Central Bank in coordination with the Treasury

ARGENTINA - In Brief 25 Sep 2018 by Esteban Fernández Medrano

While local economic activity is practically on hold today as the government suffers its fourth general strike lead by the labor unions (GCT), and the economic team lead by Dujovne re-negotiates with the IMF the Stand-by agreement, the market received the news that Central Bank President Luis Caputo resigned. His replacement, Guido Sandleris, was until today the Secretary of Economic Policy and for all practical purposes Dujovne’s right hand and second in line. Locally Caputo’s resignation (a man of Macri’s utmost trust) is interpreted as a consequence of his frictions with the IMF. He is said to have convinced the President to announce the renegotiation of the current Stand-by agreement before it was actually done. Naturally this preemptive announcement was badly received by the IMF staff. It also acted as a trigger to generate market run on the peso. While the fundamental reasons of the run were the unsustainable level of LEBAC debt, in an environment of high fiscal and current account deficit, it gave the impression of improvisation that coordinated the herding behavior. These frictions, plus some alleged differences regarding the usage of reserves to control the FX rate fluctuations was the straw that broke the camel’s back. The assignment of Sandleris as president of the BCRA is a clear sign of support to Dujovne. At this time of an imminent announcement of a Crawling Peg scheme linked to some real exchange rate levels, the fact that the BCRA is headed by the former second in line of the Treasury, should allow for a better economic coordination between the Treasury and the BCRA, but at a risk of undermining the central bank independence and eventually the anti-inf...

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