What specifically did you object to when the President first requested transferring central bank reserves?
That the central bank cannot be used to finance the public sector deficit and that Argentina should go out as any normal country and should regain access to voluntary markets. Unfortunately the country has been looking for short cuts. I wanted Argentina to go back to the voluntary markets and also take advantage of the fact that emerging markets were coming out strongly on the global financial crisis. Due to the work we have done at the central bank, we have avoided the scenario of default and devaluation that many analysts had predicted back at the end of 2008.
So was that more important in your mind than the fact a DNU [Decree of Necessity and Urgency – emergency decree] had been issued for the transfer of funds?
No, one is conceptual and one is legal. A DNU has the same legal status as a law. I have not mentioned before that I did have a problem with DNU as well, in terms of principle.
Also it was rather awkward that after four days of the end of ordinary sessions of Congress, they issued a DNU. In my mind, any DNU that involves the central bank needs to be discussed in Congress.
When were you first made aware of the December 14 decree?
On December 14, 30 minutes before [its issue].
Who contacted you?
President Fernández de Kirchner.
What did she say?
She told me about her idea. I started to tell her of the risks andpotential problems, first of all with potential embargoes that Argentina has. I tried to discuss options that did not involve moving reserves from the central bank to the Treasury.
But none of the ideas I brought up with her really matured. She gave me no reason for my ideas not being accepted. I think the key problem is that behind this decree was not the idea of financing but rather to increase public expenditures – where one can find easy money to pump into public-sector spending.
Was it clear if the initial DNU was meant to use the reserves for paying debt or for government expenses?
At first, it was quite ill-defined. The government had very different objectives that were not clear at the beginning, but in the end they showed that they simply wanted to increase expenditures and not go to the voluntary market. This was a way to deal with the problem of a shrinking fiscal surplus.
A source at the central bank explained how the new president will be different from you. The source said that the new director does not have a “monetary vision only” and that the focus will be on the productive sector and social inclusion. What do you think of this?
That really shows the difference with these people. They see the central bank as a development bank instead. 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.
It shows they have a misunderstanding of the role of the central bank. They will learn soon that you cannot give money away for free.
Why isn’t there a development bank in Argentina?
Because we have had very bad experiences in the past with crony capitalism.
During your tenure at the central bank, did the Kirchners ever express interest in creating a development bank?
No. There were many attempts on their part to use reserves for things in my view that they should not be used for. In 2006, [then president] Néstor [Kirchner] asked me to evaluate the possibility of buying [oil company] YPF with the use of reserves. I told him that was technically impossible. In 2007, he asked me to look at financing infrastructure, which I rejected. In 2008, he asked me to pay the Paris Club debt with reserves. In 2009, he wanted to give re-discount lines in pesos to stimulate the auto industry. In 2009, he wanted to place compulsory bonds on local banks for their portions of dollar deposits.
You have been heavily criticized for Argentina’s high inflation over the last several years. To what extent are you responsible, and how do you respond to the criticism?
I have no responsibility over that. The power of monetary policy in a country like Argentina is weaker than in other countries. I had two main tools: interest rates which have weak and narrow implications in Argentina, and the exchange rate. But one has to be careful using the exchange rate as a strict anti-inflationary tool in a country with a heavy dollarized economy like Argentina, because you can produce even more inflation.
What is right for Argentina cannot be extrapolated to other countries. We have had a crisis every seven years for the last 30 years. When there is a move in currency, there is a run on banks. We defeated the curse of the crisis, which was due in 2009.
I can take comfort in criticism that we had a gradualist approach, but I view my term as a transition phase for the central bank in Argentina.
The central bank was an anchor of stability during the global financial crisis and is what kept Argentina afloat when many thought the country was going to default, going back to 2008. We did not devalue the peso as much as other countries did during the crisis.
How much of the reserves is kept at the Bank of International Settlements (BIS)? Why does that continue and whose decision was that? Did this come from the Kirchners?
I cannot comment on the exact amount but only say that more than 50% of the reserves are there. But this was not my decision. The reserves were at BIS well before my term – one of my predecessors made that decision. During my tenure, we did not increase the percent kept there. We also found other places to keep the reserves.
Also, this was not a decision by the Kirchners but by the central bank. They did not discuss this at all with me.
One has to view the BIS beyond the narrow issue of legal immunity. We are also a shareholder of BIS. We do not see it as just a recipient of our funds. We exchange information with them and have sent people to train there. We tried to broaden and deepen our relationship. I would not have been chosen to head the Americas Committee if it was not beneficial to the BIS. We also started a Latin American bond fund so that central banks in our region can invest in the bonds of their neighbours. BIS did something similar with an Asian bond fund, which played a critical role in integrating central banks in Asia.
You have been criticized for transfers the central bank made to the Treasury every year during your tenure, for example the tranferencias de ganancias and adelantos transitorios. Why did you make these and was your independence compromised in doing so?
First on the transferencias, the shareholder of the central bank is the government. It is usually the ministry of economy that capitalizes the central bank. This is as normal as in any other central bank in the world.
I have been criticized by some for distributing the profits made on the appreciation of the dollar. In 2008, for example, the exchange rate went from 3.19 to 3.45 and there was a profit of seven billion pesos from the appreciation. We did not transfer all of that but only 4.4 million pesos to the Treasury. But this is totally consistent with what previous central banks did. In the past, they distributed profits resulting from the appreciation of the euro.
As to the adelantos, or transitory loans, this is something also implemented by past central bank governors. We followed the specific limits detailed in Article 20 of the central bank charter.
The government requested these loans but paid them back every year. Even though Argentina had record growth and surpluses, every government has to pay for capital and amortization of debt. We did not even roll over capital amortization on mature debt.
I see a clear difference between the government asking the central bank for funds in order to address the public-sector deficit (which I opposed in December) and asking for funds to pay off debt amortization.
I have to emphasize that we were audited by KPMG and now Ernst & Young, as well as Congress, and there has not been a single word raised about these issues.