Federico Sturzenegger

Federico Sturzenegger (born 11 February 1966 in Rufino, Santa Fe) is an Argentine economist who was President of the Central Bank between 2015 and 2018. Sturzenegger has a PhD in Economics from Massachusetts Institute of Technology.

Federico Sturzenegger
President of the Central Bank of Argentina
In office
10 December 2015 – 14 June 2018
Vice PresidentLucas Llach
Preceded byAlejandro Vanoli
Succeeded byLuis Caputo
National Deputy of Argentina
In office
10 December 2013 – 10 December 2015
ConstituencyCity of Buenos Aires
Personal details
Born
Federico Adolfo Sturzenegger

(1966-02-11) 11 February 1966
Rufino, Argentina
NationalityArgentine
Political partyRepublican Proposal
Other political
affiliations		Cambiemos
Alma materNational University of La Plata
Massachusetts Institute of Technology
Signature
WebsiteOfficial website

He was a professor of economics at University of California, Los Angeles, Torcuato di Tella University (where he also was Dean of the Business School), and Kennedy School of Government of Harvard University. Currently he teaches at University of San Andres and is Honoris Causa Professor at HEC Paris.[1]

Academically he co-introduced Dark Matter, a term referring to 'invisible' assets that explain the difference between official estimates of the current account and estimates based on the actual return net financial position as well as the concept of de facto exchange rates. Throughout his academic career he has published close to fifty articles in refereed journals as well as eight books.

He was also Chief Economist of YPF, President of Bank of the City of Buenos Aires and a National Congressman for the PRO party.

Career

He graduated in 1987 with an Economics degree from the National University of La Plata. He earned his Ph.D. from Massachusetts Institute of Technology in 1991.

Academics

Between 1991 and 1994, Sturzenegger was an assistant professor of economics at the University of California, Los Angeles.

In 1998, Sturzenegger left his position in YPF and became Dean of the Business School at Torcuato di Tella University until the year 2001.

In 2002, he returned to his previous occupation as Dean at Torcuato di Tella University until the year 2005.

Between 2005 and 2007, Sturzenegger was a visiting professor of public policy at the John F. Kennedy School of Government, Harvard University. During the year 2005, he was selected as Young Global Leader in the World Economic Forum in Davos[2] and in 2006 he was awarded the Konex Prize.[3]

Private sector

He returned to Argentina in 1995 when José Estenssoro appointed him as Chief Economist of Yacimientos Petrolíferos Fiscales.

Public sector

In 2001, he interrupted his academic profession and decided to participate in the public sector as Secretary of Political Economy of Argentina during Cavallo's administration.[2]

In 2007 when Mauricio Macri, the mayor of the city of Buenos Aires, asked him to act as president of the Bank of the City of Buenos Aires he returned to Argentina.[3] During his tenure, the bank made a big turnaround from losing 160 million Argentine pesos annualized during the six months previous to his appointment to becoming the most profitable state-owned firm in the country six years later with record profits of more than 1300 million Argentine pesos in 2013.[4] His management of the bank became a Harvard case study.[5]

In 2013, Federico Sturzenegger resigned as president of Banco Ciudad to become a Member of the Chamber of Deputies.

Presidency at Central Bank

Between 10 December 2015 and 14 June 2018, he served as President of the Central Bank during Mauricio Macri's administration.[6]

Its management had three central objectives: build a monetary system more suitable for the country, develop the financial system and improve the means of payment technology.[7]

Once the exchange restrictions inherited from the previous administration have been eliminated, he established a inflation targeting regime with a floating exchange rate that generates a pronounced drop in inflation.[8][9]

Core inflation, in particular, by December 2017 had stabilized at an annualized value of 18%, with downward expectations. This disinflation process, in turn, occurred in a context of strong economic growth (the economy grew by in 2017). Even with these results in December 2017, the government decided to dismantle the system, which subsequently implied a process of increasing inflation, which motivated its departure shortly after.[10][11]

Spread Country Risk (EMBI+) for Argentina. The red line marks the 28D event.

To develop the financial system, he introduced the Purchasing Value Units (UVAS), deposits and credits that adjust for the price level, for the first time in decades, the development of long-term credit. The result was the highest credit growth in 20 years in 2017, with a real explosion in the mortgage loan segment, a process that has continued later. He also implemented a deep deregulation of bureaucratic restrictions that limits the potential growth of the financial sector.[12]

Regarding payment methods, he promoted modern payment mechanisms such as PEI (Immediate electronic payment), mobile wallets, mobile payments, Debin, and homogenization of QR codes, which allow for accelerated growth of these alternative payment mechanisms. Likewise, it promoted the divestment of banks in the Prisma company (sole supplier of Visa in the country) in order to make the credit and debit card segment more competitive.[13]

National Congress
Jury of Federico Sturzenegger as National Congressman

As a Congressman, Federico Sturzenegger presented 11 bills and had numerous participations in the Chamber of Deputies. In the year 2014 he was 13º in a ranking of participation in sessions.[14]

In a session in which a bill proposed by the then Minister of Transportation Florencio Randazzo, that allowed "open access" to the railroad tracks for freight transport, the Congressman managed to include the transport for passengers in this project. The law in question makes available rail infrastructure, to be used by any company created to operate rail freight as well as by individual companies. The National government put this law in practice in 2018.[15]

One of the bills presented by Federico Sturzenegger was one that strived for universal and compulsory education since age 3. Soon after, the government presented a similar project which consisted of the obligation at 4 years of age.[16] Sturzenegger argued that in many parts of the world it was shown that children who receive quality early education at the age of 3–4 years, had lower dropout rates, higher educational level completed, higher wages, better academic performance later, and a lower proportion of them was in the need to receive state social assistance plans.[17]

As the former president of the Banco Ciudad he had a pending issue. After the so-called Conti Law, that took the judicial deposits from Banco Ciudad and transferred them to Banco Nación,[18] he presented a project with the idea of allowing free competition between financial entities in order to attract these deposits, which would result in a higher level of service and better rates for the judicial deposits.[19]

In December 2014 Sturzenegger presented a bill that consisted of implementing a loan scheme with the possibility of granting mortgage loans where the capital of the loan would move in line with the general level of inflation. The proposal was based on the Chilean model of indexed currency, using the Unidad de Fomento. According to the same project, implementing it would significantly reduce the interest rate on mortgage loans, approximating its value to a rental. As the value of capital is preserved, loans of 30 years or more would automatically would develop.[20] Later on, as Governor of the Central Bank he implemented this mechanism, and the result was a significant lending boom in mortgages which led to triple digit growth rates in mortgages.

He also proposed eliminating the minimum prices for the airline industry (the Executive implemented this in 2018), implementing a transparent entry system for the public administration (he implemented such schemes both at Banco Ciudad as well as at the Central Bank), he proposed, following the guidelines of the OECD a project to make firms responsible for corruption (a similar law was approved in 2017), and he proposed a mechanism to ensure social aid beneficiaries not to lose their benefits as they transitioned to formal employment (the government implemented a similar scheme known as Plan Empalme in 2017).

Management of Banco Ciudad
New Headquarter of Banco Ciudad in Parque Patricios

In February 2008 Sturzenegger was appointed president of the Banco Ciudad, a state owned bank property of the Government of the City of Buenos Aires. Before Sturzenegger's appointment the bank was losing money. In the second half of 2007 it had suffered losses over 80 million Argentine pesos. In 2013, after six years under Sturzenegger's management, the bank reached a record profit of more than 1300 million Argentine pesos, becoming the most profitable state owned company in Argentina. Between the years 2008 and 2012 the bank tripled its net worth and multiplied by 7 its loans to medium and small enterprises, by 6 its loans to large enterprises, and by 4 its mortgage loans.[21]

During Sturzenegger's management the bank became the only one in Argentina to offer a free savings account for all its clients, the only bank that had opened branches in shanty towns, and the only bank to offer loans (including mortgage loans) to people who earned the minimum wage. The bank also became known for pushing new alternatives for transportation, such as those that allowed the client to buy bicycles[22] or for a taxi driver to buy his or her own cab.[21][23]

Sturzenegger's management is known for implementing a unique hiring system based in meritocratic results and inspired in the Brazilian Development Bank. The primary objective of this new system was to promote equal opportunities through a recruiting based on academic results. A first selection was made on academic grades. The preselected group of applicants had then to conduct another exam at the Universidad de Buenos Aires. Those who had studied in public schools were prioritized for the selection.[21]

By the year 2013 the bank was going to move its central headquarter to a new building designed by Norman Foster. The new headquarter was designed with construction standards that would make it the most sustainable public building in Latin America.[24]

Harvard Business School wrote a case study describing the renovation of Banco Ciudad and classifying Sturzeneggers management as one of the two most successful experiences of public company's transformation.[5]

Dark Matter

Dark matter is a term coined by Sturzenegger and Ricardo Hausmann to refer to the 'invisible' assets that explain the difference between official estimates of the U.S. current account, and estimates based on the actual return on the U.S. net financial position. Specifically, the U.S. Bureau of Economic Analysis (BEA) estimated the net U.S. current account deficit to be 2.5 trillion in 2004. However, according to Sturzenegger and his colleague Ricardo Hausmann, the U.S. current account deficit cannot in reality be as high as it is estimated to be: otherwise, the U.S. would be paying large amounts of interests on its debt. This does not seem to be the case: net income in 2004 was still a positive 30 billion, which is not lower than it was in 1980, before the U.S. built up its current account deficit. Thus, the authors argue that the "real" cumulative current account between 1980 and 2004 had in fact been positive, and that somehow a large amount of (foreign) assets are being left out of the calculations.[25] [26] [27]

The suggested source of this "missing wealth" is dark matter, resulting from the unaccounted export of ideas and other services (such as insurance or liquidity) from the U.S. to other economies. The two authors claim that the U.S. has significant exports, mainly of business know-how bundled with its Foreign direct investment, that do not show up in official trade statistics.[28] These exports increase the real value of its foreign assets, and thus lower the real size of the deficit. Therefore, they argue, there is less reason to worry about the U.S. financial position than is usually assumed. In addition, this dark matter in the U.S. current account also has implications for the accounts of other countries, which have been inadvertently accruing liabilities by importing know-how.[29]

The idea of dark matter has not gone without criticism. First, Willem Buiter has argued that dark matter should result in a higher rate of return on U.S. external assets than on U.S. external liabilities. However, he claims, there is no convincing evidence that this is the case.[30] Second, the U.S. income from dark matter seems to vary enormously from year to year, even though it stems from permanent characteristics of the U.S. economy like the export of know-how.[31] Lastly, Mathew Higgins, Thomas Klitgaard, and Cedric Tille agree with the assertion that U.S. foreign assets are currently undervalued. However, they argue that more important, U.S. foreign liabilities are overvalued. Thus, The U.S. has fewer foreign liabilities than is currently assumed; this fact (rather than dark matter) explains the unexpectedly high net income.[32] In a 2007 article, Hausmann and Sturzenegger respond to some of these critiques, defending the existence and function of dark matter.[33]

De Facto Exchange Rate Regimes: Deeds vs Words

In a joint work with Eduardo Levy Yeyati, Federico Sturzenegger developed a popular classification of exchange rate regimes de facto in the paper "Classyfing Exchange Rate Regimes: Deeds vs. Words".[34] Stuzenegger and Levy Yeyati sustained that most of the empirical literature on exchange rate regimes were using the IMF de jure classification based on regime announced by the governments, despite the recognized inconsistencies between reported and actual policies in many cases. Many countries that in theory had a flexible exchange rate intervened in exchange markets so pervasively that in practice very little difference existed (in terms of observable performance) with countries that have explicit fixed exchange rate regimes. Conversely, periodic devaluations of pegs in inflation-prone countries were the result of the implementations of monetary policies that were inconsistent with fixed exchange rates and that made the effective regime resemble a flexible arrangement. Moreover, countries that appeared to behave according to the declared regime during tranquil times could be tempted to change their course of action once the regime was under stress. Thus, a very different picture of exchange rate regime choices might have appeared once the international context became more volatile.

The authors proposed a new de facto classification of exchange rate regimes that reflected the actual rather than the announced policies, providing an alternative as well as a complement to the standard de jure approach. Sturzenegger and Levy Yeyati managed to define the exchange rate regimes according to the behavior of three classification variables: changes in the nominal exchange rate, the volatility of these changes, and the volatility of international reserves. Underlying the selection of these variables they made a textbook definition of exchange rate regimes, where fixed exchange rate regimes were associated with changes in international reserves aimed at reducing the volatility in the nominal exchange rate, and flexible exchange rates were characterized by substantial volatility in nominal rates with relatively stable reserves. Thus, the combined behavior of these three classifications was sufficient to determine the regime to which each country belonged at any point in time.

References
  1. Maria Fernandez Vidal (2 March 2009). "FEDERICO STURZENEGGER" (PDF). Retrieved 28 June 2014.
  2. "Federico Sturzenegger | World Economic Forum - Federico Sturzenegger". weforum.org. Retrieved 30 May 2014.
  3. "Federico Sturzenegger | Fundación Konex". fundacionkonex.org. Retrieved 30 May 2014.
  4. "Banco Ciudad". bancociudad.com.ar. Retrieved 28 June 2014.
  5. "Banco Ciudad (A): Who is the Owner - Harvard Business Review". hbr.org. Retrieved 28 June 2014.
  6. "Federico Sturzenegger asume en el Banco Central y habría renuncias masivas de los directores de Kicillof".
  7. https://www.fsturzenegger.com.ar/biografia
  8. País, Ediciones El (17 December 2015). "Argentina libera el control de capitales". EL PAÍS (in Spanish). Retrieved 29 December 2015.
  9. http://www.bcra.gov.ar/Pdfs/Prensa_comunicacion/Metas_de_inflacion26092016.PDF
  10. https://www.americasquarterly.org/article/yes-macri-failed-on-the-economy-but-it-wasnt-all-for-naught/
  11. https://www.brookings.edu/wp-content/uploads/2019/09/Sturzenegger_conference-draft.pdf
  12. https://www.bcra.gob.ar/Noticias/BCRA_reglamenta_la_ampliacion_de_instrumentos_para_credito_y_ahorro.asp
  13. https://www.bcra.gob.ar/noticias/PEI.asp
  14. "Cuánto hablaron los diputados en el recinto - Informes - Parlamentario".
  15. "Por qué apoyamos el proyecto de ferrocarriles".
  16. "Desde este año, será obligatoria la sala de 4 años en todo el país". 7 January 2015.
  17. http://www.diputados.gov.ar/proyectos/proyecto.jsp?id=162165
  18. "Ley 26.764 - Traspaso depósitos judiciales del Banco Ciudad al Nación".
  19. http://www.diputados.gov.ar/proyectos/proyecto.jsp?id=171256
  20. http://www.diputados.gov.ar/proyectos/proyecto.jsp?id=171345
  21. Stuzenegger, Federico. Yo no me quiero ir, Editorial Planeta, Buenos Aires, May 2013. Third Edition: Buenos Aires, June 2013. Chapter 9: La gestión de lo público
  22. "Banco Ciudad". bancociudad.com.ar. Retrieved 28 June 2014.
  23. "Banco Ciudad". bancociudad.com.ar. Retrieved 28 June 2014.
  24. "Macri muda a Parque Patricios la sede de la jefatura de gobierno de la ciudad - 29.03.2014 - lanacion.com". lanacion.com.ar. 29 March 2014. Retrieved 28 June 2014.
  25. Hausmann, Ricardo; Sturzenegger, Federico (January 2006). "Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations" (PDF). CID Working Paper No. 124.
  26. Hausmann, Ricardo; Sturzenegger, Frederico (November 2005). "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" (PDF). CID Working Paper.
  27. Hausmann, Ricardo; Sturzenegger, Federico (7 December 2005). "Op-Ed: 'Dark Matter' Makes the U.S. Deficit Disappear". Financial Times. Retrieved 1 October 2012.
  28. Mandel, Michael (28 December 2005). "Dark Matter". Retrieved 1 October 2012.
  29. Hausmann, Ricardo; Sturzenegger, Federico; Sibert, Anne; Tille, Cedric (2007). "The missing dark matter in the wealth of nations and its implications for global imbalances". Economic Policy. 22 (51): 469–518. doi:10.1111/j.1468-0327.2007.00182.x.
  30. Buiter, Willem (January 2006). "Dark matter or cold fusion?" (PDF). Goldman Sachs Global Economics Paper No: 136.
  31. "America's dark materials". The Economist. 19 January 2006. Retrieved 1 October 2012.
  32. Higgins, Matthew; Klitgaard, Thomas; Tille, Cédric (January 2007). "Borrowing without Debt? Understanding the U.S. International Investment Position". Business Economics. 42 (1): 17–27. doi:10.2145/20070102. hdl:10419/60589.
  33. Hausmann, Ricardo; Sturzenegger, Federico (January 2007). "The valuation of hidden assets in foreign transactions: why "dark matter" matters". Business Economics. 42 (1). Archived from the original on 20 April 2014. Retrieved 2 June 2014.
  34. Eduardo Levy-Yeyati, Federico Sturzenegger (3 February 2005). "Classifying exchange rate regimes: Deeds vs. words" (PDF). European Economic Review. 49 (6): 1603–1635. doi:10.1016/j.euroecorev.2004.01.001. Archived from the original (PDF) on 6 June 2014. Retrieved 28 June 2014.
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