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Judge orders central bank head reinstated

A court has ordered Argentinian President Cristina Kirchner to reinstate Martin Redrado as central bank chief, after she fired him on Thursday. It also suspended her decree allowing the use of central bank reserves to pay down the national debt.


AFP - A major political and institutional crisis brewing in Argentina over repaying its national debt deepened Friday as the courts dealt two blows to President Cristina Kirchner.

In two rulings, an Argentine judge thwarted government efforts to use central bank reserves to pay down the national debt, and said the bank's head sacked by presidential decree must be reinstated.

Kirchner had strongly backed the use of dollar reserves to cover 6.59 billion dollars of debt that is due to mature in 2010, in a bid to return Argentina to international credit markets.

But judge Maria Jose Sarmiento temporarily suspended the government decree allowing the use of central bank reserves to make the payments.

In a second ruling, the judge said dismissed bank chief Martin Redrado, who has clashed with Kirchner over the plans, should be reinstated.

"The judge decided to temporarily suspend the emergency decree which had led to the dismissal of this official," the Justice Department's legal information center said.

"I am returning to work at the bank. Justice has been done," a delighted Redrado told reporters as he arrived back at the bank's headquarters and marched into his offices.

He was sacked on Thursday by Kirchner, accused of failing in his duties and replaced by central bank vice president Miguel Pesce, who was given provisional control of the bank.

Ruling party lawmaker Miguel Angel Pichetto said the government would "certainly" appeal the decision.

The government argues the move to use bank reserves to pay down the debt is urgent and necessary to retain international creditors' confidence, shredded after the country's default in 2001-2002.

The country owes around 13 billion dollars in total.

Although Argentina now has a long-running fiscal surplus, it cannot borrow freely in international capital markets due to lingering investor mistrust and because it still has to settle with bondholders who boycotted a previous debt restructuring in 2005.

Redrado's refusal to transfer the cash to government coffers led to his sacking on Thursday. But his stand drew support from opposition lawmakers, who vowed not to give his dismissal parliamentary backing.

"This is a full-blown institutional crisis," said Alberto Bernal, head of research at Bulltick Capital Markets, a Miami-based firm.

"This is a very complicated situation," Bernal told AFP, "if this lingers and uncertainty is increased... there is a definite risk of a bond problem."

Analysts at JP Morgan wrote in a briefing note on Friday that Kirchner's decree firing Redrado risked sparking a political spat with a congress increasingly dominated by the opposition, and which has the power to authorize all use of central bank reserves.

The decision could cause a crisis akin to that over plans to raise export taxes in 2008, which led to countrywide protests and widespread rebellion among farmers, they warned.

Some warned that attempts by the Argentine government to raise more money through bond issues could also be called into question.

"Investors (are) likely to shy away from any Argentine debt issuance, raising the odds of another default in 2010," Brown Brothers Harriman said in a note to clients as the crisis developed.

Redrado became president of the central bank in 2004 under the government of Nestor Kirchner, the husband of the current president, and his mandate was due to expire in September this year.

Investors were also looking to respected former central bank chief Mario Blejer, who is said to be outside the country, as an anchor of stability in the crisis.

Blejer -- who led the central bank under the government of Eduardo Duhalde from 2001 to 2003, during one of the country's worst economic crises -- has been tipped as Redrado's long-term successor.

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