By Charles Newbery

BUENOS AIRES (MNI) – Argentine President Cristina Fernandez de
Kirchner Thursday said she has submitted a bill to Congress to reform
the central bank so it can spur economic growth.

“The central bank should help the real economy,” she said in a more
than three-hour address before lawmakers to open the congressional year.

While it will remain independent, she said “this doesn’t take away
the possibility and the obligation for the bank to intervene in the real
economy to sustain growth and employment.”

She said the bill calls for allowing the bank to stimulate credit
and not just to defend the stability of the currency. This will come by
giving the monetary authority a greater role in regulating financial
services and steering them toward building the economy, she said.

The move could pave the way for the government to draw more central
bank reserves to pay the national debt, a key source of financing given
that the country hasn’t returned to global credit markets since a $100
billion default in 2001.

The government started tapping reserves in 2010, prompting the exit
of Martin Redrado, a respected economist, as chief of the bank. The
government used reserves to cover $6.6 billion in debt payments in 2010
and $7.5 billion in 2011 and will use an estimated $5.7 billion this
year.

The practice has raised concern about national finances this year
after a surge in capital flight led to a decline in what the bank holds
in its coffers.

Capital flight nearly doubled to $21.5 billion in 2011 from $11.4
billion the previous year as fears grew about the impact of the global
economic downturn on Argentina’s economy. That cut reserves to $46.4
billion at the end of 2011 from $52.1 billion at the start as the bank
sold dollars to sustain a stable exchange rate.

The decline prompted the government to slap stricter controls on
changing currencies and taking them out of the country, helping to
narrow capital flight to $3.3 billion in the fourth quarter of 2011
compared with $8.4 billion in the previous quarter.

CFK said the reform project will breath new power into the central
bank.

She said a reform of the charter in 1992 stripped the central bank
of capacity to steer credits to the real economy, saying that control
was shifted to banks and financial companies.

This, she said, was a reason for the country’s economic and
financial collapse in 2001-02 because the central bank couldn’t step in
to help provide loans.

“We are making it so the central bank not only preserves monetary
and fiscal stability but also the value of production, of the real
economy,” she said. “This is what the world needs and it is what we
need.”

She said the reform won’t mean “interventionism” but greater power
for the central bank to regulate financial activities to support
development.

** Market News International – Buenos Aires **

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