Row over Central Bank Funds Triggers Political Crisis in Argentina

Action and Reaction

Argentine president Cristina Fernández de Kirchner yesterday triggered a fresh political row, pitting the central government against the central bank (BCRA), after she called on BCRA president Martín Redrado to step down over his refusal to support the government’s economic policy, as Cabinet Chief Aníbal Fernández phrased it. But Redrado, whose term at the top of the BCRA expires in September, has decided not to resign. He had drawn the ire of the president by delaying the transfer of approximately US$6.6-billion of central bank foreign reserves to the so-called Bicentennial Fund, an instrument aimed at guaranteeing debt payments in 2010 (see Argentina: 16 December 2009: Argentine Foreign Reserves Guarantee Debt Payments in 2010). While Redrado did not show major opposition to the creation of the fund, he is now against transferring the money because of the possibility of seizure; debt holdouts who decided in 2005 not to participate in the debt exchange offer might obtain court orders to retain Argentine government assets in foreign jurisdiction. The government considered this move a betrayal. Mario Blejer, a former director of the Bank of England and a close friend of Finance Minister Amado Boudou, was offered Redrado’s seat. He rejected, arguing that the central bank already has a president.

The market reaction was immediate, with local bonds shrinking over 5% after strong rallies were observed in previous sessions, while the Merval stock index sank by 2%. Pressure on the local currency was not significant, losing just 0.25%. Political reaction was equally immediate. Leaders of opposition parties rushed to support Redrado’s decision to ignore the presidential call to step down and slammed the government for attacking the independence of the central bank. Redrado had already been lobbied by the opposition, which deems the presidential decree establishing the Bicentennial Fund unlawful, to delay the transfer of the money.

Legal Challenges

Redrado’s position has been bolstered by the president apparently overstepping her competences by calling on him to step down. According to the law, removing a central bank director after a concrete case of misconduct has been identified requires the approval of a congressional commission. Yet the government’s chances of obtaining the green light from Congress for such a move are minimal. The government no longer holds legislative majorities, and the commission overseeing the procedure would be presided over the by Senate president Julio Cobos, who has highly strained relations with the president. The legal troubles for the government do not end here. On 30 December the Supreme Court agreed to review a legal challenge presented by the San Luis province against the decree that created the Bicentennial Fund. Opposition lawmakers argue that the measure infringes the principles of separation of powers and central bank independence by by-passing congressional authority over the use of public funds.

Outlook and Implications