Argentina’s Central Bank Chief Resigns

Argentina’s central bank chief resigned Thursday as the peso continued its fall and the country lurched closer to economic chaos.

There were reports of continued widespread demonstrations by citizens against a government freeze on bank deposits and raids by police on bank branches for allegedly ignoring the freeze. Citibank, meanwhile, wrote off $470 million in loan losses connected to its Argentina operation.

The peso closed at 2.10 to the dollar in Thursday trading, down 10% from the previous day, continuing its slide from the 1.40 official rate imposed last week. The drop came despite government intervention in the markets to back the fading currency.

Until the devaluation, the peso had traded on a 1-1 parity with the dollar for 10 years.

Argentina’s leading stock index gained 8.2% Thursday, as trading resumed after an eight-day halt.

But analysts said it was a symptom of Argentines’ desperate quest for some sort of safe investment haven from the rapidly devaluing peso.

Roque Maccarone quit the top central bank post for health reasons and because of disputes with President Eduardo Duhalde over bank policy. He has been replaced on an interim basis by Mario Blejer, a former International Monetary Fund economist.

Blejer’s appointment, if made permanent by congressional approval, could improve Argentina’s chances of getting the international assistance package it needs to start on the road to recovery, said Carlos Janada, an economist with ABN Amro in New York.

“He is well-known in Washington. If he accepts the permanent job, the market will be pleased and that would help Argentina,” Janada said. The nation is in the grip of a four-year recession, 18% unemployment and a de facto collapse of its banking system.

The resignation reflects the increasing pressure Duhalde is under for the banking policies he has inherited and toughened since taking office Jan. 2 as the fifth president over a two-week period.

Duhalde’s conversion of dollar-indexed bank loans to pesos to ease the pain of devaluation while promising dollar depositors that they will someday get their cash back in that currency has created a nightmare for the banking industry.

Duhalde earlier this week announced further modifications to the bank deposit freeze that has triggered sporadic protests and rioting throughout the country. But the changes reinforced the impression of many outside observers that Duhalde is improvising policy on a daily basis.

The international financial community is still waiting for Duhalde to unveil a comprehensive monetary policy and a 2002 budget, the prerequisites for some sort of IMF assistance package that could total $15 billion or more.

“For a guy who was arguing for the need of an emergency government prior to assuming power, I am surprised at how little prepared Duhalde is,” said Miguel Diaz of the Center of Strategic and International Studies in Washington.

Under any scenario, Argentina faces tough times. Although a return to the hyper-inflation of the 1980s is a long shot, Janada expects up to 50% inflation this year.

Duhalde faces intense pressure on one side from bankers and economists, who want him to convert dollar deposits to pesos as he did loans, and on the other side by angry citizens whose rage will explode if their bank accounts lose exemption from the devaluation.

Diaz of CSIS said Duhalde, despite his difficulties, is Argentina’s best and maybe last chance at a political solution, before anarchy or military intervention.

“That last scenario is the least likely, but it’s now in the realm of the possible,” Diaz said.