Argentina’s president, Cristina Fernandez de Kirchner, fired the nation’s central bank chief Thursday after he refused to release $6.6 billion in foreign reserves to service the nation’s mounting foreign debt.
But questions over the legality of Fernandez’s action have raised the likelihood of a double-barreled political and economic crisis.
Fernandez’s dismissal decree followed an emergency meeting with her ministers in the afternoon after bank head Martin Redrado rejected her call to resign.
The banker justified his refusal by saying any transfer of reserves must be approved by Congress, which is in recess.
“It’s not a measure I wanted to take,” Fernandez told reporters after the meeting. She said she had no choice given Redrado’s “failure to carry out the duties of a public servant,” adding that the bank’s vice president would assume Redrado’s duties until a permanent replacement is named.
The political dust-up is the latest crisis to beset a country that has been hit hard by the global crisis, declining exports, increasingly polarized politics and the residual effects of its default on $102 billion in foreign debt in 2002.
In an official statement released late Thursday after a meeting of its board of directors, the central bank asserted its independence and said it “does not have to follow orders from the executive branch.”
Although the president has the power to dismiss a central bank board member, she must also provide evidence of misconduct or policy failure and consult with a special congressional committee, said economist Abel Viglione in Buenos Aires.
Redrado’s six-year term expires in September.
“She is in essence firing Redrado for obeying the law,” Viglione said.
The standoff set the scene for a full-blown institutional crisis that could end up in the courts unless a special session of Congress is convened to settle the matter. Fernandez may have difficulty getting legislators’ approval for the $6.6-billion transfer and Redrado’s firing from the opposition-controlled Congress.
In fact, opposition politicians warned Redrado that he would be subject to legal action if he obeyed Fernandez’s order to transfer billions in reserves. The president’s economic minister, Amado Boudou, said the dismissal was legal because Congress was out of session and “we were beginning to see anarchy in the bank.”
The roots of this week’s fight -- and Fernandez’s attempts to get control of the bank’s cash -- stem in large part from Argentina’s battered economy, ravaged by devaluation and debt default during the decade that just ended.
In 2005, the country negotiated an agreement with holders of about $80 billion of the $102 billion in external debt on which Argentina stopped making payments in 2002. But the unwavering position taken by “holdout” holders of $22 billion in defaulted bonds and their subsequent court action against Argentina have meant the country has not been able to access international credit markets.
That in turn has raised borrowing costs, forcing the country to look to unusual and costly sources for cash and credit.
One of those sources was Venezuelan President Hugo Chavez, who bought billions in Argentine bonds to cement political ties with the left-leaning Fernandez and her husband, Nestor Kirchner, her predecessor in office. But the relationship ended in 2008 when Chavez’s conditions, including interest rates of 17%, became more than Fernandez could afford, Viglione said.
The Chavez connection has tainted Fernandez in other ways.
In 2007, Venezuelan Guido Alejandro Antonini Wilson was arrested at Buenos Aires airport carrying $800,000 in undeclared cash that investigators said was sent by Chavez for Fernandez’s presidential campaign. Chavez denied any knowledge of the cash. Wilson cooperated with prosecutors, but his associate, Franklin Duran, was convicted in 2008 by a Miami court of being an “unregistered foreign agent.”
Also to obtain cash, Argentina nationalized the nation’s $30-billion private pension system in 2008, raising a storm of controversy.
The $6.6 billion that Redrado refused to transfer was to have been the first tranche of $18 billion that Fernandez wants transferred from central bank reserves to a so-called Bicentennial Fund under her control and which ostensibly would be used to clean up the nation’s finances. Critics fear that it would be used as a political war chest and leave the country weakened in the face of its economic problems.
Former central bank chief Javier Gonzalez Fraga told Bloomberg News on Thursday that determining adequate reserve levels was a “legitimate debate . . . but this isn’t the way to resolve it.”
Fernandez rode a wave of support for her husband to win election in 2007. But last June, her political allies suffered a crushing defeat in midterm elections, and she lost majority control of both houses of Congress.
Her presidency has been marked by a succession of crises. Although the economy benefited from a commodities boom in her first year in office, it since has been battered by the global slowdown, increased taxes on exports and devastating droughts that have caused drops in farm production. Inflation has averaged 18% since 2007.
To finance government spending increases, she raised taxes on exports of beef, soy, corn and other farm products, triggering massive protests by farmers in 2008. Fernandez imposed limits on beef exports to ensure a supply for local consumers. But the country’s signature beef industry, which once exported twice as much meat as Uruguay, now trails its neighbor in that category.
A loss of confidence in Fernandez’s management of the economy has caused capital flight totaling $25 billion over the last two years, Viglione said. Memories linger of the government’s takeover of the banking system in 2001 and freezing of bank accounts.
“People don’t use banks for savings,” Viglione said. “They use their pillows.”
Kraul and D’Alessandro are special correspondents.