Argentina to use Central Bank’s Reserves to pay Debt

From La Nacion:

La Justicia habilitó al Poder Ejecutivo a tomar las reservas del Banco Central para pagar deuda.

Tal como lo había anticipado LA NACION el miércoles pasado, las salas I y VI de la Cámara Contencioso Administrativo dejaron sin efecto dos medidas cautelares por las cuales la jueza Claudia Rodríguez Vidal había suspendido la vigencia del decreto 298/10. En principio, desde ayer no hay obstáculos para que el Poder Ejecutivo tome 4300 millones de dólares del BCRA que estaban bajo el amparo de la citada norma.

The Court enabled the executive power to take the Central Bank’s reserves to pay the [country’s] debt.

As was predicted by La Nacion last Wednesday,  I and VI of the Camara Contencioso Administrativa declared without effect the precautionary measures with which judge Claudio Rodriguez Vidal had suspended the validity of the decret 298/10. In principle, as of yesterday there are no obstacles for the Executive to take 4,300 million dollars from the BCRA which fall under  the provisions of cited norm.

This is an interesing development. However, the story probably doesn’t end here:

Los diputados de la oposición convocaron a una sesión para el 7 de abril para derogar esa norma, pero los fallos de ayer asestan un duro golpe a esa estrategia: es probable que para entonces el dinero en juego o parte de él haya sido usado.

The representatives of the opposition will call a session for April 7 to cancel the norm [298/10], however yesterdays rulings strike a hard blow to this strategy: It is likely that by then the money in question or part thereof has already been used.

Apart from the idea to use the reserves of one’s central bank to pay the countries debt, which I think is rather unique, this is an interesting story because it has a somewhat twisted history.

It starts with the firing of the head of the central bank, Martín Redrado, who is a Harvard graduate, because he refused to follow an order of Argentine president Cristina Fernandez de Kirchner to free the reserves for said purpose. However, a court sacked the decision and reinstated Mr. Redrado. Not much later Mr. Martín Redrado resigned, though.

Replacing him was Mercedes Marco del Pont, who is a Yale graduate. She is still – as far as I am aware in the process of being confirmed by the Argentine parliament. However, she has already tried to execute the order mentioned above – but it was blocked then by the court also mentioned above.

Note that Argentina needs to re-pay its foreign debt or it will default on them (again) and according to President Kirchner:

“It’s much better to use the reserves than to take loans at 15% interest.”

Of course, most people who insist on central bank ‘independence’ (from government) do not agree with this position.

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