Merge Left

John Weeks explains how the Central Bank of Argentina breaks ranks with neo-liberal banking policy and targets jobs over lower inflation:

from the transcript:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington.

Most central banks around the world preach fiscal discipline. Inflation is their biggest concern. And even when they do enter into some stimulus policies, the final objective is still the issue of lowering debt. Well, one central bank in the world apparently has a growth agenda, and that’s in Argentina.

Now joining us to talk about this is John Weeks. John just was in Argentina not very long ago. He’s a professor emeritus at the University of London School of Oriental and African Studies. He’s the author of the book Capital, Exploitation and Economic Crisis. He runs JWeeks.org. And he now joins us again from London. Thanks, John.

JOHN WEEKS, PROFESSOR EMERITUS, UNIV. OF LONDON: Thank you.

JAY: So what did you make of what the central bank’s doing in Argentina?

WEEKS: It’s tremendously important, because in the 1990s Argentina was the epitome of a neoliberal monetary policy. It had something called a currency board, and that currency board involves taking the foreign exchange you hold, which is, in the case of Argentina, dollars, and that your domestic money supply is rigidly tied to the amount of dollars you hold. Of course, the amount of dollars you hold is a result of your imports and exports, the balance between the two, and so in effect you have no independent monetary policy. And it tended to be quite deflationary, that is, it tended to cause not only very low inflation, but actually negative rates, and also very slow growth.

At the end of the 1990s, the disaster that that policy had inherent in it was realized, and in 2001 and 2002 Argentina could no longer maintain that policy, because what it meant, basically, is that if you began to lose dollars because you were—Argentina was running a trade deficit, it meant you had to contract the economy, because you had to take your domestic currency out of circulation, more and more of your domestic currency out of circulation. And that led initially to a severe recession in the economy. When that could no longer be maintained and they temporarily went off the currency board, you had hyperinflation for a year.

Okay. The current government of Cristina Fernández has repudiated that policy. They have introduced a new central bank law (they had actually been practicing it, but they formalized it in this last March, just two months ago) which completely ends the currency board regime and replaces it with a central bank that facilitates a growth-oriented policy of the government. And it also is concerned about inflation, but inflation no longer becomes a constraint, the tail that wags the whole dog.
…