Legal Certainty and Central Bank Autonomy in Latin American Emerging Markets (European Yearbook of International Economic Law 15)

"This book provides a comparative analysis of the legal frameworks of six Latin American central banks to determine whether there is legal certainty regarding central bank autonomy. Based on this, it ascertains whether the way in which legal institutions are designed -- specifically those that rule the autonomy of the central bank -- provides reasons to believe that central banks can keep inflation at bay even if governments face fiscal problems or pursue contradictory objectives. The analysis covers three key areas: a constitutional analysis, a detailed study of the central bank statutes and a study of a number of underexplored threats to central bank autonomy. After defining and identifying different types of legal certainty and linking them to the credibility of government promises, the author goes on to examine the grounds that the law provides for confidence that central banks operate independently of political influence. The second part of the book focuses on a granular analysis of the legal design of the central banks' objectives and autonomy. Lastly, the third part features two case studies that represent little-known and unusual institutional threats to legal certainty relating to central bank autonomy, such as the interventions by the Constitutional Court of Colombia in the autonomy of the Colombian central bank, and the interventions of the Argentinean executive and legislative branches in the autonomy of Argentina's central bank through stabilization plans introduced via emergency laws and decrees. In sum, the book suggests that there are serious doubts about the ability of Latin American central banks to maintain price stability over time. Although central banks were granted a degree of autonomy, authorities in Latin American countries are able to affect central bank decisions. Most importantly, a lack of clarity, inconsistencies, or generous exceptions in the law provide ways for authorities to influence central banks even without bending or disregarding the rules"--Back cover Acknowledgments Contents About the Author Abbreviations List of Figures List of Tables Chapter 1: Introduction 1.1 Monetary Stability in Latin America 1.2 Outline References Chapter 2: Legal Certainty 2.1 Introduction 2.2 The Principle of Legal Certainty and the Rule of Law 2.2.1 The Rule of Law and the Law 2.2.1.1 Objectives of the Rule of Law 2.2.1.2 The State and the Law 2.2.1.3 The Problems of the Estado de Derecho in Latin America 2.2.2 Legal Certainty and the Rule of Law 2.2.2.1 Understanding Legal Certainty 2.2.2.2 Legal Certainty in Latin American Law 2.2.2.3 A Brief Note on Legal Rules Versus Principles 2.3 Notions of Legal Certainty 2.3.1 Formal Legal Certainty 2.3.1.1 Definition and Importance 2.3.1.2 Formal Legal Certainty and Law Making 2.3.1.3 Characteristics Clarity Coherence Stability 2.3.2 Substantive Legal Certainty 2.3.2.1 Definition and Importance 2.3.2.2 Substantive Legal Certainty and Law Applying 2.3.2.3 Accessibility of the Legal Rules and Law Finding 2.3.3 Subjective Legal Certainty 2.4 Legal Certainty and Other Principles of Law 2.4.1 Legal Certainty and the Principle of Non-Retroactivity 2.4.2 Legal Certainty and the Protection of Legitimate Expectations 2.5 Summary Legal References Constitutions Legislation Argentina Colombia Chile Mexico Peru Case Law ICSID UNCITRAL Corte Suprema de Justicia de la Nación [Supreme Court of Justice of Argentina] Supremo Tribunal Federal do Brazil [Supreme Federal Court of Brazil] Tribunal Constitucional de Chile [Constitutional Tribunal of Chile] Corte Constitucional de Colombia [Constitutional Court of Colombia] Tribunal Constitucional del Perú [Constitutional Tribunal of Peru] References Chapter 3: Legal Certainty and Legal Commitment Mechanisms 3.1 Introduction 3.2 Legal Framework and Commitments 3.2.1 Legal Rules and Institutions 3.2.2 Legal Commitments 3.3 Legal Certainty and the Costs of Modifying Legal Commitment Devices 3.3.1 International Agreements 3.3.2 The Constitution as a Commitment Device 3.3.2.1 The Role of the Constitution 3.3.2.2 Objective Legal Certainty and the Constitution: Consistency of the Legal Framework and the Need for Stability 3.3.2.3 The Problem of Subjective Legal Certainty in Latin America: Lack of Entrenchment of the Constitution 3.3.3 The Implications of Procedures in Law Making: Organic Laws 3.3.4 Distribution of Power and Delegation 3.4 An Analysis of Procedural Differences in Law Creation and Amendment 3.4.1 Procedural Differences Within Each Legal Framework 3.4.1.1 Argentina 3.4.1.2 Brazil 3.4.1.3 Chile 3.4.1.4 Peru 3.4.1.5 Mexico 3.4.1.6 Colombia 3.4.2 Procedural Differences Between Legal Frameworks 3.5 Summary Legal References Constitutions Legislation Colombia Mexico Peru Case Law Tribunal Constitucional de Chile [Constitutional Tribunal of Chile] Corte Constitucional de Colombia [Constitutional Court of Colombia] Suprema Corte de Justicia de la Nación de México [Supreme Court of Justice of the Nation] References Chapter 4: Central Bank Objectives and Autonomy 4.1 Introduction 4.2 Inflation as a Central Bank Objective and the Need for Autonomy 4.2.1 Inflation and Its Costs 4.2.1.1 Money and Inflation 4.2.1.2 Costs of Inflation and Inflation Variability 4.2.2 Legal Reasons to Protect Monetary Stability 4.2.2.1 Monetary Instability and Contracts 4.2.2.2 Property Rights Perspective 4.2.2.3 Inflation and the Right to Live with Dignity 4.2.3 The Government ́s Problems in Achieving Monetary Stability 4.2.3.1 Knowledge Problems 4.2.3.2 Mal-incentives and Commitment Problems 4.2.3.3 Delegation of Monetary Policy to an Autonomous Institution 4.3 Legal Certainty and Central Bank Objectives in Latin America 4.3.1 Clarity of the Legal Objectives 4.3.2 Consistency of the Legal Objectives 4.3.3 Stability of Legal Objectives 4.4 Legal Rank of Central Bank Autonomy and Legal Certainty 4.4.1 Implications of the Constitutional Rank for Legal Certainty 4.4.2 Legal Autarchies and Legal Certainty 4.5 Summary Legal References Treaties and Conventions Constitutions Legislation Argentina Brazil Chile Colombia Mexico Peru Other Case Law Tribunal Constitucional de Chile [Constitutional Tribunal of Chile] Corte Constitucional de Colombia [Constitutional Court of Colombia] Suprema Corte de Justicia de la Nación de México [Supreme Court of Justice of the Nation] Tribunal Constitucional del Perú [Constitutional Tribunal of Peru] References Chapter 5: Central Bank Statutes and Autonomy 5.1 Introduction 5.2 Personal Autonomy and Financial Autonomy 5.2.1 Personal Autonomy 5.2.1.1 Composition of the Central Bank Boards 5.2.1.2 Appointment of the Board Members 5.2.1.3 Tenure and Renewal of Board Members 5.2.1.4 Heads of the Central Bank Boards 5.2.1.5 Confidentiality of the Opinions of Board Members 5.2.1.6 Professional Profile of Board Members 5.2.1.7 Forbidden and Allowed Activities 5.2.2 Financial Autonomy 5.2.2.1 Government Financing 5.2.2.2 Dealing with Profits and Losses 5.2.2.3 Board Control Over Budget and Salaries 5.3 Accountability 5.3.1 Autonomy Versus Accountability 5.3.2 Control 5.3.3 Dismissal 5.3.4 Transparency and Public Scrutiny 5.4 Operational Autonomy and Economic Policy Coordination 5.4.1 Operational Autonomy 5.4.2 Personal Autonomy and Operational Autonomy 5.4.3 Instrument Autonomy and Coordination 5.4.3.1 Peru 5.4.3.2 Colombia 5.4.3.3 Chile 5.4.3.4 Mexico 5.4.3.5 Argentina 5.4.3.6 Brazil 5.4.4 Communication 5.5 Evaluation of Coherence of Legal Frameworks Legal References Constitutions Legislation Argentina Brazil Chile Colombia Germany Mexico Peru Other Executive Decrees Argentina Case Law Tribunal Constitucional de Chile [Constitutional Tribunal of Chile] Corte Constitucional de Colombia [Constitutional Court of Colombia] Suprema Corte de Justicia de la Nación de México [Supreme Court of Justice of the Nation] References Chapter 6: The Constitutional Court of Colombia Versus Central Bank Autonomy 6.1 Introduction 6.2 Constitutional Review and Judicial Activism 6.2.1 Constitutional Review 6.2.2 Activist Courts and Legal Certainty 6.2.3 Consistent Interpretation and Coherence of the Legal System 6.3 Constitutional Review in the Light of the Social Rule of Law 6.3.1 Constitutional Review in Colombia 6.3.2 Consistent Interpretation in Colombia and Legal Certainty 6.3.3 The Social Rule of Law: Main Parameter of Judicial Interpretation 6.3.4 Central Bank Autonomy in the Light of the Social Rule of Law 6.4 The Court ́s Interventions in Central Bank Autonomy 6.4.1 Public Housing Policy and the Mortgage Loan Problems 6.4.1.1 Saving and Housing Corporations (CAVs) and the UPAC System 6.4.1.2 Bank of the Republic and the UPAC 6.4.1.3 Financial Crises of 1997/8 and UPAC System 6.4.2 UPAC Problems and Integrative Judgments 6.4.2.1 The Social Rule of Law Versus Central Bank Autonomy 6.4.2.2 The End of the UPAC System and Central Bank Responsibility 6.4.3 A New System: CCC Continues Taking on BRC Functions 6.4.4 The Long Shadow of the Court ́s Decisions: A Series of Lawsuits 6.5 Summary and Outlook Legal References Constitutions Legislation Colombia Peru Executive Decrees Colombia External Resolutions Colombia Peru Case Law Colombia Consejo de Estado de Colombia [Council of State of Colombia] Corte Constitucional de Colombia [Constitutional Court of Colombia] Peru Tribunal Constitucional del Perú [Constitutional Tribunal of Peru] References Chapter 7: Economic Emergency and Central Bank Autonomy in Argentina 7.1 Introduction 7.2 The State of Public Emergency 7.2.1 Definition and Requirements of State of Public Emergency 7.2.2 Preserving the Rule of Law in a Public Emergency 7.2.2.1 Protection of Basic Rights 7.2.2.2 Public Emergency and the Counterweight System 7.2.3 Argentina ́s Constitution of 1853 and the State of Emergency 7.3 Monetary Problems and the State of Emergency in Argentina 7.3.1 Monetary Instability and the Central Bank Solution 7.3.2 Economic Emergency Decrees Under Alfonsin and Menem 7.3.2.1 Austral and Bonex Plans 7.3.2.2 The Supreme Court and Emergency Decrees 7.3.3 Currency Board and Emergency Regulation 7.3.3.1 Currency Board 7.3.3.2 Legal Modifications and the Currency Board Central Bank Charter Constitutional Amendments 7.3.3.3 Management of the Tequila Crisis of 1994 7.3.3.4 Management of the Crisis of 2001/2002 7.4 A Permanent State of Emergency 7.5 Summary Legal References Treaties and Conventions Constitutions Legislation Argentina Argentina Economic Emergency Legislation Emergency Decrees Argentina Executive Decrees Argentina Case Law Argentina Chile References Chapter 8: Towards Monetary Stability in Latin America 8.1 General Summary 8.2 A Benchmark Framework 8.2.1 Autonomy of Constitutional Rank 8.2.2 Clear (Single) Objective 8.2.3 Guarantees of Personal and Financial Autonomy 8.2.4 Coordination and Accountability 8.3 Main Findings and Proposals: The Good, the Bad, and the Ugly 8.3.1 The Good: Chile and Peru 8.3.1.1 Constitutional Rank and Clarity of Objective 8.3.1.2 Addressing Issues in Personal Autonomy 8.3.1.3 Improving Financial Autonomy 8.3.1.4 Additional Suggestions 8.3.2 The Bad: Argentina and Brazil 8.3.2.1 Statutory Autonomy and Multiple Objectives 8.3.2.2 Multiple Objectives 8.3.2.3 Central Bank Autonomy in Brazil 8.3.2.4 Improving the Rules for the BCRA 8.3.2.5 A Special Threat: Emergency Decrees 8.3.3 The Ugly: Mexico and Colombia 8.3.3.1 Three Main Contradictions 8.3.3.2 Additional Suggestions 8.4 Final Remarks Reference