martin redrado : overview of monetary and financial policy in argentina speech by mr martin redrado, president of the central bank of argentina, before the committee on treasury and budget of the national senate, buenos aires, 20 december 2006. * 1. * * monetary and financial policy guidelines in our third year in office, we are laying the foundations and starting points for the monetary and financial system of the coming decades. this strategy is based on four main pillars - a consistent, articulate and gradual monetary policy ; a foreign reserve accumulation and management policy that provides a long - term horizon ; a system that is independent from public sector needs ; and a policy framework that boosts corporate and household credit. the economic literature has shown that there is no optimal one - size - fits - all scheme. worldwide, there are success stories both of fixed and floating exchange rate regimes, with or without explicit inflation targets, that use the money supply or the interest rate as an instrumental variable. the important thing here is not the label of the regime, but the monetary policy internal consistency, designed to ensure a balanced money market. at this stage in national history, there are no adequate substitutes for a monetary policy that allows the system to develop while keeping the growth of monetary aggregates in check and fosters savings without affecting investment. in fact, we carry out a sterilization program that is unprecedented for argentina - because of its depth as well as its quality - on the basis of a public sector that saves, a sound financial system, and a central bank with a strengthened balance sheet. while we are enjoying a favorable international scenario, believing that this scenario will last forever would be misleading. in fact, the world today is highly volatile and, as we all know, the challenges we face are magnified in emerging countries such as argentina, where transmission mechanisms are still vague and instruments have a limited power. as a consequence, our risk management approach entails that monetary and financial policy should help prevent crises and weather uncertain scenarios. this leads to the development of countercyclical mechanisms to cushion the effects of external disruptions on the economy. one of them is the prudential policy of international reserve accumulation, which enables us to hold a stock of over usd 31 billion, an unforeseen level not long ago. besides, after decades of financing public spending through various monetary arrangements, we are designing an independent monetary and financial system. this structural change sets out a substantial difference from the past : neither the central bank

martin redrado : a convincing strategy article by mr martin redrado, governor of the central bank of argentina, published in la nacion newspaper on 18 may 2008. * * * in argentina we have overcome a week of financial turmoil. however, those focusing on the ghosts of our troubled history are looking at our country through the rear - view mirror. there is currently no relationship, not even remote, to the conditions that led to the critical events of the past. the central bank has proven that it is in a position to play for the first time in decades its fundamental role : ensuring monetary and financial stability to all argentineans. our strategy in the foreign exchange market is the most eloquent proof of the robustness of our policies. this resilience of our system is not by chance but causal, since it derives from the existence of multiple preventive mechanisms built throughout recent years so as not to jeopardize stability even in situations like the current one. preventing the use of reserves in times of dollar demand by the public would be as absurd as not using an umbrella when it rains. in this case, the stock of foreign reserves would not be a “ cushion ” to buffer financial ups and downs but a “ bedrock ” with no absorption capacity. the strengths of our monetary and financial system are evident. foreign reserves reached a record - high level for argentina : they currently account for almost 100 % of demand deposits plus cash held by the public ( 45 % in 2001 ). in addition to providing resources to face possible shocks, foreign reserves are also a deterrent : they limit the chances of success of any speculative movement against the peso. likewise, a trade surplus close to 12 billion dollars this year ensures a structural foreign exchange supply that may more than offset any temporary dollar demand, making any nominal devaluation speculation irrelevant. exports dynamics in general, and industrial exports in particular growing at an annual rate of 18 %, show that there is no competitiveness problem today, which was the main cause for past crises. in turn, the current managed floating regime proves to be the right one for an economy in transition like ours. that is, it provides predictability and prevents excessive volatility from affecting economic decisions. what would have happened in these circumstances under a pure floating exchange rate regime? our strategy curbed depreciation expectations and, thus, the potential pressure on prices. moreover, thanks to a sound financial system we are not facing a run on deposits as in the past