He was not the first and probably will not be the last governor to threaten with a well-known idea: launching his own currency. Recent history says that the first president of The Rioja, Ricardo Quintela (63), who is in his second provincial mandate, announced after tough negotiations with the national government that he will issue a legal tender to meet provincial obligations regarding local suppliers, employees and retirees.
Although he cited the most illustrious Rioja native as background, Carlos Saul Menemgovernor three times, President twice and then senator almost for life, as the first to use a quasi-currency to close the fiscal gap in the ’80s, the province was also one of the many that later (in 2000) came to mint its own monetary sign to avoid the monetary restraint of convertibility, paradoxically, launched by Menem himself.
A few days ago, the governor of the Buenos Aires province also announced that the State Bank and in response to “pre-existing agreements” The National Constitution retained the power to issue its own currency and would do so if the process of requesting financial aid stalled.
What all the provinces claim is that, in a recessive economy, The sending of funds is made more flexible to alleviate financial potholes or what in Economy is discretionary money transfers, to differentiate from the automatic ones generated by federal tax sharing.
Unlike Buenos Aires, historically postponed in the calculation of co-participation (according to calculations by the Minister of Treasury and Finance himself, Pablo Lopez, the largest province in the country contributes twice as much production as what is distributed in taxes), La Rioja was the province that in the last two years requested more financial aid from the National Executive Branch. Right now Quintela is claiming $9.3 billion that would be due to a debt corresponding to last year.
According to the chief economist of the IERAL, Jorge Vasconcelospoints out that La Rioja “seems to respond to a provincial pattern extremely dependent on co-participation and discretionary transfers, without fiscal slack (compared to the rest), with a productive profile of very limited export bias, strong dynamism in the creation of public employment and decline (in terms per-capita) of private employment, occupying rear positions in the rankings that measure the level of salaries and the training of human resources by province”.
Regarding the issue of a possible “quasi-currency”, the economist maintains that, if the announcement is made, there would be significant consequences quite predictable:
a) how economic agents will seek get rid of those papers before that, from other currencies, circulation speed will increaseenhancing the discount imposed by the market on the value of those bonds;
b) consequence of the two previous factors, The local population will suffer an additional inflationary blow to the one imposed by the devaluation dynamics of the peso itself.;
c) companies installed in the province will see make national taxes more expensive in terms of the quasi-currency (which would become the currency in which they would collect a good part of the sale of their goods and services), because to pay (national taxes) they will have to exchange local bonds below par;
d) it may be that these companies incur arrears in the payment of those national taxesbut, given the weight of La Rioja in the total GDP, this effect will be marginal on the national treasury;
e) there would be a greater impact on the profitability of installed companies, further weakening incentives for the creation of private jobs in the province.
In conclusion, a “threat” of eventual monetary autonomy at a time when there is a tendency towards cconvergence of national monetary signs in other regions or universal measures are adopted.
by RN
