Archive for February 5th, 2010

Argentina’s central bank – first victim of the crisis?

February 5, 2010

I missed this news somehow.  Argentina’s President Cristina Fernández de Kirchner dismissed Martin Redrado, chief of Central Bank of Argentina.

Martin Redrado has a very impressive resume and has served in various Argentina’s economic policy bodies. He was appointed as the Central bank head on Sep- 2004 by Kirchner herself. On Dec -07 he was confirmed by Kirchner making him the third longest serving Argentine Central Bank President since the institution’s formal establishment in 1935.

I just checked the list of Argentina central bank presidents, they have had 56 (including the new one) in their 80 year old history! That is roughly 1.4 yrs per President. Ernesto Bosch, the first president served for 10 years. Second in the list is Miguel Revestido who served for 2.5 years. And then you have Redrado.

Now, coming to the main development. Redrado was removed as he opposed using central bank reserves to pay foreign debt

Fallout from the international, 2008 financial crisis later forced the Argentine government to seek domestic financing for growing public spending, as well as for foreign debt service obligations. The president ordered a US$6.7 billion account opened at the Central Bank for the latter purpose in December 2009, implying the use of foreign exchange reserves, and drawing direct opposition from Redrado. Following an impasse, he was dismissed by presidential decree on January 7, 2010.

This led to huge outcry in Argentine congress who said Redrado removal would undermine central bank independence. This led to a chaos (wikipedia has the full story). Redrado tried hiss best but had to resign seeing the political impasse.

Bloomberg story says he was even blocked from coming to his office.

What is worse is that Kirchner has appointed Mercedes Marco del Pont as the new Governor, who is seen as an insider and close to the president.

President Cristina Fernandez de Kirchner yesterday named Marco del Pont, president of state-owned Banco de la Nacion Argentina, to replace ousted central bank chief Martin Redrado. The move came after a congressional committee backed Fernandez’s Jan. 7 decree dismissing Redrado for not supporting her plan to tap $6.6 billion of reserves to pay debt due this year.

“I believe in operational autonomy of the central bank, but I don’t think it can be independent of a nation’s economic policies,” she said.

As a lawmaker in 2007, the Yale-educated economist sponsored a bill, which wasn’t passed, calling for changes to the central bank’s charter. Marco del Pont, 50, proposed broadening the institution’s primary mission from “preserving the value of the currency” to include “sustaining a high level of activity” and maximizing the use of “human and available material resources,” according to text of the bill.

The independence of Argentina’s central bank will be undermined following the nomination of Mercedes Marco del Pont to lead the institution, Goldman Sachs Group Inc. economist Alberto Ramos said.

“The new president is very closely aligned with the government and won’t have an independent voice,” Ramos said in an interview last night. “The government wants to continue spending at elevated rates to have short-term growth and the central bank won’t raise interest rates, it won’t have its own voice.”

Phew. All ingredients of a thriller.

On a serious note, Argentina never wishes to learn lessons from its crisis history. All this is so typical of what you read on so  many crisis episodes in Argentina. At such fragile times, the least you want to do is make moves like these. But then this is Argentina for you.

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