The major Argentine political, financial and legal news story this week involves President Cristina Fernandez de Kirchner’s decision to implement a “Bicentennial Fund” financed with $6.6 billion of $17 billion in reserves held by Argentina’s Central Bank to make debt payments this year. The President of the Central Bank, Martin Redrado, resisted the move and refused to release the reserves to the government for debt service payments. He also refused to resign when President Kirchner demanded his resignation. In a sequence of surreal events involving all parts of the government, Kirchner fired Redrado and, according to a BBC report, an Argentine court has now ordered his reinstatement and blocked President Kirchner’s plan to use currency reserves to pay public debt. The Argentine government has $13 billion in debt service payments due in 2010. La Nacion, Argentina’s leading daily newspaper, has reported that the president also ordered Attorney General Esteban Righi to file criminal charges against Redrado, a Harvard-educated economist.
In Argentina, the Central Bank is answerable to the president, unlike in the US where the Chairman of the Federal Reserve Bank serves independently from the US President. The Federal Reserve Banks were established by Congress as the operating arms of the nation’s central banking system. Imagine the uproar in the US if a similar series of events were to occur. Events in the US leading up to the financial crisis in 2008 led many critics to suggest that American central bankers should face criminal charges for their part in the collapse. The news from Argentina shows how how such retaliatory tactics can
Opposition leaders claim that President Kirchner is on an asset-grabbing spree to fund wild spending until 2011 when the next election takes place. The nationalization of private pension funds and the current effort to tap central bank reserves are cited as evidence. Whatever the fate of Martin Redrado, Kirchner will need to convince the Argentine Congress of the validity of using central bank reserves to pay off the debt before the issue is resolved.