Argentina - Banking and securities

In 1935, the Central Bank of the Argentine Republic was established as a central reserve bank, having the sole right of note issue, with all capital held by the state. The bank acts as the fiscal agent of the state. Its board of directors is appointed by and responsible to the government. The bank administers banking laws, regulates the volume of credit and interest rates, supervises the securities market, and applies government laws and decrees regarding banking and foreign exchange. Legislation in August 1973 increased its control over the commercial banking system. The National Mortgage Bank, founded in 1886, is the most important institution for housing credit. Other institutions include the National Development Bank, the National Bank for Savings and Insurance, and the Cooperative Credit Bank.

The Central Bank took advantage of the recovery in economic activity and relatively high rate of monetary growth in the early 1990s to further the restructure the financial system, and to strengthen it so that it would be able to withstand even severe external stocks. In late 1996, a schedule was implemented gradually to raise Minimum Liquidity Requirements (MLKs) from the current (1997) 17% to 20% by March 1998.

In late 1996, the role of the deposit insurance system (DIS) was broadened to allow support for troubled banks before they went bankrupt. Parallel to these measures, the Central Bank continued to encourage concentration in the financial system through mergers and acquisitions. By 2000, there were 120 financial institutions left, out of a total of 300 existing in 1990. Nine banks in 2000 owned 67% of all deposits, including public sector banks Nacion and Banco de la Provincia de Buenos Aires (accounting for 28% together); foreign owned Banco Rio and Banco Frances; and the privately owned Argentinian Banco Galicia. Total assets in 1999 added up to $15.6 billion, reflecting a growth of 7% from the previous year. Total deposits added up to 25% of GDP.

In 2001, after three years of debilitating recession and overspending by the government, Argentina was forced to default on its $155 billion debt, the largest such default in history. The old fixed currency regime was abandoned after years of high inflation, and the architect of that orgininal regime, Domingo Carvallo, was brought in to construct a new one. He decided to peg the Argentine peso to the US dollar and the euro when the two currencies achieved parity. However, the Argentine people were not convinced by this new scheme, and the policy did not achieve its intended results. Political upheaval resulted, with three interim presidents holding office before Eduardo Duhalde took office. He was defeated in April 2003 in a runoff election against Néstor Kirchner.

The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $15.7 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $73.2 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 25%.

The Buenos Aires Stock Exchange is one of the 23 markets that form the Buenos Aires Commercial Exchange, which has over 12,000 members and is often confused with the Stock Exchange. The Commercial Exchange, founded in 1854, established the Stock Exchange, which the government subsequently separated from it. The Commercial Exchange now includes a grain market, a foreign currency exchange, a general produce exchange, and the securities exchange. There are also stock exchanges in the cities of Córdoba, San Juan, Rosario, Mendoza, and Mar del Plata, although more than 90% of stock transactions are conducted on the Buenos Aires exchange.

Between late October and early December 1996, Argentine asset prices rose under the influence of a favorable international financial environment, evidence of a recovery in domestic economic activity, and the decision of the government to deepen labor market deregulation. Between 22 October, and 5 December 1996, the Merval Stock index rose 15%, Bocon (pesodenominated) bond prices increased by 8%, and Brady bonds surged 7% (floating rate bond), 8% (discount bond), and 12% (par bond). From 1996 to 1999, while market capitalization rose from $45 million to $115 million, average daily market turnover fell from a high of over $650 million to about $200 million. Market capitalization in 2001 was $192 billion, although the Bolsa Indice General was down 17%, at 13,341.5.