Argentina tries to fire central banker in debt row

President Fernandez tried to force out the country's central bank chief in a row over using billions of dollarsin foreign currency reserves.

Argentina tries to fire central banker in debt row

Argentine President Cristina Fernandez tried to force out the country's central bank chief on Wednesday in a row over using billions of dollarsin foreign currency reserves to pay rising debt obligations.

Martin Redrado, who said he would not step down unless Congress backed his resignation, has balked at handing over $6.6 billion in reserves despite a presidential order to use them to service debt at a time of a rising fiscal deficit.

Argentina's bonds, currency and stocks fell on the news, which increases political uncertainty at a time when the country has tried to assure investors that it is ready to return to global bond markets with a new debt issue eight years after its massive sovereign default.

"Redrado has led the Central Bank and today that role is over," Economy Minister Amado Boudou told a news conference.

Boudou said the president did not have to go to Congress to remove Redrado because she was just accepting his previous offers to resign whenever she wanted.

Mario Blejer, an economist and former central bank head, has been designated to replace Redrado, Boudou said.

Cabinet chief Anibal Fernandez said the government could go to the courts to force Redrado out.

The peso currency weakened 0.26 percent to 3.81 per U.S. dollar, on the news. The benchmark MerVal stock index slid 1.7 percent and government bonds traded locally were off 0.8 percent on average.

Traders said markets read the president's attempt to push out Redrado as a sign of desperation as the government seeks funds for debt payments.

Argentine bonds and stocks had risen in recent months in anticipation of a $20 billion bond swap, which aims to mop up leftover defaulted bonds and clear the way for the country to issue a major bond.

Lower bond prices could raise Argentina's borrowing costs just as it is trying to issue the new bond.

Opposition warns of crisis

Opposition lawmakers had opposed the plan to tap foreign currency reserves to pay debt, and the Supreme Court had asked for an explanation of the plan.

Under the central bank's charter, the executive branch can dismiss a member of the bank's board if the member refuses to fulfill duties, but must have a recommendation from a special Congressional committee.

Congress is in recess. Fernandez allies lost their control of both houses of the Legislature in 2009 mid-terms, but still remain the largest bloc.

Opposition leaders warned that if the president forces Redrado out, that could create a constitutional crisis.

"Martin Redrado can stay where he is. His mandate lasts until September and he has the Senate's backing. He is not an employee of the president of the nation," said opposition Senator Ernesto Sanz, of the Radical Civic Union party.

Redrado, a Harvard-trained economist and former trade minister who has led the bank since 2004, has traditionally been less autonomous than other central bank presidents.

His role is largely limited to administering the exchange rate to keep the peso from steep movements and to guaranteeing liquidity in the private banking system.

Argentina's debt obligations rise this year to $13 billion, and economists see a funding gap of $2 billion to $7 billion.

At the same time, the rate of growth in government income has shrunk due to the economic slowdown.

Some analysts said the impact will be limited.

"It is a reminder of the inherent political and economic risks associated with the country. But dedicated investors knowthat this type of uncertainty is embedded in Argentina and asset prices reflect that," said Nick Chamie, head of emerging markets research at RBC Capital Markets in Toronto.

The center-left government has rattled financial markets with several surprising economic decisions, such as the nationalization of private pensions in late 2008.

But last year, Fernandez's administration sought to improve its relations withinvestors.

If the government cannot count on currency reserves to pay interest and principal on debt that come due this year it may have to dip deeper into its fiscal income this year.

That could limit social spending that is key to sustaining the popularity of Fernandez and her husband and top adviser, former President Nestor Kirchner.

"It's a great political error for the government to act this way and it shows they need funds now, not to pay debt further ahead," said a foreign currency trader in Buenos Aires,who spoke on condition of not being named.

Güncelleme Tarihi: 06 Ocak 2010, 19:23