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All government-

cy, sometimes at face value, sometimes at a dis-

that putting all the rotten eggs in one big

count. The most important notes of the 22

basket would be better than having them in

owned banks

provinces that now issue IOUs are Patacones

different baskets. The federal banks included

should be

(officially, Bonos de Cancelación de Obligaciones

in the merger would be the Banco de la Nación

privatized.

de la Provincia de Buenos Aires). They are issued

Argentina (Banco Nación), Argentina's largest

by the province of Buenos Aires, the most popu-

bank, and the Banco de Inversión y Comercio

lous and economically important province.52 To

Extranjero, a small investment bank. Provin-

consolidate the provincial IOUs, the government

cial and local governments would be invited,

has issued Letras de Cancelación de Obligaciones

though not required, to merge the 11 banks

Provinciales (Lecops). An agreement of

they own. The most significant are the Banco

November 15 between the federal government

de la Provincia de Buenos Aires, owned by the

and the provinces about revenue sharing allowed

government of Buenos Aires province, and

the federal government to pay money it currently

the Banco de la Cuidad de Buenos Aires,

owes the provinces and 40 percent of future fed-

owned by the autonomous municipal gov-

eral government revenue sharing in Lecops. The

ernment of Buenos Aires. In combination,

provinces are allowed to use Lecops to pay their

government-owned banks had about one-

employees. Currently, there are 2 billion pesos of

third of all bank assets, liabilities, and

deposits at the end of 2001.54

Lecops in circulation, 1.6 billion pesos of

Patacones, almost 1.3 billion pesos of other

Since it was established in 1891, Banco

provincial government IOUs, and a few million

Nación has been entangled so closely in gov-

pesos of municipal IOUs, making a total of 4.9

ernment finances that it has often been

billion pesos.53 The IOUs circulate at as much as

impossible to draw the line between the bank

96 percent of face value (for Patacones) to report-

and the government. The same has been true

edly as little as 20 percent (for the Federales issued

of the other government-owned banks. All

by the relatively small province of Entre Rios).

government-owned banks should be priva-

There are also electronic counterparts to the

tized. Today's government-owned banks are

IOUs within the banking system, so deposits in

the survivors of a larger group that once

IOUs are credited in IOUs, or in pesos at a dis-

existed, most of which failed or were taken

count to face value.

over when the tequila crisis of 1995 exposed

Government IOUs that circulate as

their accumulated years of bad management.

money have to a limited extent been useful in

Research on provincial banks that were pri-

replacing credit that has evaporated as the

vatized in the 1990s indicates that they

economy has shrunk and the government

reduced their bad loans, lowered their

has disrupted property rights. In many

administrative costs, and reduced politically

motivated loans to public enterprises.55

provinces they reportedly constitute the bulk

of currency in day-to-day use. However, by

Evidence from other countries also indicates

promoting economic growth, the measures

that, as a recent World Bank study says,

suggested here will reduce the budgetary jus-

"Authorities in developing countries general-

tification for issuing IOUs that circulate like

ly need to reduce their ownership role" in

banks.56

currency. They will also promote a revival of

credit, though, as has been mentioned, reviv-

Another reason for privatizing govern-

ing investment in Argentina may be much

ment-owned banks is that, if banks are

more difficult than reviving saving.

allowed to issue notes, as proposed here, the

special status of the proposed Banco Federal

Sell Government-Owned Banks

Nacional as a government-owned bank could

The government has just proposed merg-

make it a vehicle for reestablishing central

ing all government-owned banks into one big

banking. Argentina has had enough prob-

bank, to be called the Banco Federal

lems with central banking and there is no

Nacional. Apparently the government thinks

need to return to them.

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