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On the Viability of Monetary Complementarity in Federations:

the Case of Fiscal Provincial Monies in 2001-2003 Argentina’s Crisis

Bruno Théret, CNRS – IRISSO, université Paris Dauphine, France

theret@dauphine.fr and

Miguel Zanabria Universidad Quilmès, Argentina

(first draft)

Contribution to the session “Revisiting Money as a Unified Unit of Account from a Complementary Viewpoint”, XVth World Economic History Congress, Utrecht University – International Institute of Social History, Utrecht, 3-7 août 2009.

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Abstract : The quality of monetary regimes in terms of efficiency and equity is very seldom related to the modes of constitution – unitary or federal - of the polity. But as soon as money is thought as a medium of sociation– a mean of building communities of account and payment, it raises the question of how a monetary centralisation can be viable in really decentred and decentralized polities where the sovereign political power is divided (as in federative polities). This issue is quite important in the Americas where the usual constitutional model is more federal than unitary, which does not impede the norm of centralised management of the currency to be naturalised and therefore kept out of any questioning. This mental norm is only rejected by the free-banking and so-called new monetary economics doctrinarians who hold that modern market societies do not need any unifying political organisation – either unitary, or federal -, since the autoregulatory market suffices for the job. Thus for them too, the institutional coherence between political and monetary orders and sovereignties is not an issue. This way of revisiting money from a federal viewpoint will be illustrated by the case of fiscal monies issued in Argentina by the federal and many provincial governments during the so-called convertibility crisis of 2001-2003. For the argentinian convertibility crisis is a good illustration of the differenciation of various logics of « moneying » at work in societies : one can observe there a joint circulation of: - purely market monies (oriented towards economic capital accumulation) (the dollar, the peso note issued by the central bank, the credit money in pesos and dollars issued by banks), - fiscal monies issued by federal and (14/24) provincial treasuries (the federal-interprovincial lecop and provincial monies as the patacon, the federal, the lecor, and the cecacor, the most important), - social (community) monies issued by civil organisations called Clubes de trueque (issuing creditos). This crisis has also shown that, within the various spheres of transactions (bargaining, rationing, and reciprocity), there also exit a plurality of networks - commercial banks, tax administrations (provincial and federal circuits of the treasury), social civil networks (redes of clubes de trueque) –, all issuing their proper means of payments and for whom, when these monies are « moneyed » in the same unit of account, the stake is their change at par, or at least somme convertibility within the national unit of account. What makes the argentinian case particularly valuable for the federal viewpoint, is that the differenciation of provincial monetary circuits is clearly displayed, due to the issuing of provincial paper notes of small denomination, circulating mainly outside the banking system. So one may desintriquate the problem of the splitting up of market credit monies from the one concerning fiscal monies.

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Summary: 1.Analytics of the viability of monetary complementarity in federations ...................... 5 2. The case of argentinian provincial currencies, 2001-2003 ......................................... 8

2.1. A brief historical account of provincial monies in Argentina ....................................................... 10 2.2 Why their renewal in the 90th and their burst out in 2001-2003? .................................................. 12

3. The practical building processes of trust and distrust: the success of the patacon, Province of Buenos Aires, and the failure of the federal, Province of Entre Rios. ...... 14

3.1. The success of the patacon, Province of Buenos Aires ................................................................. 14 3.2. The failure of the federal, Province of Entre Rios ........................................................................ 18

4. An approach to the general conditions of viability of provincial fiscal currencies in federations from a comparison of five provinces ......................................................... 24

4.1. Economic and financial conditions ................................................................................................ 25 4.2. Political and symbolic conditions .................................................................................................. 27

Conclusion .................................................................................................................... 29 Figures and tables ......................................................................................................... 32

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This paper addresses the issue of stability and efficiency for economic and social

development of centralized monetary systems, focusing on federal polities where

sovereign powers are territorialy divided, and where sovereignty essentially resides

within the constitutional authority of the federal Pact (or Covenant) 1.

The quality of monetary regimes in terms of efficiency and equity is very seldom related

to the modes of constitution – unitary or federal - of the polity. But as soon as money is

thought as a medium of sociation– a means of building communities of account and

payments, it raises the question of how a monetary centralisation can be viable in really

decentred and decentralized polities where the sovereign political power is divided (as in

federations). Since most of the South and North American countries are organized along

federal principles, this issue is quite important in this region. Nevertheless it does not

impede the norm of centralised management of the currency to be there also naturalised

and therefore kept out of any questioning. This mental norm is only rejected by the free-

banking and so-called new monetary economics doctrinarians who hold that modern

market societies do not need any unifying hierarchical political organisation – either

unitary, or federal -, since the autoregulatory market suffices for the job. Thus for them

too, the institutional coherence between political and monetary orders and sovereignties

is not a real issue.

Argentina is perhaps the best field of observation in that part of the world of the recurrent

problems that monetary centralisation sets to countries where the usual constitutional

mode of organisation of the politiy is more federal than unitary. One will try to show that

a monetary federalism is at stake in this country, which implies specific institutionnal

arrangements, especially in terms of fiscal federalism and therefore of the constitutional

order, that do not necessarily respect the present norm of a unique national money.

Our theoretical perspective, in so doing, is to contest the benchmark that provincial

paper-money is a sick money, as paper-money was considered in the crises of the past,

when metal was thought the only true basis for a safe money. If it were true, how could

we explain the permanent reemergence of provincial paper-money in Argentina since two

centuries, even when there is no crisis at the level of the federation? To the contrary, the 1 On the distinctive possible forms of federations, see Bruno Théret, “Del principio federal a una tipologia de las federaciones: Algunas propuestas”, Foro Internacional, n° 175, 2004, pp. 29-65.

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experience of 2001-2003 shows that it is possible to stabilize and regulate a system of

complementary public monies as soon as the political and fiscal federal covenant includes

a regulation of provincial issuing, combined with an equalization programme of federal

transfers. In other words, institutional coherence would require that a monetary stable

constitution should be looked for in federations through complementarity between

monies more than by pure centralisation as has been the case till now in all south

american federations2.

A first section is devoted to a presentation of our analytical framework comprising

the concept of moneying regime and the three forms of social faith in money which are in

our view at the core of monetary sustainability3. Then focusing on the argentinian hand-

to-hand provincial paper-monies, the paper will first describe in section 2 the structural

and conjonctural historical contexts that can explain the (re)emergence of such paper-

monies, and the outstanding role they have had in 2001-2003. Section 3 focusses on the

two monetary experiments of the patacon, province of Buenos Aires, and the federal,

province of Entre Rios, contrasting them from a qualitative analysis of the two social

processes which lead the first to a success, the second to a failure. Finally, in section 4,

one extends the comparison to the provinces of Cordoba (lecor), Corrientes (cecacor) and

Santa Fé (without provincial currency), in order to elucidate more generally the

economic, political and ethical conditions of viability of such decentralized public

monies.

1.Analytics of the viability of monetary complementarity in federations

Societies are fabrics of debts, life debts and contractual debts. They reproduce themselves

through a whole set of transactions by which debts are created, paid, revived, and so

2 For another approach of this issue, see Julio Olivera, "Economia regional, politica monetaria y desarrollo economico ", Informe Economico, CIEC, marzo 1981, pp. 15-17; "Descentralizacion geogràfica de la banca central", in Finanzas Pùblicas y Desarrollo Regional. Ensayos en Honor de Horacio Nuñez Miñana, L.E. Di Marco (coord.), Côrdoba, 1989, pp. 333-342; "Banca central, federalismo economico y constitucion monetaria", Nuevas Propuestas, Revista de la Universidad Catôlica de Santiago del Estero, junio 1992, pp. 7-17. 3 See Michel Aglietta and André Orléan (ed.), La monnaie souveraine, Odile Jacob, Paris, 1998; Bruno Théret (ed), La monnaie dévoilée par ses crises, Editions de l’EHESS, Paris, 2007.

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circulate. Money measures and pays for these debts on occasions such as exchanges of

commodities, tax payments, gifts and countergifts.

It is possible to distinguish three kinds of debts (or principles of economic integration as

stated by Karl Polanyi)4:

- “vertical” life debts between humans and supra-human (societal) authorities

(considered as immortal and sovereign), viz authoritative and unreleasable debts during

life course (ex.: fiscal debts, rationing transactions based on redistribution);

- “diagonal” (horizontal (union) * vertical (filiation)) life debts between human

groups reproducing and exchanging life-capital (capacity to reproduce the human specie)

through reciprocity (ex.: intra and inter-family debts, gifts-countergifts);

- “horizontal” contractual debts between formally equals, releasable and

transferable, created by authorized (by law or ethics) market transactions.

Moreover money is structured in three forms whose articulation has to be functional to its

reproduction. Actual money is not unique, but a complex social fact:

1/ It is a system of account (denominated unit(s) of reference and mode of computation

for dividing and aggregating values);

2/it is a set of means of payment : currencies;

3/It is a set of working rules through which monies (money-things) are issued as money,

the value of the currencies used in payments being set in terms of the unit(s) and

system(s) of account.

These tree forms of money have to be strung together as follows to produce and

reproduce a monetary order:

(Figure 1 about here)

Due to the heterogeneousness of the multiple networks of bargaining, rationing, and

gift transactions where debts are created and have to be honoured, heterogeneousness

exacerbated by social and spatial divisions, plurality of public and private means of

payment and therefore of “pay-communities” (appearing as circuits, spheres of exchange,

or networks), is the usual, if not normative, situation in statist-capitalist societies. This

plurality and territorial fragmentation of debts, and the correlated latent situation of

4 See B. Théret, “Monnaie et dettes de vie”, L’Homme. Revue française d’anthropologie, n° 153, 2009, pp. 153-180.

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variability of the levels of confidence (routine social faith) in the different means of

payment of these debts, threaten the uniqueness of the system of account, as soon as real

monies (money-things) have their face values fixed within this system. Thus there is a

contradiction between plurality of the means of payment and the uniqueness of account

which is at the core of the institutional nature of modern money, viz of the rules

constitutive of the “moneying” regime which organizes the complementarity between the

different means of payment circulating in a society or community unified around a unit of

account.

As the uniqueness of the unit of account is structurally contested by competition

and conflicts among issuers and between them and users of money, the stability of the

monetary language needs the intervention of a credible institution establishing a

hierarchical social faith (credibility), through a monetary regulation. Moreover an

embodied symbolic representation of sovereignty plays a crucial role in establishing

credibility and legitimization of this institution, representation which can be refered to as

the ultimate source of trust (ethical social faith) in money.

To sum up, in our view, money is a social fact, a convention, a manifestation of social

faith which makes it unanimously accepted in a given society. In order to be routinely

accepted at their face (or tariff) value, including outside of the circuits and spheres of

transactions from where they come from, monies must be worthy of faith, viz have

qualities that give confidence, credibility and trust in their use value. So this social faith

has to be analysed by splitting it into three interdependant forms:

- Confidence: methodic, mimetic or routine faith (a currency is accepted routinely by

everyone because everybody accept it) ;

- Credibility: hierarchical faith (people accept it because it is guaranteed by a credible

collective institution which represents the payment community as a whole, viz a kind of

sovereign power or one of its agents) ;

- Trust: ethical faith (money is accepted at its regular conventional value because it is

created and distributed in conformity with ethical values and norms founding the

community where this money is recognized as valuable, which implies that the working

rules of the « moneying » regime instituted by the monetary political power are

legitimate.

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2. The case of argentinian provincial currencies, 2001-2003

In modern capitalist societies, the tendency to the splitting up of the monetary space

appears the most clearly in the fact that money issued by banks in the national unit of

account may not be accepted at par, as soon as some banks seem to know difficult times

and don’t inspire the public with confidence. It’s only when all banks benefit of a

guarantee of a central bank (lender in last resort) against the risk of illiquidity that it

seems natural to the public that banknotes and checks be exchanged and compensated at

par in the national unit of account. This hierarchical guarantee, which thus participates to

the establishment of confidence and trust in money, has its counterpart in the agreement

by banks to conform to a set of collective rules participating to the constitution of a

unified monetary system.

It is far less usual to see the type of problem set to the stability of monetary systems

by decentralized banking, extended to the money circulating in the public financial

spheres and irrigating the fiscal economy in decentralized and/or decentred polities.

There are three main reasons to that.

First, the main part of economic literature assimilates the State to one

Government, even if it is structured along federalist lines. State is also most often

considered as an abstract and personnified entity acting as the manager of economic

policy.

Second, in most countries, the monetary circuits of the State Treasury (the fiscal

or financial State) don’t have any organisational autonomy and are embedded in the

circuits of commercial banks. Thus it is hard to isolate, if necessary as in the case of

federations, the problem of the division of the public Treasury into various spatially

differentiated circuits from that of the plurality of bank networks, since the banks in

charge of the management of public money and funds are not easily distinguished from

other banks more exclusively engaged in the funding of market activities.

Third, economy most often is assimilated to market economy, and money to an

endogeneous production of the market (the n+1 commodity). So fiscal economy of

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rationing transactions, and money issued by public powers to finance such transactions,

are not considered or only analysed as functional devices for the market. What makes the argentinian case exceptionally valuable from a monetary federalism

viewpoint, is that, contrary to Brasil for example, the differenciation of provincial

monetary circuits has become apparent, due to the issuing of hand-to-hand provincial

paper notes of small denomination, circulating mainly outside the banking system. So it

is possible to desintriquate the problem of the splitting up of market monies from the one

concerning fiscal monies.

During the so-called Argentina’s convertibility crisis since 1999, one could observe

the differenciation of various logics of « moneying » with a diversified circulation of:

- purely market monies (oriented towards economic capital accumulation) (the

dollar, the peso note issued by the central bank, the credit money in pesos and dollars

issued by banks) ;

- a complementary intra-state currency issued by the federal government for

transfers payments to Provinces, the lecop (complementary to the peso, so creating a dual

system of federal paper money) ;

- provincial fiscal monies (bonos or cuasimonedas) issued by (14/24) provincial

Treasuries (the patacon, the federal, the lecor, the cecacor, the four most important, and

other bocade, petrom, quebracho, etc.);

- community monies issued by civil networks of organisations called Clubes de

trueque (issuing creditos)5. This crisis has also shown that, within the various spheres of transactions

(bargaining - market, rationing - state, and reciprocity - civil society), there also are a

plurality of networks and « currency circuits » : commercial banks, tax administrations

(provincial and federal circuits of the Treasury), social civil networks (RGT, RTS,

RTZO) - issuing their own means of payments and for whom is at stake, if these monies 5 On creditos, see S. Hintze (ed.) (2003), Trueque y Economia Solidaria, Buenos Aires, Prometeo Libros y Universidad Nacional de General Sarmiento.M. Luzzi (2005), Réinventer le marché. Les clubs de troc face à la crise en Argentine, Paris, L’Harmattan; P. Ould-Ahmed (2008), “Les formes du politique dans les "clubs de troc" en Argentine”, Working Paper Recherche et Régulation n°2008-1, série MF; H. Saiag (2008), La monnaie dans le trueque en Argentine : une approche institutionaliste, Mémoire de Master en science sociale, mention Economie « Etudes comparatives du développement », Paris, EHESS.

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are « moneyed » in the same unit of account, their change at par, or at least, a form of

convertibility.

So Argentina is a country where one can observe plurality of monies and forms of

complementarity betweeen them. Among other things, due to the importance of fiscal

provincial monies’ issues, it shows that the phenomenon of « complementarity between

monies can be described (not) only by studying the activities of markets »6, but is more

general and concerns also States’ activities at least in federations. Complementarity

between fiscal monies is a structural problem in federations where the centralization of

the monetary power might be contested.

2.1. A brief historical account of provincial monies in Argentina Since the independence of the country at the beginning of the 19th century, monetary

plurality as been the rule in Argentina. The provinces of Buenos Aires and Corrientes had

their own paper money, contrary to other provinces which were on metallic standards and

were using coins from various origins7. The institution of the Argentinian Republic as a

federation in 1853 under the leadership of Urquiza, head of the province of Entre-Rios,

did not change much the situation, even when Buenos Aires joined the federation in

1864. It’s only in 1994 that the Constitution has been modified in order to impeach the

National Congress to deliver to the Provinces authorizations to issue their own money.

Nevertheless, this Constitution still states that “Provinces cannot create provincial banks

with the right to issue banknotes without the authorization of the Federal Congress”,

which still means that Provinces can do it with such an authorization.

This faculty left to provincial governments to issue provincial paper monies directly or

through a bank, never fell into abeyance. It has been used in 1876, 1881, 1883 and 1885.

In the interwar period, some judicial decisions of the Federal Supreme Court testify that a

lack of prior agreement by the Congress did not prevent some Provinces to renew with

6 A. Kuroda, “What is the complementarity among monies? An introductory note “, Financial History Review, Special Issue on complementarity among monies, 15(1), 2008, pp. 7-15, at page 11. 7 J. B. Alberdi (1895 - 1996) “Escritos póstumos de J.B. Alberdi. Estudios Económicos” Tomo I, Universidad Nacional de Quilmes; M. A. Irigoin (2000), "Inconvertible Paper Money, Inflation and Economic Performance in Early Nineteenth Century Argentina.", Journal of Latin American Studies, n° 32, pp. 333-359.

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the practice8. After fifty years of monetary centralization under authoritarian political

regimes and the monetary rule of an hypercentralized Central Bank instituted in 1935, the

phenomenon reemerged in 1983 in the North-West provinces (Salta -1983, Jujuy, La

Rioja et Tucuman – 1985, Catamarca - 1993).

In the Tucuman province where it lasted 18 years from 1985 to 2003 (date of

implementation of the federal programme of monetary unification, partly to comply with

the IMF), the bocade has been a durable institution crossing through periods of either

high and hyper inflation or deflation and monetary famine, and considered as a factor of

economic dynamism9. In 1995-96, during the Tequila financial crisis which considerably

harmed the argentinian economy, the government of the Cordoba province managed to

issue the cecor. It was such a success that, in 1999, the ex-governor of Cordoba was

mandated as interventor by the federal government to repeat the experience in the

province of Corrientes, in order to get out the administration of the Province of a very

harmful political and financial crisis. And between 2001 and 2003, with the final crisis of

the currency board regime instituted in 1991, it is no less than 14 provinces (out of 24),

with the biggest one – Buenos Aires – at the head of the movement – which have issued

their own fiscal monies (under the form of lettras de tesoreria para cancelacion de

obligaciones de la provincia bearing an interest) in order to pay their employees and

suppliers.

The same year 2001, the federal Treasury (Banco de la Nacion Argentina. Fondo

fiduciario para el desarollo provincial) put in circulation lecops (Lettras de concelacion

de obligaciones provinciales). Lecops were a paper money not bearing interest, issued in

order to pay the federal fiscal debt vis-à-vis the provincial governments originated in the

federal tax sharing covenant (coparticipacion), and legal tender for the payment of

federal as well as provincial taxes. So a “dual currency system” was instituted at the

federal level, at a time when the peso was still linked to the US dollar and perfectly

convertible into it at par (the lecop had not to be backed by equivalent reserves in dollar).

So it is no less than 15 Treasury’s circuits which are created in 2001. These currency

8 J.P. Capon Filas (2003), « Análisis constitucional de las cuasimonedas provinciales », La Ley, Buenos Aires, 7 de mayo. 9 See J. Schuldt (1997). Dineros alternativos para el desarrollo local, Universidad de Pacifico, Perù, pp. 76-82.

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circuits whose 14 are spatially non-integrable, will function differently –successfully or

unsuccessfully - despite their common reference to the same national unit of account, the

peso. Moreover one of them, the federal circuit, is both a concurrent and complementary

circuit connecting the 14 provincial ones.

In order to elaborate on the conditions of success (viability) of such a system of

provincial fiscal monies and decentralized currency circuits of the public Treasury, one

uses two types of comparisons between various experiences of the way the social faith in

the provincial currency has been built and reproduced. A first comparison is an in-depth

mainly qualitative inquiry (based on interviews of different actors and an extensive

review of newspapers’ articles) on the process of building trust or distrust in two

contrasted cases : the case of the patacon in the province of Buenos aires (BA) which has

been successful, and the case of the federal in the province of Entre-Rios (ER), which has

been (lived as) a failure10. A second comparison, mainly quantitative and based on

literature, include three other provinces and looks for theoretical generalization on the

economic, political and ethical conditions of viability of the complementarity between

federal and provincial fiscal monies (the criteria of viability being the maintenance of the

uniqueness of the system and unit of account all over the country). This comparison

includes a province that did not issue a provincial currency (Santa Fé) and the four main

experiences of issuing provincial monies, the two previous provinces of BA and ER, and

the province of Cordoba where it has been also quite a success, and the province of

Corrientes where it has been the largest failure but in atypical conditions.

2.2 Why their renewal in the 90th and their burst out in 2001-2003? Successive monetary crises of high and hyperinflation inflation in the eigthies and failure,

in the nineties, of the currency board (convertibility) regime put in place by the Menem’s

government in 1991, illustrate the general instability of the argentinian monetary system,

be it fragmented or centralized. This instability explains why provincial fiscal monies

10 The different fates of these two monies recall a long term historical opposition between these two provinces concerning the type of federation to be built (Parana, the capital of ER, has been the federal capital of the first federation).

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recurently appear as a solution to such crisis. The most recent case we focus on is the

product of a deflationist hypercentralized monetary regime11.

In 1991 was decided a complete commodification of the peso whose issue was strictly

conditionned by the level of reserves in US dollars at the Central Bank, reduced to a

simple Currency Board. Every peso had to be backed by one dollar in the reserves. So

issue of pesos was a direct function of the trade and payments balances, and the State lost

its sovereignty on money ; the amount of pesos in circulation could improve only through

export surplus and/or foreign capital inflows. Therefore, as soon as the balance of trade

has become negative (which has been exacerbated with the devaluation of the brazilian

real in 1999), and the capital inflows were replaced by outflows (due to the end of

possible privatizations and a lost of credibility of the argentinian liberal model – public

finance exhausted by the cost of the pension reform, overevaluation of the peso since

1997, the economic growth gave place to a vicious circle of deflation, public finance

growing deficit, increasing money shortage later instituted under the name of coralito

(small corridor), and empoverishment of a large share of the population (including a large

part of the middle classes and public employees).

The social crisis bursted out at the end of 2001, the monetary and economic crisis giving

birth to a strong political and ethical uprising12. This ended with the abandonment of the

currency board regime, an asymmetric (re)pesification, and a strong devaluation of the

peso vis-à-vis the dollar.

Deflation and crisis had strong impacts on provincial public finances because they were

accompanied by repeated cuts in the federal transfers to provinces in a context of hard

budget constraint for them (incapacity to borrow more). So provincial governments were

not able to pay wages and social spendings (education, health, security) and were driven

(by necessity and emergency) to issue provincial paper monies. As already stated,

fourteen out of twenty four provincial governments issued such monies since mid 2001

and, in december 2001, the federal State did the same with the issue of the lecop.

11 For a typology of monetary crises, see B. Théret (2007), « La monnaie au prisme de ses crises d'hier et d'aujourd'hui », in Théret (dir.), La monnaie dévoilée par ses crises, Paris, EHESS, Vol. 1, pp. 17-74. 12 The president had to escape the popular revolt flying from the Casa Rosada, the presidential palace, by helicopter, a helicopter whose pilot was not this time Milton Friedman and therefore, had not been loaded with paper money in order to spread it over the populace.

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Provincial monies, before being bought back by the federal state at the end of 2003, have

been more or less successful: some have known true success stories as the patacón in the

BA province, but also the lecor issued by the Cordoba Province; others have failed to

maintain their values vis-à-vis the national peso, as it is the case for the federal issued by

the ER Province, but also and particularly for the cecacor circulating in Corrientes

province (see table 1, figures 1 and 2).

(about here table 1 : The fiveteen « cuasimonedas ») (about here figure 2: Success and failures) (about here figure 3: Provincial monies: their share in the national circulation)

But, given that successes concerned the largest provinces in population and wealth, the

balance sheet is largely positive since the issuing of provincial monies, jointly with the

extension of community monies issued by the clubes de trueque, have been the only

means to mitigate the devastating effects of the deepest economic and political crisis that

Argentina has ever known.

3. The practical building processes of trust and distrust: the success of the patacon, Province of Buenos Aires, and the failure of the federal, Province of Entre Rios.

3.1. The success of the patacon, Province of Buenos Aires On July 5th 2001, the peronist government of the province of Buenos Aires, by far the

largest of the Argentine provinces, announced publicly that in conditions imposed by the

federal State, it was obliged to pay the 13th month which was owed the civil servants

with bonos which " are indeed a currency ", as the governor declared to the press. Thus,

contrarily to the federal government which, in a context of decrease of the money supply

caused by the convertibility device, was proceeding to a limitation of the nominal

salaries, the provincial government was opening to its employees another possibility,

namely to defend by a collective action the value of their incomes by putting in

circulation an additional currency called patacon. So the Minister Sarghini could assert

the same day as the patacón was put in circulation :

" To defend the patacón, it is to defend the purchasing power of 180 000 bonaerenses that will receive it as part of their salaries and also those who will accept it in their transactions (…). As soon as it will start to circulate, we, the government, the public employees and the entrepreneurs shall have to develop a real crusade for the defence of

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the patacón, because the only alternative would have been to take measures which would have still increased the contraction of the demand and correspondingly its negative social impact "13. This initiative was an answer to a situation where the financial constraint imposed by the

compromise on the " zero deficit " at the federal level and its outcome, a money famine,

were putting in danger the provincial State and thus threatened the living conditions not

only of employees of the Province, but also of all the "bonaerenses" users of public

services and utilities. The issue of patacacones, by allowing to avoid strong declines of

wages for the public employees, insured that the education, the health system and the

police, where more than 90 % of the provincial civil servants were employed, continue to

work, even if in a situation of precariousness. That is why the patacon was legitimate, if

not completely legal: it was a key element of the permanence of the missions of the

provincial State. Thus the Supreme Court of Justice of the province ruled in its favour in

a case where civil servants’ unions, worried by the fact to be paid in a bad currency,

attacked the government’s decision. Involving a situation of " necessity and emergency ",

the issue of patacones was decreed legal in the province on the base that it was intended

to assure the permanence of the provincial State and its capacity to exercise its

competences. This ethical dimension of the patacon was also strengthened by the fact that

it was only the public employees who were receiving the highest wages (beyond 740

pesos) which were partially paid in patacones (see table 2). Thus an ethical principle of

distributive justice was also mobilized.

These strong ethico-symbolic foundations of the patacon allow to understand why the

provincial Parliament, although dominated by the opposition (mainly from the Radical

party) to the governor, did not oppose the issue of the new currency, as it has been the

case in the ER province. Moreover, the BA Province made an agreement with the

municipalities by virtue of which the former engaged itself to deliver in patacones to the

latter amounts of tax cash transfers (coparticipation) superior to amounts ensuing from a

strict application of the previous rules of redistribution. So the patacón was quickly

accepted and supported by municipalities. Thus the local necessities of the continuity of

13 Newspaper Hoy, august 21th 2001, p. 9, La Plata.

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the provincial State and Municipios were able to prevail over the confrontation between

the two main political parties.

On the market side, the new currency has been adopted very quickly in the competitive

sector where storekeepers were conscious that the buyers with patacones would make

their purchases where this currency would be accepted as if it was peso, that is at its face

value. So the shop windows filled up with stickers of the type: " I am Argentinian, I

accept patacones ". As for businesses who operated in situation of monopoly, they had to

face repeated protests by the consumers who wanted to settle their debts with patacones,

as well as strong pressures from municipalities and the provincial government, urged by

the Parliament14. After all, the acceptance of the patacon was almost immediate,

especially in the city of La Plata, capital of the province15. Moreover, from February

2002, no business asked that the buyer using patacónes was a public employee, as it has

been the case at the very beginning. Thus the confidence (routine faith) in the patacon

was directly backed by trust (ethical faith).

But other elements, in particular an active policy towards the market, inspired by the

previous successful experience of the cecor in the province of Córdoba16, impacted

strongly on the stabilization and the preservation of this confidence; so the patacon was

also politically credible (hierarchical faith). Thus the symbolic conditions of the

institution of the patacon as a currency equivalent to the peso were constituted by

collective actions mobilizing the population and its representatives at every level of the

provincial political order.

As already noted, the hierarchical social faith in a currency, its credibility, is based on the

existence of an institutional guarantee, by a superior collective power, of the face value in

the official unit of account of the different means of payment which compound this

14 A particular attention was given to agreements with public utilities privatized companies so that they accept a minimum percentage of patacones in payment for their services. 15 A poll on the retail sales in this city indicates that all the investigated shops accepted them during all their existence. More astonishing, " certain businesses offered to take patacones at a price superior to their face value (1,05), what the Province tried to prevent " (G. Fahler Lopez, « Patacon : mueve la economía pero no descomprime a Ruckauf. El efecto reactivante de una moneda secundaria que solo alivia el gran déficit de Buenos Aires », Ambito Financiero, 29 août 2001, p. 5). 16 Interview with Dante Sica, in charge of the office of Minister of the production, La Plata, november 2004. See about the cecor, M. Capello (1995), « Analisis Economico de la Ley de Emergencia Provincial », Actualidad Económica, Ano V, n° 27, pp. 3-7.

17

currency. In the case of the patacon, what was the institutional guarantee that the

provincial government could mobilize to stabilize the value ot its currency vis-à-vis the

peso? Several elements here are to be considered.

First of all, it is fundamental, the patacon was accepted in payment for the provincial

taxes and thus circulated within the circuit of the provincial Treasury. Although it

returned a 7 % annual interest rate as a Treasury bond, the fact it could be used in full

discharge of provincial fiscal debts gave it a monetary character in agreement with its

physical aspect of notes of low denomination17. Now the fiscal circuit of the Treasury of

the Province is quite wide since BA is a large province: it represents 36,8 % of the whole

Argentine population, 33,4 % of the PNG, 48 % of the exports, and the biggest urban

population and density of the country (outside the City of Buenos Aires, a kind of federal

district). It is also endowed with important resources of its own: 48 % of the total of its

fiscal resources, and 35 % of its expenses (numbers for 2001, see tables 3 and 4).

Moreover the circuit of the BA Treasury was well structured and managed by the Bank of

the Province (Bapro) which had not been privatized and had a large network of

branches18.

Furthermore, a few time after patacones had been put into circulation, the federal State

accepted them in payment for national taxes, following an agreement concluded on

August 31st, 2001 between the federal Minister of Finance, Domingo Cavallo (the father

of the plan of convertibility), and the peronist governor, Ruckauf (member of the

opposition at the federal level). By virtue of this agreement which privileged the BA

Province with regards to other Provinces, patacones received by the Nacion in payments

for federal taxes had to return to BA as part of the payments of federal tax transfers in

conformance with the coparticipation system. This privilege granted to the patacon 17 Even if this "profitability" of the patacon seemed secondary with regard to its monetary function, one has to notice that both provincial currencies here examined (patacon and lecor) that we can credit to have inspired confidence and trust yielded a 7 % interest rate while those which went away from the parity (federal and cecacor) owed only an interest rate of 4 % (table 5). 18 " Bapro, the bank of the Province, represents 12 % of the whole national banking system, but also perhaps more than 30 % of the whole provincial banking system. With hundreds of branches and automatic cash desks, it played a central role in the instrumentation of the patacon. A private bank, subject to the directives of the Central Bank and less compromised politically with the Province, would not doubtless have been so functional in the distribution of the patacon. More of 2/3 of the patacones in circulation were not physically in the hands of the private individuals, but deposited in Bapro " (F. Eggers (2001), El Patacon. Surgimiento, evolución y ocaso, Powerpoint by the Director provincial de politica de financiamiento y credito publico, Provincia de Buenos Aires).

18

considerably widened the size of the circuit of the BA Treasury on which the provincial

government could lean to self-finance its expenses. Besides, it put the patacon in almost

the same foot as the lecop, the currency issued at the end of 2001 by the federal

Government to finance tax transfers to the Provinces; it allowed the patacon to circulate

widely outside BA’s borders19.

Finally, legally stated maximal amounts of patacones to be issued were respected and

stayed under control. Within the framework of the political agreement between the

government and the opposition already noted, the executive power asked to the provincial

Parliament for new authorizations of issuing. Nevertheless the patacones in circulation

reached 53,4 % of provincial tax revenues (outside federal transfers), 3,2 % of its

Geographical Gross Product (GGP) in 2002, and 33 % of the total money in circulation in

the province at its top in March 2003. But the political authorities stayed careful not to

issue beyond what they needed to finance the most important outlays: wages and

suppliers of the most necessary products.

This monetary self-restraint was strengthened because there was no secondary issue via

credit. Although patacones could be deposited on current accounts, without interest, at the

bank of the Province (Bapro), there were no possible loans in this currency and most of

the patacones stayed there and circulated by scriptural way. When tax receipts in national

peso began to increase, the BA government replaced gradually patacones by pesos to pay

wages. After the signature with the Nacion in June, 2003 of the program of monetary

unification aimed at eliminating provincial monies, the BA Province quickly commited

itself in the operation. So it was one of the Provinces among the most conservative in the

use of a provincial currency, but was much helped by the federal government to be able

to follow such a wise path.

3.2. The failure of the federal, Province of Entre Rios The experiment of the ER Province has been very different, not to say at the opposite of

the BA’s one. In ER, the outcome of the issuing of a provincial currency, the federal, has

been far from being a success, especially for the public employees who received this

currency in payment of their entire wages and who suffered the fact that it finally has 19 The lecop originally was to absorb the patacon (Fahler Lopez, 2001, art. Cit;). Notably, one serie of patacones was an official complementary currency in the province of Jujuy.

19

been accepted at only 60-70 % of its nominal value in peso. This province was governed,

at the time of issue of the federal, by Sergio Montiel, a " caudillo " occupying an

important place in the Radicalism, party of the President of the Republic20. Heir of a bad

fiscal situation, Montiel was also considered as a bad administrator. At the beginning of

his second government, the Province was strongly indebted, in particular vis-à-vis some

private banks and with terms of reimbursement concentrated on the period 2000-200321.

But its coming into office in 1999 also has coincided with an important increase of the

fiscal deficit of the Province, due to controversial spendings going side by side with the

lay-off of thousands of public employees22. From there the rise of a strong distrust

towards the provincial government which led to important street demonstrations intended

to make the governor abdicate. So,

" the social context in Entre Rios at the mid 2001 was one of a crisis of legitimacy of the provincial government, accompanying the crisis of the coalition in power at the national level. (…) The loss of support from the national government and the mismanagement of the federal Minister of the Economy, Domingo Cavallo, completed a provincial panorama of increasing unemployment, waged paid with delay and fiscal adjustment. The context in which were launched the bonos was, as a consequence, one of weak legitimacy and political crisis. Despite their relative success at the very beginning, the legitimacy of bonos remained bound to that of the governor "23.

20 S Montiel was in its second mandate, with peronist governments coming in between. 21 See L. Lafferrière (2004), El desfinanciamiento del sector público en la provincia Entre Ríos. Su reflejo en la emisión de cuasimonedas, Seminario de Economías Regionales, Tercer Encuentro de Universidades Nacionales en el Marco del Plan Fénix. Moreover, ER has been considered as a province with persistent public finances imbalance and incapacity of fiscal adjustment over 1995-2000, by Cetràngolo, 0. et F. Gatto (2002), Las provincias en la crisis argentina. Algunos elementos para discutir las prioridades de la cooperacion internacional, document for the workshop « Argentina un anno dopo : quale cooperazione ? », CESPI et IILA, Rome, 6 décembre. See also Cetrangolo, 0., Jimenez, J. P., Devoto F. y D. Vega, (2002), « Las finanzas publicas provinciales: situación actual y perspectivas », CEPAL, Buenos Aires, Serie Estudios y Perspectivas, n° 12, diciembre. 22 According to Sergio Montiel, these spendings were explained by his opposition to the policies inspired by the regime of convertibility. He never had accepted the idea of an imperative need of structural adjustment, and sustained the rescues by the Province of companies at the edge of bankruptcy. As for the provincial employee’s dismissals, they were justified by a need of adjustment in their number, linked to votecatching and a mismanagement of the previous peronist governor (interview with Sergio Montiel, February 13th, 2008). In this interview, Montiel declared to have also strongly opposed the pact of "Olivos" concluded at the national level in 1993 between the Radical party and Peronism, pact which allowed Carlos Menem to be re-elected as president of the Republic. 23 Obradovich, G. (2004), « La desvalorización de los bonos provinciales como perdida de las capacidades estatales. El caso del federal en Entre-Rios », Ponencia al Segundo Congreso Nacional de Sociología y VI Jornadas de Sociologia de la UBA, Buenos Aires, 20-23 de octubre.

20

Affected by the bad performances of the federal monetary and fiscal policies, the ER

Province, as all other Provinces, was lacking of fiscal resources. But its financial situation

was specific because a significative part of its funding through the coparticipation system

was already used to guarantee its past indebtment and, therefore, retained by the federal

Government. Because of the critics, mainly from the peronist opposition, concerning the

montielist management of the Province, the bill of creation of the federal, deposited on

the provincial Parliament on July 25th, 2001, waited to be approved October 1st, with an

important modification concerning the amount of the issue (lowered from 450 to 100

million pesos). A provincial currency board (Caja de conversion) was created by the

same Act, whose function was to assure the parity between the federal and the peso out of

the market for individuals wishing to change their federales against pesos and fulfilling

various conditions (it was intended only to serve for expenses out of the province).

Indeed the hope that the federal would be accepted outside of the province did not resist

to the failure of the negotiation with the federal government through which ER was

looking for the federal to be admitted in payment of federal taxes as the patacon. Thus,

business with the rest of Argentina and payments of federal taxes had to be made either in

pesos or in lecop, what implied a change of federales in pesos. But to guarantee from the

onset of its circulation the acceptance of the federal at parity, this operation could not be

left with the market, and the Caja de conversion had to supply these pesos and lecops.

Besides, an agreement signed with the BERSA (the previously bank of the Province)

aimed at establishing a monetary circuit for federales. But this bank had been privatized

and did not have an important network of branches and automatic cash desks. Moreover it

had undergone a drastic restructuring before and after its privatization so as to make it

purely profitable and similar to a private bank (Clarke and Cull, 1999)24.

From November 9th, 2001 (date of the first issue) till June, 2002, the system worked

well, because the federal was then seen by the main part of the population as a necessary

mean to face the crisis. The discussions only turned around the percentages of purchases

24 See Clarke, G. R.G. et R. Cull (1999), « Why Privatize ? The Case of Argentina's Public Provincial Banks », World Development, 27(5), pp. 865-886. It is striking that the BERSA, while the financial agent of the Province managing the circulation of the federal and the intermediary of the Caja de conversion, refused both the federal and the lecop for any payment of its banking services (El Diario of 3/01/2002).

21

that it was possible to pay with federal, and did not concern its parity vis-à-vis the peso25.

It was accepted at par, thanks to the guarantee of the Caja of conversion which, although

organized with delay (it started only on December 17th, 2001), worked at first without

accumulating important debts (figure 6).

(figure 6 about here)

Moreover, the multisector Assembly of small and medium-sized firms (APYME), very

active during the crisis, did not oppose the new currency nor the government during this

first period26. Nonetheless negotiations between the government and the private sector

had in ER neither the scale nor the intensity that they had in BA province. Public officers

were not as firm in negotiations with big companies than their equivalent in BA,

especially with privatized companies supplying electricity. This "weakness"

paradoxically kept pace with conflicting attempts to impose in a compulsive way, via

various emergency bills, the reception of federales on at least 50 % of the amount of

payments at first, then on 100 %.

As shows figure 6, it is from July, 2002, after a controversial, and finally forced by the

governor, issue of a third series of federales, three times as voluminous as the total of

both previous ones, that the Caja de conversion began to accumulate debts of exchange

and lose its credibility27. From then on, it was charged of favoritism in the exchange of

currencies and, later on, of corruption. But the loss of value of the federal has been also

linked to the conflict of power between the executive and the legislative, a conflict which

increased from March, 2002, when the Governor asked without success the provincial

Parliament to authorize the new series of federales, and when he decided in mid-May to

do it by decree. The deficit of legality of this decision tipped the scales in favour of the

25 It was then even accepted at the parity (up to 50 or 100 % of the value of the purchases) in a significant number of businesses in Santa Fé, the capital of the neighbouring province which has not issued a provincial currency for its own sake (El Diario of 10/03/2002). 26 Interview of Alfredo Caino, secretary of the APYME, delegation of Parana, november 11th, 2005. 27 " It is to say that the instrument had in germ in its own genesis the depreciation of its exchange rate, and if in Entre Rios, this one was superior to those whom knew the other provinces, I think (…) that it comes partially from the quantity issued, a consequence of a bigger financing deficit than in these other provinces, and from the impossibility to maintain the automatic exchange of federales in pesos via the caja de conversion as in the six first monthes of its functioning, a consequence also of the decrease of receipts from the federal coparticipation due to the execution of bank guarantees signed by the previous governments, with annual interest rates which rose until 40 % in this occasion " (O. Cepeda, El federal Entrerriano : Documentos sobre bonos provinciales de Gabriel Obradovitch, Nogoya, mail to the authors, february 14th, 2006).

22

Peronist opposition, and from there on, the social refusal of the federal increased for

political reasons as well as economic.

As the Caja was missing liquidity in national currencies (peso and lecop), the

storekeepers stressed their appeal to arbolitos, money-changers on the black market, to

obtain pesos in order to pay their suppliers and their national taxes. Of a commission of

change on the federal of around 15 % at the end of January, 2002 (a relatively weak rate

compared to the interest rates of the moment), the below par rating increased to more

than twice (figure 2 and table 5). Newspapers began to speak about price differences

according to the currency used in payments from May, 2002 (El Diario of 05/05/2002)

and, in October, the storekeepers posted prices simultaneously in pesos and, with a much

lower rating, federales. Finally the groups which had supported or did not oppose the

federal began to change their mind. A vicious circle so was built up in which a loss of

political legitimacy led to a loss of value of the currency which damaged in turn the

political situation of the government and thus, once more, the faith in its currency.

In fact, in spite of the relative success of its first issue, the federal has never been

considered by entrerrianos28 as "their" currency, but the currency of the government, a

government which suffered from an important deficit of legitimacy. The sole fact that

from the outset, this government did not respect the percentages of federales and pesos

which had to be paid to public employees according to the levels of their wages (table 2)

heralded badly from its future by immediatly questioning the credibility of the provincial

government. The conflict between the executive and the legislative affected also, till the

beginning of the experiment, its legitimacy.

(table 2 about here: Differences between the moneying of the patacon and the federal) In these conditions, it was very difficult to assure the credibility (hierarchical faith) of the

new currency. But if the Montiel administration would have gained the support of the

federal government (acceptance of the federal in payments of federal taxes as for the

patacon), could the federal have been more successful?29 However this question makes

28 The inhabitants of the province of Entre-Rios. 29 One must note that such a support is not a necessary condition for a provincial currency to be successful, as shows the case of the lecor in the province of Cordoba.

23

sense only if one asks a preliminary one: why this support was not given by the federal

government while the provincial government was of the same political color and the

parliamentary peronist opposition in the province was very strong and acrimonious?

Till now we do not have answers to this question to be drawn from primary sources of

information. We can only make some suppositions. Firstly, one can suppose that there

were no will of the federal government to confirm the mismanagement of the governor

Montiel. Secondly, the federal government could be afraid of meeting itself with more

federales that it could return to ER, via tax transfers, since a large part of them had to be

used to reimburse previous debts. Thirdly, the federal government probably was not

wanting to extend the privilege of the patacon to other provinces as soon as it had decided

to issue its own fiscal currency, the lecop, intended for payments between Provinces and

the Nacion. Finally, a more political hypothesis concerning the competition between the

President De la Rua and the Governor Montiel within the Radical party makes also

sense30.

If one comes finally to the ethical conditions for trusting money, what stands out is again

a situation contrary to that prevailing in BA province. This contrast goes back to the long

term history of oppostion between the two provinces and to the very different places they

have had in the monetary unification of the country as a whole. In their respective

established imaginary, both have had a central role in the unification of the country but

one in contrast with the other. This is transparent in the speech of the ER Minister of

finance, Osvaldo Cepeda, who, although he was the creator of the provincial currency,

highlighted that the ethico-symbolic conditions in the province were a priori unfavourable

to its success, a statement which contrasts with that of the promoters of the patacon and

the slogan " I am Argentine, I accept the patacon "31.

For O. Cepeda,

" a factor of devaluation of the federal has been the quality and the social integrity of the community d'Entre Rios, which has nothing to do with that of Tucumán, Rioja, or Catamarca for example, where the political “caudillism” accustomed the population to be

30 See note 10 above. 31 Effectively the patacon circulated in all the country in the same way as the federal lecop. He(it) had in particular the status of additional provincial currency(change) in the province of Jujuy.

24

poor and dependent on the political power32. Entre Ríos, I think, still maintains in high respect, without distinction of political parties’ colors, its native patriotic and cultural values, which helped it to organize Argentina as a Nation. Thus, naturally, any situation which tends to disrupt its social integrity is rejected anyway. Bonos were indubitably a very strong remedy in a very strong crisis, but it is evident that nobody wished to issue them and to have to use them. (…) Entre Ríos is a province of high social integration which is the cradle of the national organizer, Justo José de Urquiza, who, in the first national constitution of 1853 established the monetary unification of Nación to end the anarchy which then was reigning and which repeated in 2002, so establishing an unacceptable backlash for entrerrianos "33. In other words, the historical political culture of ER, its values of reference constituted an

ethical obstacle to the acceptance of the federal, the idea of a unique national currency in

the whole country being part of the identity of the province. In summary, the experiment

of the federal shows how the issue of a new currency can synthetize the fears and the

distrusts of a whole community, at a particular moment. It also displays the possible

variety of the institutional constructions of the provincial fiscal currencies and, compared

with that of the patacón, help to define a certain number of conditions of viability of such

monetary experiments.

4. An approach to the general conditions of viability of provincial fiscal currencies in federations from a comparison of five provinces

The conditions for the sustainability of provincial monies are economic and financial,

political and symbolic. In these section, one tries to elucidate these different conditions

by examining a larger number of provincial cases comprising the four most important

issues of provincial monies, two of them which can be considered as successes, and two

of them as failures. A fifth case is introduced, Santa Fé Province (SF), as a kind of

contrefactual since this Province did not issue currency in the period under study. As we

enlarge the number of cases, we change our methodology, using less diachronical and

qualitative datas on institutional processes, and more synchronical and statistical datas in

order to progress in generality. But it is still a work in progress.

32 In the Tucuman and Rioja provinces, bonos circulated since 1985, and in Catamarca they reappeared in 1993 (Clarin, 15/11/2001). 33 Cepeda, 2006, op. cit..

25

4.1. Economic and financial conditions Let’s first examine economic preconditions for the viability of provincial fiscal monies,

which can be associated with the concept of confidence (routine faith).

Tables 3 to 5 show that BA and Cordoba have a level of economic development close to

that of the Province of Santa Fé, while ER and Corrientes are much less wealthy. BA and

Cordoba represent large shares of the argentinian population and economy, wheras ER

and Corrientes small shares. The same difference is worth for degrees of economic

openness, sizes of the Treasury’s circuits, rates of dependency vis-à-vis the federal fiscal

transfers, and ratios of endebtment per capita or to the provincial GGP (geographical

gross product).

(about here table 3: Demographic and economic indicators) We also can add a difference relative to privatisations of the provincial bank and public

utilities. The presence of a public provincial bank – cases of BA and Cordoba - eases the

organisation and the management of a currency circuit of the provincial Treasury.

Moreover, privatization of public utilities’ providers, potentially important

correspondants of the Treasury monetary network, doesn’t facilitate its setting up. Where

such big companies were privatized, they did not accept easily payments in provincial

currencies, save in BA where government pressures were strong and federal taxes could

be payed in patacones.

Comparison with SF, a province qualified of vertuous from the point of view of public

finance management despite its higher level of expenditures for employees, invalidates

the populist assumptions correlating virtue in that matter with a low level of expenditure

for public employees. A higher employment in poor provinces is compensated by a lower

unitary cost of jobs.

A large difference between SF and the Provinces issuing monies is relative to its level of

endebtment which is much lower. The ratio of the stock of debt related to the GGP is two

times higher in BA and Cordoba, four times in ER, and eight times in Corrientes.

Combined with the fact that most of the provincial public debts are backed by federal-

provincial transfers, it is one factor which can explain why SF did not need to issue its

own money. Another factor is the importance of foreign exports : SF was exporting in

2000 a share of its GGP two time the equivalent share of BA and Cordoba, and six times

26

that of ER and Corrientes. The difference between the former and the later could also

explain the better viability of the provincial monies here compared to there.

(about here table 4: Financial indicators)

But monetary conditions - size and degree of closure of currency circuits, amount of

currency issued related to GGP and to internal circulation - are outstanding to explain

successes and failures (table 5). BA and Cordoba are larger provinces than ER and

Corrientes, and they are more autonomous in fiscal and monetary matters. Provincial

taxes finance around 30% of the provincial budget in successful provinces when it is only

20% in ER and 10% in Corrientes. Larger economies means also more independent

economies and more space for a non convertible local currency, so that its change into

peso is less necessary and its parity with peso less difficult to maintain.

More important perhaps is the amount of currency issued. While the differences between

the amounts per capita or related to public outlays or ressources are not so large, the

levels of issue relatively to GGP or global provincial monetary circulation, are much

more important in cases of failure than in cases of success to maintain parity with the

peso (nearly twice in Corrientes and around 150% in ER), suggesting the existence of a

threshold in market capacity of absorption of local currency beyond not to go if viability

of this currency’s circuit is looked for.

(about here table 5: Monetary indicators)

However the argentinian provinces are not independent entities, but members of the same

federation and a common monetary union. It supposes that provincial governments are

able to deliver nearly equivalent levels of public and social services, which for poor

provinces represent larger part of their economy and of their ressources. Thus in a

federalist system of multiple currencies, one needs to think about the relation between the

level of issue of these currencies, and the distribution (rationing) of total fiscal ressources

between the federal and the provincial governments, as well as between provincial

governments themselves, in order to sustain the viability of provincial fiscal currency

circuits. In that matter, the programme of federal-provincial fiscal transfers is probably

the functionnal equivalent of the central bank which sustains the plurality of commercial

banks.

27

4.2. Political and symbolic conditions The 2001-2003 experience of provincial currencies occurred in an extraordinary

economic and political context of crisis. This context doesn’t explain their apparition but

only their generalization, even if political and ethical conditions in some provinces as in

Entre-Rios were not a priori favourable to their viability. More generally the political

context created by the currency board regime and its crisis, was not favourable, given the

generalized distrust of the population vis-à-vis its representatives and the whole political

class (“Que se vayan todos!”)34. Economic and financial conditions too, if they created

the need of their issue, were not propitious, mainly in the poorest and smallest provinces,

to the establishment and the maintenance of confidence and trust in their nominal value at

par with the national currency. The federal government, strangled by its own monetary

policy, was searching to transfer its expenditures’ responsabilities rather than taxes to the

Provinces, and a very conflictual competition was prevailing between the two layers of

government; therefore internal political conditions within the provinces were key

variables to explain successes and failures. To the contrary the viability of the whole

system requires cooperation at the federal government’s level, based on complementarity

between provincial fiscal monies and the one or two federal currencies. Without any

hierarchical regulation of the issues of provincial monies, the local political contexts

explain why these issues have been excessive (not viable) or not.

(about here table 6: Political conditions of viability of provincial monies)

The BA Province benefited of its structural asymetric power within the federation and

had a privileged relationship with the federal government, thanks to the necessity for the

later, in order to implement its drastic progamme of deficit zero and wages’ restrictions,

to gain the political support of the affiliates of the former in the federal Parliament35. Thus

the federal government conceded to the patacon and only to the patacon the privilege to

be legal tender for the payment of federal taxes. Other provinces as Cordoba and ER

needed to institute a Caja de conversion in order to sustain the parity of their monies

34 J. A. Di Mauro (2003), ¿Que se vayan todos? Cronica del derrumbe politico, Buenos Aires, Corregidor. 35 A. Bonvecchi (2005), « Les aspects politiques du fédéralisme budgétaire argentin à l'aune des négociations fiscales fédérales », Problèmes d'Amérique latine, 56, pp. 129-152.

28

outside the market when payments outside the province – notably for federal taxes - were

to be made.

A very bad political climate in the ER province between the governor and the opposition

in the Parliament as well as with other sectors of the population (trade-unions) explain the

lack of credibility of the Caja de conversion after six monthes of its functionning and the

two first issues of federales. Path dependency at the symbolic level concerning the place

and the role of the Province within the federation explains the lack of trust in the

monetary regime. Without internal political consensus and any support from the federal

government, though of the same political family, the size and structure of the provincial

economy limited drastically the sustenable level of issuing, which therefore was

overcome in the absence of alternative solutions.

In Cordoba, to the contrary, despite the absence of federal support, a successful recent

similar experience, a strong internal political consensus, a traditional revendication of

autonomy of the province within the federation, and more favourable economic and

financial conditions made the provincial currency worth of faith for the population of the

province and therefore sustainable.

The case of Corrientes is quite specific since it is a federal intervention in the provincial

administrative domain which is responsible for the issue of the cecacor. This type of

intervention of the Nacion to restaure public finances and a normal political life in this

province had been recurrent in the 1990’s (1992, 1993 and 1999)36. But paradoxically, the

federal government did not really support the circulation of the cecacor at par, since it did

not give it a federal status similar to the patacon. Therefore the local currency appeared as

a money not sustained by the foreign power which was imposing it from outside. The

initial confidence in the currency was backed neither by credibility of the institutional

issuing device, nor by trust in the money as a protection of the province against the risk

of its chaos in a critical context. The small size and the weakness of the economy did not

help, but were not the primary causal factors of the failure of the experiment.

(about here table 7: Symbolic conditions of viability of provincial monies)

36 See G. Perez-Sosto (2006), Análisis de los factores intervinientes en la crisis de estado en la provincia de Corrientes. Relaciones entre Sociedad Civil y clase política en un contexto de crisis : un análisis cualitativo desde el discurso de los actores sociales, (con la colaboracion de M. Romero), Informe preliminar.

29

To sum up, the different fates of these monies were conditionned, on one side, by the

structural possibilities of their absorption by the regional economies, and, on the other

side, by the political strategies chosen for their reception in order to make them trusted by

the users - civil servants, small and big trades, public utilities companies - and more

generally the whole population.

The comparative analysis of these different responses to the problematic management of

a plurality of fiscal territorial monies, and of the specific role played by the federal-

provincial money (lecop), gives some light on the advantages of monetary plurality for

local development. It allows to forecast the conditions of their viability in a more steady

context of cooperative federalism, conditions including the political building of a set of

rules organizing the complementarity between them and the national money.

Conclusion

Let’s provisionally conclude with the following quotation of an argentinian internal

official report37:

« Si bien hay acuerdo en que un pais con un sistema monetario sano deberia tener una unica moneda convertible, las posiciones divergen sobre lo que pasa cuando se introducen monedas addicionales. Hay muchos ejemplos historicos y aun el reciente caso argentino, en que las monedas, al tener usos distintos, pueden convivir sin mayor dificultad. No obstante, es importante dejar en claro que siempre es optimo que haya una sola autoridad de emision, en lugar de varias, como ocurio en la Argentina con las monedas provinciales ». « Aunque es claro que un pais con un sistema monetario sano deberia tener una unica moneda convertible, el reciente caso argentino demuestra que las monedas, al tener uso distintos (en nuestro pais dado por la regionalidad de la emision), pueden convivir sin mayor dificultad. No obstante, es importante dejar en claro que siempre es optimo que haya una sola autoridad de emision. Caso contrario, se generan basicamente dos problemas: existencia de externalidades y reduccion de la certidumbre monetaria » (our underlining) This report states that complementarity between fiscal monies – national and provincial –

is perfectly viable, since they have distinct spheres of circulation. But the report also

considers that it is not “optimal” since optimality resides in the unicity of the monetary

authority, unicity that would adress successfully the two problems of monetary plurality : 37 DNCFP Report preparing the redemption of provincial monies by the federal government in 2003 (without date).

30

externalities and uncertainty. But if provincial monies emerged especially in 2001, isn’t it

because the unicity of monetary authority had produced strong negative externalities and

increased uncertainty to the point of destroying confidence and trust in the monetary

system, and credibility of the monetary authority? Moreover it can be observed that

provincial monies have produced positive externalities and reduced uncertainty when

they have been successfully managed. Thus, for the less, the argentinian experience

shows that centralized moneying should not be seen as the only way for a reliable and

optimal monetary system.

The real problem appears different: the opposition between unicity and plurality is not a

substantive one; it is a political one and is related to the structural form of the polity –

unitary or federal. In both cases, the problem is not unicity or complementarity, but good

regulation for each type of monetary systems. Unicity of the monetary authority in a

society doesn’t imply a unique currency, as it is already proved by the plurality of the

banking networks. For, in federations, the federal government cannot be confused with

the sovereign authority on federated entities, because this authority has to be above both

orders of government to be able to have authority to bring to a close conflicts between

them. Thus an optimal monetary authority should organize the complementarity-

solidarity between territorial (infranational and national) fiscal monies, rather than the

unicity of a fiscal currency which cannot optimally address the question of regional

inequalities of development between federated entities.

Therefore, from the argentinian experience, one can set provisionnal hypotheses about the

viability of a monetary federalism institutionally coherent with political federalism. The

complementarity would concern the various monetary circuits of the Treasury of the

federation, and be supported by a set of rules and monetary devices articulating these

various circuits, notably through programmes of fiscal compensation of the regional

inequalities (equalization programmes). The federal programme of equalization would be

to the various fiscal monies what the central bank is to the various bank-issued credit

monies.

This view is certainly opposed to the neoclassicist economic concern with “market-

preserving federalism”, but coherent with the political concern of “peace-keeping

31

federalism”. Nevertheless this view needs to be better established, and it is the aim of our

scientific research agenda which comprises for the next future:

- a monography on the long-standing Tucuman experience of the bocade (1985-

2003) which proves that provincial currencies are not only emergency monies;

- the building of a data base on the whole set of provinces with provincial currency

circuits in 2001-2003 (notably, provinces with petrobonos), in order to

systematize the approach of their conditions of viability;

- a formalization of the articulation between provincial Treasury’s circuits and the

federal one, with integration of the possible regulating role of the federal-

provincial equalization transfers programme in the stabilization of the unit of

account.

Other references : Argañaraz, N., Capello, M. et J. Garzon (2003), « Cuasi-monedas provinciales : un análisis de su existencia y actual rescate ", IERAL, Fundación Mediterranea, Documentos de trabajo, Serie Política fiscal, junio. Banco Mundial (2001), Argentina, Finanzas Provinciales, Actualización IV, Informe final. Chelala, S. (2003), « La utilización de terceras monedas. El caso argentino », 9 avril, www.nodo50.org/cubasigloXXI/congreso/chelala_10abr03.pdf Colliac, S. (2004), Fiscal Federalism, Dollarization of Public Contracts and the Exchange Rate Regime, draft, 14 septembre. Dirección Provincial de Estadística (2004), Encuesta de ventas minoristas, 2001 –2003, Informe anual, Noviembre. Dirección Nacional de Coordinación Fiscal con las Provincias, Grupo Deuda (2004), Cuasimonedas, mimeo. Fuchs, M. (2004), « La insercion externa de las provincias argentinas. Rasgos centrales y tendencias a comienzos de 2000 », Estudios y perspectivas, n° 20, CEPAL. Licari, J. M., Calgagno J. C., Oviedo, J. M. y Pellegrini S. (without date), « Cuasimonedas provinciales. Medición absoluta y comparada »,'Observatorio de la Economia, Universidad Nacional de Córdoba. Pifano, H. (2004), « Los sistemas tributarios federales y la evolución del federalismo fiscal en Argentina », Nota 2, PrEBi, Universidad Nacional de la Plata. Porto, A. (2004), « Finanzas Publicas subnacionales : La Experiencia Argentina », Documento de Federalismo Fiscal, n° 12, Universidad Nacional de la Plata, septiembre. Porto, A. (dir.) (2004), Disparidades Regionales y Federalismo Fiscal, Universidad Nacional de la Plata, mars. Sbatella, J. A. (2004), “Crisis fiscal y rol de la moneda. La experiencia argentina de la década de 1990”, in Boyer, R y J. C. Neffa (coord.), La economía argentina y su crisis (1976-2001), Buenos Aires, CEIL-PIETTE et Miño y Dávila, pp. 511-517. Schvarzer, J. et Finkelstein (2003), “Bonos, cuasi monedas y política económica”, Realidad Económica, n° 193, pp. 79-95. Standard & Poor’s (2001), Las Provincias argentinas en riesgo, Octubre. Vilas, C. M. (2001), « Como con bronca y junando .... Las elecciones del 14 de octubre 2001 », Revista Realidad Económica, n° 183, oct.-nov. http://www.iade.org.ar/modules/noticias/article.php?storyid=689

32

Figures and tables

33

Figure 1 : Cycle of the functional forms of money and dynamics of money issuing38 Uniqueness of the system and multiple means and unit of account Issuing rules units of payment

Figure 2: Success and failures Fuente: Boletín Monetario mensual, BCRA, febrero 2003

Figure 3: Provincial monies: their share in the national circulation

38 B. Théret, « Money as a total social fact », in Essays on the Nature of Money, Jean-François Ponsot and Louis Philippe Rochon (eds), Edward Elgar, (forthcoming); “Les trois états de la monnaie. Approche interdisciplinaire du fait monétaire”, Revue économique, 59(4), 2008, pp. 813-842; “Os tres estados da moeda. Abordagem inetrdisciplinar do fato monetario”, Economia e sociedade, 17(1) – 32, 2008, pp. 1-28.

0%

20%

40%

60%

80%

100%

Feb-02 May-02 Ago-02 Nov-02 Feb-03 May-03 Ago-03 Nov-03 Feb-04 May-04

Total circulatingPesos

Provincial Monies

34

Figure 3: Provincial monies: their share in the national circulation

0%

20%

40%

60%

80%

100%

fév-0

2

mars-0

2

avr-0

2

mai-02

juin-

02jui

l-02

aoû-

02

sep-

02oc

t-02

nov-0

2

déc-0

2jan

-03

fév-0

3

mars-0

3

avr-0

3

mai-03

juin-

03jui

l-03

aoû-

03

sep-

03oc

t-03

nov-0

3

déc-0

3jan

-04

fév-0

4

mars-0

4

avr-0

4

mai-04

Pesos Provincial monies

35

Figure 4 : Caja de conversion (Currency board) of Entre Rios : activity from 27/12/2001 to 7/01/2003

Graphique 6 : Caisse de conversion : activité du 27/12/2001 au 7/01/2003

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

12/27

/2001

1/12/2

002

1/29/2

002

2/5/20

02

2/9/20

02

2/19/2

002

2/22/2

002

3/1/20

02

3/8/20

02

3/19/2

002

3/27/2

002

4/6/20

02

4/16/2

002

4/25/2

002

5/7/20

02

5/14/2

002

5/23/2

002

6/1/20

02

6/8/20

02

6/13/2

002

6/22/2

002

Total ju

in

7/6/20

02

7/16/2

002

7/25/2

002

Total ju

illet

8/10/2

002

8/21/2

002

8/29/2

002

9/5/20

02

9/14/2

002

9/21/2

002

10/1/

2002

10/9/

2002

10/17

/2002

10/26

/2002

11/2/

2002

11/12

/2002

11/21

/2002

11/30

/2002

12/7/

2002

12/17

/2002

12/27

/2002

1/3/20

03

-8 000 000

2 000 000

12 000 000

22 000 000

32 000 000

42 000 000

52 000 000

% refusé % reste à changer Montants apportés

36

Table 1 : The fiveteen cuasimonedas Provinces Name of the

provincial currency (2001)

Circulating 08/2002 Millions

pesos %

circulation 03/2003

Provincial notes only

% circulation

03/2003 Prov-notes + Lecop

Change rates in peso

nacional 03/2003

Population millions

Nacion Lecop 3272 0,99 36,22 Buenos Aires Patacon 3411 33 38 0,98 13,32

Catamarca (1993) Publico 48 36 56 0,99 0,33 Chaco Quebracho 50 16 45 0,85 0,98

Cordoba (Cecor: 1995)

Lecor 847 30 37 0,96 3,06 Corrientes (1999) Cecacor 200 61 69 0,52 0,93

Entre Rios Federal 388 47 56 0,72 1,16

Formosa Boncafor 50 34 63 0,7 0,49 La Rioja (1985) La Rioja 10 7 47 1 0,29

Mendoza (2002) Petrom 118 8 20 0,9 1,58

Missiones (1996) Cemis 130 26 0,96

Rio Negro Rio Clase IV 70 23

0,55 San Juan Huarpes 30 0,62 Santiago

del Estero Municipal 1 47 0,81

Tucuman (1983) Bocade 169 32 45 0,85 1,34

Source : Théret et Zanabria (2007) : “Sur la pluralité des monnaies publiques dans les fédérations. Une approche de ses conditions de viabilité à partir de l’expérience

argentine récente”, Economie et Institutions.

37

Table 2: Differences between the moneying of the patacon and the federal Forms of social faith patacón federal

Building confidence (mimetic faith)

Plan of systematic negociations with the private sector. One can pay its local, provincial and federal taxes with patacones (negociations with the federal government and municipalities)

Half-hearted conversations with the private sector. One can pay its local and provincial taxes with federales. The federal is not accepted for payments of the federal taxes

Building trust (ethical faith)

Rule of issue relative to primary receivers: Wages and salaries of provincial employees over 740 pesos are paid in patacones Respected The patacon is well embedded in the politico-symbolical imaginary of “bonaerenses” (“Yo soy Argentino, I accept the patacon”)

Rule of issue relative to primary receivers: Wages of provincial employees between 350 and 700 pesos receive 350 pesos and the rest in federales; wages over 700 pesos receive 50% in federales. Never respected, the whole wages and salaries being paid 100% in federales The federal does not fit with the unitarist politico-symbolical imaginary of “entrerianos” (the ghost of Urquiza, father of the federation))

Building credibility (hierarchical faith)

Clear monetary rules. Political acceptation by all political parties (Peronists and Radicals, provincial and municipal governments and parliaments). The federal State guarantees the interprovincial circulation of the patacon on the same foot as its own interprovincial fiscal currency, the lecop. Provincial Bank not privatized and with a large network of branches. Large provincial Treasury’s circuit.

Unclear monetary rules. Authority of the Governor contested. Bad internal and external political situation. Conflicts between political parties inside and outside the majority. Bad perception of the fiscal management by the Governor. The Province has to institute a «Caja de conversion» to guarantee the change at par of the federal against the peso. This currency board did not work well after the second issue in june 2002. The provincial bank was privatized and had a limited network of branches. Few correspondents of the provincial treasury. Short circuit.

38

Table 3: Demographic and economic indicators Provincial currency Patacon

Buenos Aires

Lecor Cordoba

No bonos Santa Fé

Federal Entre-Rios

Cecacor Corrientes

Parity with peso 0,99-0.98 0,95-0,96 0.6-0,72 0,49-0.52 Population (2001) 13 318 670 3 061 611 2 997 376 1 156 799 929 236

% of total population 36,8 8,5 8,3 3,2 2.6 Area in km2 307 571 165 321 133 000 78 781 88 199

Density (inhab/km2) 43 19 23 15 11 Infantile mortality 15,1 15,0 14,4 16,9 30,4 % pop. <15 years 27 26 29 29 32

rural % total population

5 13 12 20 22

2001 GGP /capita (pesos)

/moy. Nat. (7093) Growth 2000/1993

GGP % GNP Index-number of relative economic

under-devpt (100 = City of BA)*

6161

86,9% 1,0747 33,14 162

6693

94,4% 1,0676 7,98 172

6490

91,5% 1,0535 7,57 166

4994

70,4% 1,0764 2,25 193

3107

43,8% 0,9145 1,12 261

Degree of openness export % GGP 2000 ;

2002 % total country’s

exports

12,3 ; 15,4

48

12,3 ; 17,5

9,3

23,4 ; 28,1

17,4

3,4 ; 9,5

0,7

3,3 ; 3,7

0,4

*(Porto, 2004b)

39

Table 4: Financial indicators Provincial currency Patacon

Buenos Aires Lecor

Cordoba No bonos Santa Fé

Federal Entre-Rios

Cecacor Corrientes

Parity with peso 0,99-0.98 0,95-0,96 0.6-0,72 0,49-0.52 Treasury’s circuit size

(2001) Prov. Taxes % Prov. Outlays Provincial Outlays % GGP Provincial share in national

ressources *

35 12,4 22,5

28 13,2 8,1

31 12,4 8,1

21 21,2 4,6

11 25,2 3,7

Independence / federal transfers

Prov. Incomes: own % total Equalization Transfers :

share in total prov. incomes

48

29

29

32

32

26

23

28

16

44

Degree of inconditionality in federal transfers

Absolute (copart./total) Relative (absolute/ national

Mean)

0,44 0,82

0,55 1,0

0,62 1,15

0,66 1,23

0,48 0,88

Public debt: Debt/capita (1000 pesos)

(sept. 2001) Prov debt / GGP %

Debt/ Provincial Inccomes

55 8,9

261,7

52 7,8

174,9

29 4,5

85,3

78 15,6

146,8

99 31,9

185,7 Quality of public spending

Public employees’ wages per capita in 2001

Public employment /inhab. Mean cost

% tot. Provincial Outlays Investment % total spending

431 30 18

52,3 4,7

447 25 18

49,5 6,7

468 34 14

56,2 5,1

585 49 12

49,9 9,2

478 41 12

56,3 11,7

Quality of fiscal policy** Significant unbalance but past trajectory more balanced

Significant unbalance but past trajectory more balanced

Sound fiscal policy

Persisting unbalance and incapacity to stabilize the

budget since1995

High level of debt but

deficit below national average

* Porto (dir.), 2004, p.313. ** Cetrangelo et alii, 2002

40

Table 5: Monetary indicators Provincial currency Patacon

Buenos Aires Lecor

Cordoba No bonos Santa Fé

Federal Entre-Rios

Cecacor Corrientes

Parity with peso 0,99-0.98 0,95-0,96 0.6-0,72 0,49-0.52 Provincial monies issue Amount in august 2002 Per inhab. 2002 ; 2003

% relative to GGP 2002 %relative to public spending

In August 2002 : amount/ current receipts)

amount / own receipts

3411

240 ; 211 3,41 ; 2,75 0,33 ; 0,27

0,31 0,54

847

229; 233 2,9 ; 2,67

0.28 ; 0,27

0,29 0,63

0 0 0 0

0 0

388

301 ; 254 5,04: 3,75 0,29 ; 0,23

0,26 0,77

200

216 ; 303 4,88 ; 5.89 0,30 ; 0,37

0,37 1,93

Spatial Distribution of the lecop

Provincial share % total issue Compared to distribution

GGP/hab. (average=1)

19,73%

0,6

7,15%

0.9

8,33%

1,1

3,67%

1,63

2,70%

2,4 Share of the provincial

currency in total circulating money in March 2003

Share of the lecop Tot. fiscal money y.c. lecop

33%

5%

38%

30%

7%

37%

0%

17% 17%

47%

9%

56%

61%

8%

69% Interest Rate 7% 7% 4% 4%-3%

Privatization of the public provincial bank

No (large network of

branches)

Interrupted (large network of branches)

Yes

Yes (few branches)

No

41

Table 6: Political conditions of viability of provincial monies Patacon

Buenos Aires Lecor

Cordoba Federal

Entre-Rios Cecacor

Corrientes Political Parties:

- Governor

- Parliament

Peronist

Majority of

Radicals

Peronist

No majority

Radical

Majority of Peronists

Federal Interventor (Radical)

Out of action

Level of conflicts within the political order

- at the provincial tier, government versus opposition

- provincial/ municipal

Weak

Absent

Weak

Absent

Very strong

Strong

Weak Level of social conflict

- Civil servants - others sectors

Weak, judiciary

arbitration Weak

Weak

Weak

Very strong

Strong

Strong

Strong

Strength of the provincial govt vis-à-vis the federal one

- Capacity of negociation - Federal support for the

provincial currency

Very good

Very good

Strong

Good

Weak

Average

Bad

Weak

Weak

Nil

Very weak

Ambivalent

Strategy aimed at the market acceptation of

the fiscal currency

Strong and systematic

Active

No systematic

Weak

Acceptation of the currency outside the province :

- for paying federal taxes - in market circulation

Yes Very good

No Good

No Bad

No Bad

Credibility Provided by fiscal

coordination with the federal

government

Provided by Caja de

conversion (restricted

currency board)

Provided by Caja de conversion

(restricted currency board)

Based on the Authority of the

federal government

(Interventor) on the Province

42

Table 7: Symbolic conditions of viability of provincial monies Patacon

Buenos Aires Lecor

Cordoba Federal

Entre-Rios Cecacor

Corrientes Political Parties:

- Governor

- Parliament

Peronist

Majority of

Radicals

Peronist

No majority

Radical

Majority of Peronists

Federal Interventor (Radical)

Out of action

Degree of legitimacy - Governor

- Government - Issues

Average Strong Strong

Strong Strong Good

Very weak

Weak Average then

weak

Nil then better

Good Strong then weaker and

weaker Previous experience of

provincial paper money - habituation

- Was it a success (objective and subjective) ?

Yes (old) ambivalent

Yes (recent) Yes

No : refusal

Yes (old) No

Reference to traditional values of the province and to

its autonomy vis-à-vis federation

Strong, unitarist and with

favorable effects on provincial

issue Patacon

considered as a quasi national

money

Strong, federalist and with favorable effects on

provincial issue Provincial autonomy

Strong, unitarist, with unfavorable

effects on provincial issue Urquiza, father

of the argentinian monetary

unification and foundation of the

Nation

Strong, federalist, with unfavorable

effects on provincial issue of

an imported money, instituted by cordobenses

with federal support

Possible assimilation to a community currency

Strong appropriation by

population

Strong appropriation by population

Weak appropriation by

population

Very weak appropriation by

population