Two women have taken control of Argentina's central bank and are about to use it as if they are on a weekend shopping spree.
WSJ's Mary Anastasia O'Grady reports:
Argentina's Franken-state stormed the central bank last month, destroying the last vestiges of independence. Given the hyperinflationary history of that nation, it is worth asking why Argentines have allowed this to happen.
The pathology of a government power grab is not hard to discern. The state creates the conditions for crisis. Crisis strikes. Politicians seize extraordinary powers. Crisis passes. Left behind is a popular perception that complete annihilation was averted due to government genius. Politicians are permitted to expand their power...
Under Kirchner presidencies—first Néstor and now his wife Cristina—since 2003, the state has confiscated bank accounts and retirement savings, hyper-regulated many entrepreneurs out of business, abrogated contracts, imposed price controls, and raised import tariffs and export taxes. Vast entitlements, notably in subsidized utilities and transportation, have been used to consolidate power...
Last month the Kirchner-controlled Congress delivered what could be the coup de grace for the Argentine economy: a reform of the central bank charter that eliminates a 1991 monetary rule requiring that base money be backed up by international reserves and placed beyond the control of the government. The central bank board now will come up with some formula for the amount of reserves to be kept on hand. Reserves above that amount will be available for Mrs. Kirchner's government to borrow. The formula can be adjusted at any time.
The Kirchner government has been dipping into the central bank's "excess" reserves—the surplus over the monetary base...
[Kirchner] since 2010. A showdown about that policy provoked the resignation of former bank president Martin Redrado in January 2010 and the naming of the more compliant Mercedes Marcó del Pont.maintains her popularity with generous government spending, and with international reserves fleeing, excesses are shrinking. She needed a charter change if she wants to tap more central bank funds. According to the reform, she can now borrow from the bank about twice what she could borrow before.
The bank's singular mandate of price stability has also been removed. In its place is a three-pronged mandate that includes the goals of providing for growth with social fairness and financial stability along with price stability.Cry for Argentina.
Given Argentina's track record, it is hard to imagine that these new rules won't lead to more inflation....
Government claims that inflation is running around 10% have been challenged by independent economists who say it is more like 20%.
In February, the Economist echoed those doubts with a seething commentary announcing that it would no longer publish official statistics. "We are tired of being an unwilling party to what appears to be a deliberate attempt to deceive voters and swindle investors," the magazine wrote.
A crisis is brewing. When it hits, will Mrs. Kirchner get even more power or will Argentines finally come to their senses?
O'Grady's full column is here.