A major political and institutional crisis brewing in Argentina over repaying its national debt deepened on Friday as the courts dealt two blows to Argentine 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, who was sacked by presidential decree, must be reinstated.
Kirchner had strongly backed the use of dollar reserves to cover US$6.59 billion in debt that is due to mature this year in a bid to return Argentina to international credit markets.
However, 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 about US$13 billion in total.
Although Argentina now has a long-running fiscal surplus, it cannot borrow freely in international capital markets because of 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. 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.
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