How Mario Blejer (Briefly) Navigated an Argentine Financial Tsunami

Mario Blejer’s six months as head of Argentina’s central bank ended when he butted heads with politicians over policy.

Among the current crop of candidates being considered for the role of governor of the Bank of Israel, just one has any experience running a central bank, albeit of another country.

Mario Blejer was appointed the head of the Central Bank of Argentina on January 17, 2002, during one the country's most severe economic and political crises. His predecessor, Rocque Maccarone, had been forced to resign due to differences of opinion with the government and the newly installed president at the time Eduardo Duhalde.

An economic crisis that began in 1999 led to sharply increased financing costs for the govenrment and a falling credit rating, forcing Argentina to seek a loan from the International Monetary Fund. When Argentina failed to meet the conditions for the loan, the IMF refused to transfer the tranche of funds due in December 2001. Many Argentinians then rushed to withdraw their peso-denominated deposits in local banks and convert them to dollars, which led the government, then led by President Fernando de la Rua, to declare a $250-a-week limit on bank withdrawals, a policy known as the corralito.

Argentina's economic problems were nothing new, but they were exacerbated by a series of austerity measures, including job, salary and pension cutbacks for public sector employees. These measures led to demonstrations and public disturbances across the country, which pushed the De la Rua government out of office, and a period of instability. In December 2001, Argentina went through no fewer than four presidents before Duhalde was appointed by the country's legislature.

Blejer, who previously served as an adviser on monetary policy for the IMF and the World Bank, had been invited by De la Rua the previous March to serve as deputy-governor of the central bank. One of his tasks was to make use of his overseas connections - Blejer did his PhD at the University of Chicago and had spent much of his career abroad - to massage Argentina’s ties with foreign creditors. When Maccarone resigned, Duhalde appointed Blejer to the top job.

Blejer did indeed take a leading role in negotiations between Argentina, the IMF and foreign creditors, who objected to Duhalde's repudiation of the country’s debts and other steps that caused them giant losses. In April, Blejer and Economy Minister Jorge Remes Lenicov were forced to suspend foreign currency trading and many banking activities, because, they said, the banking system did not have enough cash on hand. This led to another rush on the banks.

The corralito was one of the main sources of disagreement between Blejer and the new economy minister, Roberto Lavagna. Blejer wanted to end the freeze on withdrawals by converting deposits to long-term government bonds. Lavagna, with support of Duhalde, implemented a voluntary plan that was rejected by most deposit holders. On June 21, 2002, just six months after taking office, Blejer tendered his resignation for what he called personal reasons. Nevertheless, media reports in Argentina and Blejer's own subsequent statements gave his disputes with Lavagna as the real reason.

Argentina ended up defaulting on almost all its overseas debt and the peso continued to plummet. The economy that year contracted 11% and unemployment reached more than 20%. Only in 2005, did Argentina repay its debts to the IMF. Some of the other debts, which were restructured, have yet to be paid. Blejer was replaced as head of the central bank by Aldo Pignanelli, who also resigned after less than half a year on the job following differences of opinion with Duhalde and Lavagna.

Bloomberg