• Analysts, markets wary after Argentina bank shake-up


    BUENOS AIRES: Argentina’s choice of new central bank chief triggered nervous reaction
    on Thursday (Friday in Manila), sending the Buenos Aires stock market into a dive and drawing warnings of reckless policymaking.

    Stocks closed 7.05 percent lower in Buenos Aires, after falling 8.22 percent Wednesday on news of Juan Carlos Fabrega’s resignation.

    Markets appeared to take little comfort in the government’s assurances that it would make no sweeping changes at the central bank, known as BCRA.

    Cabinet chief Jorge Capitanich told journalists the new central bank governor, Alejandro Vanoli, had the exact same job description as his hastily departed predecessor—to shepherd the country’s struggling economy.

    “Vanoli has to carry out the basic charter of the BCRA, which is very clear and says he must create the conditions for economic growth and employment, monetary stability and apply regulatory laws,” Capitanich said.

    Asked if there would be any reforms to the wide-ranging “financial entities law” that governs the bank’s oversight of the commercial banking and financial industries, Capitanich said: “The answer is no.”

    But analysts predicted Vanoli, the former head of the national stocks and securities regulator, would bring more extreme economic policymaking to Latin America’s third-largest economy, already locked out of global financial markets since its 2001 debt default and grappling with nearly 40 percent annual inflation and a tumbling currency.

    “The resignation of the governor of the Argentine central bank opens the door for even more unorthodox economic policy,” said David Rees, emerging markets economist at Capital Economics.

    “With . . . policymaking heading in the wrong direction, the economy looks set to stay stuck in a rut,” he said in a note, predicting the economy would shrink two percent this year.

    ‘Break the piggy bank’

    Deutsche Bank said outgoing chief Fabrega “was known to balance some of the policy inconsistencies promoted by the economic ministry.”

    That is the portfolio held by Axel Kicillof, the intransigent economist who led Argentina’s failed negotiations with two US hedge funds that have derailed the country’s effort to restructure its debt by suing it for full payment on their bonds.

    “Meanwhile Mr. Vanoli has been instrumental in using renewed powers at the SEC [securities regulator]to investigate companies and tighten the overall auditing of private corporations,” Deutsche Bank said, predicting more expansionary policies, inflation, currency trouble and “deeper economic recession.”

    Vanoli is seen as close to President Cristina Kirchner’s center-left government.
    Five central bank governors have now come and gone under Kirchner and her late husband and predecessor Nestor, who took office in 2003.

    One former governor, Martin Redrado, said there was a problematic relationship between the government and the central bank.

    “The mistake is our economic policy,” he said.

    “It’s not viable to use BCRA as the government’s piggy bank. ‘Come on, let’s break the piggy bank, we’ll take out some money, get some foreign currency.’ That generates more inflation.”

    Since 2010—the year Redrado resigned, ending his six-year tenure—the central bank’s foreign currency reserves have fallen from $52 billion to $28 billion, complicating efforts to get the country’s debt payments back on track.



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