Financial Times Editorial Comment: Argentina strikes at central bank/Argentina debt battle intensifies

Financial Times Editorial Comment: Argentina strikes at central bank
Copyright The Financial Times Limited 2010
Published: January 10 2010 18:45 | Last updated: January 10 2010 18:45
http://www.ft.com/cms/s/0/ab7fefb6-fe13-11de-9340-00144feab49a.html


The summary sacking of Argentina’s central bank chief, Martin Redrado, by President Cristina Fernández de Kirchner, is further sign that this so potentially prosperous country is being steered in circles by the cut rudder of Peronist populism.

Ms Fernández accused Mr Redrado of “misconduct” for refusing to hand over $6.6bn from central bank reserves to a fund ostensibly intended to pay down debt. Argentina is seeking to return to international capital markets, from which it has been barred after its 2001 default on nearly $100bn. Mr Redrado has been given a stay of execution by the courts but this may prove sadly ephemeral.

The government’s argument, that it is trying to restore Argentina’s credit by a new debt swap with outstanding bond-holders who refused to accept the heavily discounted terms offered after the default, is superficially attractive but ultimately disingenuous.

Under Ms Fernández and her still powerful predecessor and husband, Néstor Kirchner, the government has had frequent recourse to unorthodox funding mechanisms to make up for Argentina’s lack of creditworthiness – notably through the 2008 nationalisation of $30bn in private pension fund assets. That came after Congress had struck down her imposition of a variable tax on farm exports – which rocked the country with protests.

This time, following the common practice of Mr Kirchner as president, Ms Fernández has sought to circumvent Congress by issuing a decree – a device that weakens already enfeebled institutions.

Not only is the central bank Argentina’s most credible institution; its reserves are now the most credible anchor of economic stability, in a country that is a byword for wayward policymaking.

President Fernández says central bank reserves have risen to more than $48bn, from around $8bn when Mr Kirchner took office in 2003. True, but this is more the result of windfalls from a large devaluation, a huge debt default, and a commodities boom than astute government policies.

The overwhelming impression is that the move on the central bank is part of a pattern of serial asset grabbing, not just to pay off debt but to free up cash for other spending ahead of next year’s presidential election – especially now the Peronists have lost their majority in both houses of Congress.

Argentina had a good decade, and a chance to set the country on the path to prosperity it should long ago have achieved. Instead, it got the Kirchners.





Argentina debt battle intensifies
By Jude Webber in Buenos Aires
Copyright The Financial Times Limited 2010
Published: January 10 2010 23:09 | Last updated: January 10 2010 23:09
http://www.ft.com/cms/s/0/deb0ac1a-fe2f-11de-9340-00144feab49a.html


An escalating battle over Argentine government plans to use central bank reserves to pay off debt shifts to the courts and Congress this week, overshadowing the country’s efforts to polish its image with investors in an attempt to return to capital markets.

Amado Boudou, the economy minister, had been planning to travel to Washington on Wednesday for talks with multilateral lenders as the government put the finishing touches to an offer, due later this month, to the holders of bonds unpaid since Argentina’s $100bn default in 2001.

But a government source said it was not clear whether he would go “if it turns out he’s needed more urgently here”. The source, however, emphasised that the offer to bondholders, who are now owed $29bn (€20bn, £18bn) including interest, would not be derailed.

Argentina has been locked out of capital markets since its default and the offer is crucial to the cash-strapped government’s hopes of a swift return.

“Obviously this isn’t desirable as far as the offer is concerned,” the source said. “But for now markets have been stable and there’s no indication it will complicate matters economically or much less complicate the debt swap.”

Cristina Fernández, Argentine president, last week fired Martín Redrado, central bank governor, by decree after he failed to transfer $6.5bn from the bank’s near record $48bn reserves to a new fund to pay off debt, and then refused her demand to quit.

By Friday night, Mr Redrado was back in his office after a judge upheld an appeal against his ouster and blocked the decree creating the debt-repayment fund.

The government has lodged appeals and María José Sarmiento, the judge, is expected to respond on Monday. Further appeals, to the Supreme Court, are likely to follow.

The crisis has deepened amid political fighting.

Julio Cobos, vice-president, who is leader of the Senate, called on party chiefs to return from summer recess on Monday for a special session on Wednesday of a bicameral commission to look at the use of emergency presidential decrees – called “decrees of necessity and urgency” – such as those used to create the fund and to fire Mr Redrado.

Opposition politicians say there was no “necessity and urgency” in this case since Ms Fernández could have recalled Congress to debate the matter. Ms Fernández, who promised to shore up Argentina’s weak institutions when she took office in 2007, initially boasted of never having to use emergency decrees.

Congress’s intervention in the crisis is likely to be fraught. Mr Cobos is an opposition politician who was at first allied with the government, then broke ranks after casting the deciding vote against Ms Fernández’s plan to raise farm export tariffs in July 2008 and is now seen by some as a presidential candidate in 2011 elections. Néstor Kirchner, Ms Fernández’s husband and former president, blasted him at the weekend for leading an anti-government “conspiracy”.

It was not clear whether opposition lawmakers would heed Mr Cobos’ call to attend Monday’s meeting. Agustín Rossi, a government lawmaker, said Congress could not “summon itself” and only the president could recall legislators from their holidays. Since mid-term elections last year, the government has significantly lost influence in Congress.