Saturday, January 9, 2010

Ay, Cristina (Kirchner)

Martín Redrado, the chief of Argentina's Central Bank who is in an increasingly tense political dispute with President Cristina Fernandez, talks to reporters as he leaves the bank's headquarters in Buenos Aires on Friday. A court issued two rulings Friday, blocking the use of foreign-currency reserves to pay debt, and revoking her dismissal of the central-bank chief.

This is a contest of wills. President Kirchner, the current one, supported, of course, by the previous President Kirchner (Cristina and Nelson, respectively), is demanding that about $7 billion (or, about, 26 billion Argentinian pesos) be released from the central bank-controlled reserves, and used to service foreign debt. Señor Redrado refused. He got sacked.

A federal judge blocked President Cristina Kirchner from using foreign-currency reserves to pay Argentina's national debt and revoked her dismissal of the central-bank chief who opposed that policy.

The twin legal defeats for the government injected further uncertainty in the battle for control of the central-bank reserves. The dispute, which has put Argentina on the verge of a constitutional crisis and placed the president and the opposition-controlled Congress at loggerheads, led to a selloff in the country's bond and stock markets.

A selloff? I don't know who the hell owns any Argentinian securities. Talk about speculation.

Mr. Redrado said he was motivated by the principle of central-bank independence. "It's necessary to keep working for ideas," he said. "We have shown commitment to maintaining the prestige of the Central Bank."

Mrs. Kirchner defended using a portion of the $48 billion in reserves to pay debt.

"It's much better to use the reserves than to take loans at 15% interest," President Kirchner said in remarks at a political event. She added that Mr. Redrado had been guilty of misconduct, and she was within her rights to dismiss him.

I think the expression at loggerheads is apt.

Roberto Sifon Arevalo, a director in the Latin America Sovereign Ratings Group at Standard & Poor's said compromising central-bank authority is disturbing to investors.

"There is a conceptual reason why people focus on the independence of the central bank," he said. "In a context where you already have inflationary pressures, if you don't have that independence and you have a central bank that starts financing current expenditures, then that's going to get significantly worse."

The  US Congress is walking the same way, proposing to curb the Fed's independence.

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