BCRA Reform Could Be One of the Most Restrictive in the Region, According to an International Banking Association

The Institute of International Finance (IIF) analyzed the reform of the Organic Charter of the Central Bank (BCRA) promoted by the Government, which has already received half approval in the Chamber of Deputies. They concluded that, if approved, Argentina would go from being a regional exception to being among the most restrictive regulatory frameworks for central banks in Latin America.

In general terms, the IIF stated that the changes aim to "strengthen the legal foundations of the country's disinflation strategy." Nevertheless, they pointed out that "the definitive test will be political, not legal."

They elaborated: "Approval would be a strong signal, but low and sustainable inflation will still require fiscal discipline, credible implementation, and sustained commitment across different administrations."

The project would establish as the primary and fundamental mission of the BCRA the preservation of the currency's value, prohibit direct loans to the public sector and the purchase of securities in the primary market, and tighten governance and profit transfer rules.

One of the highlighted aspects in the report is the redefinition of the BCRA's mandate. In this context, the IIF considered that a more limited mission could clarify the responsibilities of the BCRA and strengthen its credibility.

They also noted that most central banks in Latin America prioritize price stability, although with different additional objectives depending on the country.

For example, they explained that Peru focuses its mandate on preserving monetary stability. Chile considers the stability of the currency and the normal functioning of internal and external payments. Mexico aims to protect purchasing power and promote sound financial systems.

Brazil establishes price stability as a fundamental objective and adds secondary goals such as moderating economic fluctuations and achieving full employment. Colombia requires preserving purchasing power in coordination with economic, monetary, credit, and exchange rate policies.

Regarding government financing, the Argentine reform would align with the regional trend towards greater independence of central banks. The main countries in the region restrict or prohibit direct financing to the Treasury, although there are differences regarding allowed exceptions.

Chile and Brazil relaxed their frameworks during the pandemic to enable purchases of securities in the secondary market under specific conditions. Colombia allows operations in the secondary market and loans to the government in exceptional circumstances, with unanimous approval from the board.

Mexico permits a temporary and strictly limited credit to the federal government through the Treasury's current account. Peru, with one of the strictest prohibitions in the region, constitutionally prohibits financing to the Treasury, although it allows limited purchases in the secondary market.

The report also analyzed the independence of the members of the BCRA board. The main central banks in the region have fixed-term mandates and specific causes for the removal of their authorities.

The IIF believes that the Argentine proposal—by specifying the causes for removal and requiring a two-thirds majority of the members present in each Chamber—would represent a significant strengthening of protection against arbitrary dismissals.

However, the organization introduces a warning: institutional independence could remain incomplete as long as temporary board members appointed in commission can remain in their positions without Senate confirmation and without an effective time limit established by law.

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