Argentina Central Bank Crisis Reemerges

Sources: Financial Times – Fernandez vows to ignore court over reserves / Financial Times – Opposition grows to Argentina bank governor / Wall Street Journal – Argentina Central Bank Pres: Reserves Move Absolutely Legal / Business Week – Argentine Senators Get ‘Rough’ in Central Bank Clash

A new chapter in the ongoing saga of the Argentinean Central Bank Crisis began this week. On Monday, March 4, President Christina Fernandez withdrew her decree from December that ordered the Central Bank to transfer $6.5 billion of Central Bank Reserves to the Treasury to pay sovereign debts. An Argentinean Judge had suspended the December decree pending Congressional action. Immediately following the withdrawal of the December decree, President Fernandez introduced two new decrees on Monday, one, an emergency decree, which authorized the transfer of $4.38 billion of Treasury reserves to private creditors, and the second, an ordinary decree, which authorized the transfer of an additional $2.18 billion of Treasury reserves to service debt payments from multilateral creditors. Central Bank Chief Mercedes Marco del Pont immediately transferred the Central Bank reserves to the Treasury. By Wednesday, however, Argentinean Federal Judge, Claudia Rodriguez Vidal, ordered the economy minister to suspend use of these funds subject to Congressional approval. Central Bank Chief Marco del Pont defended the decree, asserting that it was necessary to protect the country’s economy.

The source of this dispute can be traced back to the June 2009 elections in which President Christina Fernandez lost control of congress. Since Argentina seated the newly elected members of Congress in December, President Fernandez and Congress have disputed the authority of President Fernandez’s decree that transferred funds from the Central Bank Reserves to the Treasury. In addition to the dispute over the Central Bank Reserves, last week, an Argentinean Senate Committee also declined to recommend the ratification of President Fernandez’s selection for Central Bank Chief, Marco del Pont. Congress will debate President Fernandez’s decrees as well as the ratification of Marco del Pont next week. Should Congress decline to approve these decrees, an opposition deputy insists that the Central Bank must return the funds to the Treasury. The congressional party in control of congress, the Civic Coalition party, publicly stated that they would refuse to ratify the appointment of the Central Bank Chief. Faced with this opposition, President Fernandez will likely need to appoint a new Central Bank Chief for the second time this year.

Seemingly undaunted by this opposition, President Fernandez, in a nationally televised speech, claimed that, “no judge would stop the Central Bank from following her decree.” She also added that, “The person in charge of administering the finances of this country is not the judges but the president of the republic.” President Fernandez went on to deride Congress for refusing to ratify her appointment of Mercedes Marco del Pont as Central Bank Chief. Given this dynamic, experts fear that Congress will refuse to approve of any candidate that President Fernandez submits causing a major political crisis.

Discussion Questions:

How will the reemergence of the central bank crisis affect the Falklands dispute?

How does this dispute affect President Fernandez reelection campaign?