inflation.”
Redrado said that this model “shows they have a misunderstanding of the role of the central bank. They will learn soon that you cannot give money away for free.”
Argentine president Cristina Fernandez de Kirchner sacked Redrado in December after he refused to comply with an executive decree requiring him to transfer reserves to the Treasury to pay 2010 debt.
She replaced him with Marco del Pont, who despite solid academic credentials has been questioned for her closeness to Fernandez de Kirchner.
Concerns about her independence grew earlier this month when presidential executive decrees ordering further reserves to be transferred to the Treasury were immediately implemented.
The opposition, which now has a tenuous majority in the Senate, has since tried to overturn the decrees and sack Marco del Pont, but has so far failed. Earlier this month it could not obtain the votes to remove her.
Additionally, a judge ruled last week that a bicameral Congressional committee, assembled by the opposition in the hope of overturning the decrees, did not have the correct composition of members.
Former bank president Redrado also responded to criticism that he should have done a better job handling inflation. “The power of monetary policy in a country like Argentina is weaker than in other countries,” he said.