The last few days have seen some rather concerning central-planning actions by Argentina. Fresh from their nationalization of Spain's YPF, not only did they "forbid individuals from buying dollars for savings" issuing a statement allowing dollars to be used for "travel, mortgages, and to send family members traveling abroad if they they run out of money"; but now we hear of the forced action on Argentina's banks to lend out 5% of deposits at rates well below inflation estimates in the next six months (or else). As Reuters notes, "The move... marks an escalation in [President Christina Fernandez] war on private enterprise which may spread further." It should be noted just how far central banks are willing to go (strong-arming banks into subsidized loans to businesses) and it would absolutely not surprise us if this is precisely where the US is heading as command economies become the new normal globally.
NEW YORK, July 6 (Reuters Breakingviews) - Fresh from nationalizing YPF, President Cristina Fernandez now wants to strong-arm banks into subsidizing loans to businesses. The move shouldn't have too big an impact on bank profits, but it marks an escalation in her war on private enterprise which may spread further.
CONTEXT NEWS- The administration of Argentina's President Cristina Fernandez ordered banks on July 5 to lend companies 15 billion pesos ($3.3 billion) by the end of the year at rates well below private inflation estimates. The regulation would force the banks to lend 5 percent of the financial sector's $67.6 billion in private sector deposits.
- The central bank announced the new regulation following Fernandez's public statements that banks would have to lend cheaply to businesses to help bolster a flagging economy.
- The decision comes shortly after the government nationalized the country's largest oil company, YPF, claiming that it wasn't investing enough in producing oil.
- Latin America's third-largest economy grew 8.9 percent in 2011 but growth is slowing sharply due to sluggish global conditions and surging costs at home.
- Shares in financial institutions fell following the announcement. BBVA Banco Frances shares lost 4.9 percent, while Grupo Financiero Galicia's dropped 5.5 percent. These contributed to the country's MerVal index of leading stocks closing down 1.87 percent on July 5.
- Reuters: Argentina gives banks 6 months to grant new loans