Oxford Analytica (OA), in its 2006 report on Monetary Policy Transparency, downgraded the rating of Argentina's overall compliance with this standard from "Compliance in Progress" to "Enacted." Whereas in 2002 the Central Bank of Argentina (BCRA) aimed for a fully operational inflation-targeting regime, it appears now to have adopted a more flexible regime. In the recent past there have been concerns about the independence of the BCRA and serious doubts about inflation data, which are mainly controlled by the Ministry of Economy and Production by means of imposing price controls. The BCRA must prepare an annual monetary program that includes inflation and projections and targets and monetary aggregates for the upcoming year, and this must be disclosed prior to the start of the new fiscal year. The BCRA's monetary policy is based on the control of monetary aggregates through the establishment of quarterly quantitative targets on M2. According to the BCRA's 4th Quarter Inflation Report for 2007, monetary targets were met for the previous 17 consecutives quarters. The information on monetary policy is considered to be reliable and comprehensive on a wide range of monetary variables. The BCRA's charter clearly establishes the responsibilities and goals for the BCRA, which includes the control on the money supply.

General Overview

According to Oxford Analytica's (OA) 2006 Monetary Transparency report, the responsibilities and objectives of the Central Bank of Argentina (BCRA) are clearly defined in the BCRA's Charter. The Charter sets forth the BCRA's legal capacity to control the quantity of money and credit and to establish regulations on monetary, financial, and exchange policies. Also, the Charter requires the BCRA to publicly disclose a monetary program, including inflation targets and money supply variation projection. The program must be disclosed before the beginning of the fiscal year. The BCRA's balance sheet is published at least once a year. In addition, a report with the latest information on the monetary and financial outlook must be provided to Parliament each quarter and to Congress as a whole once per year. The monetary and financial outlook report should include the activities carried out by the BCRA, The president of the BCRA must testify before the Congress at least once a year and can be asked to report on the BCRA's performance with regard to meeting its monetary policy targets.

OA found the BCRA's communications regarding monetary policy to be efficient. The report describes information on monetary policy as "both efficient and reliable, with regular publications on inflation trends, monetary policy, and financial institutions. Additionally, information on interest rates, monetary aggregates and liquidity, loans, financial indicators and foreign exchange and capital markets is regularly released" (p. 1). Argentina is a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) and complies with the coverage, periodicity, timeliness, access, integrity, and quality principles required. The 2006 OA report describes the BCRA's website as user-friendly.

The main goal of the BCRA is price stability. The BCRA establishes a quantitative target on the monetary aggregates. The 2007 BCRA report titled "Inflation Report: Fourth Quarter" affirms that the BCRA has fulfilled its monetary policy targets in 17 consecutive quarters. Monetary policy is focused on (1) the equilibrium of supply and demand of money, (2) a managed floating regime, and (3) counter-cyclical policy based on the accumulation of international reserves. Both OA and the BCRA report agree that Argentina has a flexible monetary policy based on low interest rates, protection of a competitive exchange rate and controlling inflation through different means such as sterilization, discount windows, or price ceilings.

However, the 2006 OA report expressed ongoing concerns regarding the independence of the BCRA. The previous BCRA president, Alfonso Prat-Gay, was widely considered as an independent expert with a strong commitment to BCRA autonomy to strengthen its ability to formulate monetary policy. However, his term ended in 2004 and was not renewed. Instead, the then President Nestor Kirchner replaced him and four other BCRA directors with officials with closer ties to the government. The current BCRA governor is a former secretary of international economic relations, Martín Redrado. OA states that, since the replacement of Mr. Prat-Gay, "there has been unease about the independence of monetary policy goals which are aimed at preventing the appreciation of the Argentine peso against the US dollar" (p. 5). Equally problematic is the fact that inflation is mainly controlled by the Ministry of Economy and Production by means of imposing price controls. A 2007 article in The Economist stated that inflation is a cause of concern. In addition there are serious doubts as to the accuracy of the Consumer Price Index published by the National Institute of Statistics and Censuses (INDEC).

The Principles

Clarity of roles, responsibilities and objectives of central banks.

EN

The 2006 OA Report on Monetary Policy Transparency rates Argentina's compliance with this principle as "Enacted". According to OA, the BCRA Charter defines the objectives and responsibilities of the BCRA. According to OA "the central bank monitors the performance of the financial market, acts as a financial agent for the state, and acts as depository and agent for the country in its obligation to international monetary and banking entities. The BCRA stores and manages Argentina's gold reserves, foreign exchange and other external assets; it fosters the development of capital markets; and implements the exchange rate policy" (p.4). OA adds that since the convertibility plan ended in 2002, the BCRA has recovered a more active role in monetary policy and has defined the exchange rate acting as a market maker in determining rules and restrictions. The 2006 OA report informs that the BCRA Charter compels the central bank to disclose its monetary policy before the beginning of the fiscal year. Information should include inflation targets and a forecast of potential variations on money supply. The report highlights that since 2002 the disclosure of monetary policy information has improved, leading to greater predictability and transparency.

Based on the OA report, during the years between 1991 and 2001, the BCRA was forbidden to finance the public sector. After the abandonment of the convertibility regime of that era, the BCRA's Charter was modified to facilitate the BCRA's financing of the National Treasury. The BCRA can extend to the government temporary advances as long as they do not exceed the 12% of the monetary base, and any such loans must be reimbursed within twelve months. This limit can be breached for loans that will be used to cancel obligations with multilateral credit organizations. Moreover, the BCRA can only grant loans to the public sector that do not exceed 10% of the national government revenues for the last 12 months.

The OA report claims that "BCRA's profits (that are not use to increase its capital) should be allocated to the general and special reserve funds up to 50% of the BCRA's capital. Once this limit is reached the profit that has not been capitalized or allocated to reserve funds can be transferred to the National Treasury. Losses borne by the central bank during a fiscal year have to be deduced from the BCRA's capital. In such cases, the Board of Directors may assign any profits that arise from subsequent fiscal year to restore the capital and reserve levels recorded prior the original loss" (p.5) In addition the BCRA's website publishes daily information on the Financial System International Reserves and the Central Bank Financial Liabilities. The BCRA's domestic and foreign debt servicing and any expenditure are charged on the National Government Account. The BCRA has a role as a fiscal agent of the state and should report its performance to the Ministry of Economy and Production. Moreover, the BCRA also has to act as an economic and financial advisor of that ministry regarding official borrowing. The BCRA has no legal responsibility to serve as an advisor on international cooperation.

Although the legal framework gives the BCRA independence from the central government, OA notes that the government's disposal of central bank reserves does not reinforce the idea of an independent institution. Indeed, the argument against independence has been used in legal actions against the Central Bank in New York that were before the US Court of Appeals in 2006. A 2007 statement by the House of Representatives referenced a law project presented at the National Congress in March 2007 that aimed to reduce the independence of the Central Bank. This effort was strongly criticized throughout the media.

Open process for formulating and reporting monetary policy decisions.

EN

OA, in its 2006 Report on Monetary Policy Transparency in Argentina, rates Argentina's compliance with this principle as "Enacted". The OA report notes that the BCRA must post an Annual Monetary Program on its website at the end of each fiscal year. The program should include a description of the BCRA's last year performance. The Annual Monetary Program should be elaborated taking into account macroeconomic scenarios, inflation forecasts, and monetary aggregates estimations. Quarterly reports review and update the targets of the Annual Monetary Program. In addition there is a monetary program monitoring system which requires reports to be periodically posted on the BCRA's website.

The OA report asserted that the inflation targeting-mechanism has been gradually eliminated. Nevertheless, because the BCRA must maintain price, an inflation target is set at the beginning of each fiscal year. The 2005 monetary program was based on quantitative targeting on the monetary aggregates, focusing on the monetary base because of the small size of the banking system. Even though monetary policy has been tightening, it continues to be accommodative. Monetary policy consists mainly on maintaining a low interest rate, a competitive exchange rate, and controlled inflation. The BCRA has employed a number of monetary instruments to achieve sterilization, but inflation control has largely been done through the Ministry of the Economy and Production's imposition of price controls.

The BCRA's 2007 report titled Inflation Report: Fourth Quarter 2007 asserts that economic strategy is based on "(1) a prudent and consistent monetary policy that ensures the equilibrium of supply and demand on the money market; (2) a managed floating regime, and (3) counter-cyclical financial policies (accumulation of international reserves and development of a liquid and solvent financial system)" (p. 6). Monetary policy is based on the control of money supply. The BCRA has achieved its policy objectives in 17 consecutive quarters. The sterilization of 23.4 billions of pesos in September of 2007 shows the BCRA's commitment to meet its monetary aggregates targets. The BCRA report titled "Monetary Report: October 2007" states that policy targets for liquidity in pesos and dollars have also been achieved.

Since the U.S. real estate crisis began to have an impact on the global financial markets, the country has experienced pressures on the exchange rate, volatility on the interest rate and a small decrease in monetary aggregates growth. In response, the BCRA took several measures, such as "supplying liquidity by granting repos, through auctions at variable rates and by arranging fixed rate transactions, repurchasing LEBAC and NOBAC on the secondary market and by tenders, and only renewing part of these issues on their maturity. Likewise, a two-month measurement period, for July and August, was decided for the minimum cash reserve position. These actions were supplemented by interventions on the spot foreign exchange market, coordinated with the public sector banks, and a larger presence on the future markets." The BCRA's 2007 4th quarter report asserts that this countercyclical policy has allowed the BCRA to act quickly and efficiently in response to the changes in the international financial context.

The exchange rate works on a managed float, which has necessitated significant official purchases of U.S. dollars to prevent the nominal appreciation of the peso. The BCRA is operating with certain degree of discretion, says the OA report. "The asymmetry of information between the central bank and the market within this framework, and the fact that the exchange rate could be changed without any policy announcement precludes the consolidation of a fully transparent system" (p. 14). OA added that the composition, structure, and functions of the BCRA are set forth in the BCRA's Charter. The BCRA is lead by the Board of Director which consists of a president, a vice-president and eight directors. All of them are nominated by the national president and must be approved by the Senate. The Senate approval process is an important improvement in transparency for the Argentine monetary policy-making body. Nevertheless, the board is still criticized for its lack of monetary expertise on the board and the politicization of the election of the members of the board. The board meets at least once every 15 days, but minutes of its meetings are not publicly disclosed.

OA reports that the BCRA has an efficient and open publication system. The Annual Monetary Policy program is published each December. In addition, a monthly Monetary Report offers information on monetary policy and the country's financial position, including interest rates, monetary aggregates, liquidity, loans, financial indicators, and foreign exchange and capital markets. A Weekly Monetary Report covers the monetary base, international reserves, inflationary trends, and the lending sector. Finally, there are daily data on the major monetary variables. Macroeconomic data are available on the BCRA's website. The BCRA must present quarterly reports to the parliament on policy and operations trends. The BCRA press office keeps the media updated as to policy changes.

The monthly Financial Institution Report offers information on data reporting by financial institutions. OA states that this report provides information on the profitability of the financial system, the net worth of private banks, foreign liabilities, non-performing portfolios, and liquidity. The BCRA website offers data on financial institutions' assets and liabilities, accumulated income, memorandum accounts, and audit observations, as well as balance sheets and related data. A system of information transparency was established in 2004 requiring financial institutions to disclose information on some of their products and services, in order to enable data comparison and facilitate public access to information. The BCRA has the power to sanction entities that report inaccurate or false information. The banking association and the BCRA have elaborated a voluntary Best Banking Practices Code. As of December 2007, two-thirds of the banking institutions operating in Argentina have adopted the Code.

Public availability of information on monetary policy.

CP

OA's 2006 report downgraded Argentina's compliance with this principle to "Compliance in Progress" from the previous year's rating of "Full Compliance." The International Monetary Fund's SDDS website lists Argentina as a subscriber and discloses that Argentina's monetary data meets the requisite standards of periodicity, coverage, timeliness, and public availability The BCRA's website is user-friendly and reliable. OA states that the BCRA publishes its annual balance sheet and income statement, and also publishes a weekly Summary Statement of Assets and Liabilities, with data on the previous week. The BCRA's website also provides public access to texts of the speeches of former and current senior officials of the BCRA, and the public can download or read online the BCRA's regulatory documents. OA states that "the BCRA annual report includes information on loans made to the financial system, contribution to international agencies made on behalf of the national government, temporary advances funds to the national government and management of international reserves...monetary instruments, current accounts in foreign currencies, payment system and government securities" (p.13). The BCRA's accounting system follows the principles set up by the Superintendency of Financial Institutions and Exchange Bureaus for all financial institutions. The Annual Report must be presented to the parliament. OA adds that the BCRA must publicly disclose aggregate information on emergency financial support. The BCRA's publication program also includes reports, research papers, conference papers, and a wide range of other information relevant to the formulation and conduct of monetary policy.

Accountability and assurances of integrity by the central bank.

CP

The 2006 OA report rates Argentina's compliance with this principle as "Compliance in Progress." The BCRA's Charter and the Financial Institutions Law require the BCRA to present a report to the Congress at least once a year. The report should include the state of the economy and the financial system and the activities carried out by the institution. Annual reports can be accessed on the BCRA's website after a lag of several months. The report is usually given in two parts, the first covering the first six months of the year, the second covering the entire calendar year. In addition, quarterly inflation forecasts and a monetary policy report must be presented by the BCRA to the Congress. The BCRA chairman must attend public sessions of the Budget and Finance Committee of both chambers of National Congress at least once a year. OA adds that the BCRA's Charter requires that the central bank's annual financial statements be audited. The internal audit is conducted by an internal comptroller nominated by the President and approved by the Senate. An external audit is also required. This is done through the National Audit Office. Audit reports are available online. Finally, the BCRA's internal Code of Conduct specifies the rights and obligations of the BCRA staff. Copies of the Code are distributed internally but the text is not publicly disclosed. The BCRA's Charter sets forth rules to prevent conflict of interest among members of the board. The Financial Institutions Law grants some level of legal protection to BCRA directors, but provides no legal immunity.