Debt conflict riles Argentina

Martin Redrado had been president of Argentina’s Central Bank. But on Sunday evening, January 24, his entry there was barred. He made the attempt because an appeals court had just backed a lower court injunction against his dismissal by President Cristina Fernandez. The court ruled that presidents of the bank hold their positions at the pleasure of the Congress, not the president.

The fracas began when President Fernandez asked Redrado to transfer $6.57 billion from Central Bank reserve funds into a “Bicentennial Fund” aimed at guaranteeing payments due this year on $16 billion in foreign debt. Congress pressured Redrado to refuse. He dithered, and Fernandez fired him on January 7. The appeals court also ruled that Congress held jurisdiction over the reserve funds, not the President. Congress, in recess until March, will not decide any time soon.

At issue is the notion that central bank funds would be used to pay off longstanding debts and thereby help restore Argentina’s international creditworthiness. The government’s massive default on international debt repayments in 2002 has cut off foreign loan possibilities. The Fernandez government seeks once more to be able to borrow in order to fund social programs.

Last summer the coalition headed by Fernandez and Nestor Kirchner, her husband and predecessor as president, suffered losses in parliamentary elections, putting Congress in the hands of a conservative opposition bloc. Critics there say Fernandez’ expensive initiatives on social spending are geared toward presidential elections in 2011, when Nestor Kirchner will be running. Congress is on summer recess until March.

Earlier last week Fernandez cancelled a trade promoting trip to China. The problem, she told reporters, was Vice President Julio Cobos, whom she saw as scheming in Congress against her government and eyeing her job. Conflict began in July 2008 when Cobos cast a decisive Senate vote defeating taxes on agricultural exports sought by Fernandez to swell government revenues.

Cobos is part of a three person congressional commission that, in accordance with the appeals court decision, is weighing in on the president’s decision to fire the bank president. Retrado met with the commission on January 27.

Her opponents warn that drawing down currency reserves held in foreign countries subjects them to sequestration by foreign banks. A U.S. federal judge in New York, in fact, froze Argentinean assets in New York banks last week, indicating they would eventually be released. The Fernandez government portrays as a bad deal 16 percent interest rate payments on Argentina’s remaining $29 billion debt, especially in comparison with new loans available at two percent interest.
In tandem with the “Bicentennial Fund,” the government is offering to sell old debt for 30 cents on the dollar in return for new loans. President Fernandez’ present difficulties are compounded by deficit spending with expenditures up 30 percent annually during her tenure and revenues rising 12 percent annually.
Hints have emerged as to larger struggles in the works, with seasoned combatants. On one side are large landowners, major business interests, and agribusiness exporters. They are tied to international financial institutions and multi-national corporations.

On the other are those who condemn the original purposes of foreign debt, three decades ago. Debt, they say, has facilitated privatizations, sell-offs of public patrimony, and development of environmentally disastrous agricultural and mining projects. Debt is “stained with blood,” wrote Nobel laureate Adolfo Pérez Esquivel last week. Reserve funds must be applied to “hunger and poverty [and] recovering lands, natural resources…and national sovereignty.”

CTA labor federation Secretary General Jorge Acedo encouraged discussion on debt within the labor movement in terms of “defense of work, health, education, the environment, and distribution of wealth.” Calls are heard – not from President Fernandez – for reappraising the legitimacy of foreign indebtedness. Ecuador’s 2008 default on foreign debt worth $31 million on grounds of presumed illegality is seen as a model.

The current government, buffeted on both sides, is being pressured from the right to pay off foreign debt obligations with current income rather than with reserve funds. That would cut into funds available for food supplementation, housing and energy subsidies, and public health programs.

Analyst Jorge Beinstein (http://alainet.org/active/35496) identified other players. One is a new group on the fringes of society that has successfully tied “illegal enterprises (e.g. drugs and arms trafficking), private security firms, media networks, and corrupt police and judges to financiers, industrialists, and big farm operators.”

Another is the U.S. government, engaged, according to Beinstein, in back door manipulation aimed at destabilizing vulnerable nations. Disintegration of Argentina’s economy could bring the Kirchner era to an end and return to power governments oriented toward business conglomerates and multinational corporations. That turn of events would pose challenges to progressive change in Brazil and contribute to marginalization of the left leaning Ecuadorian, Venezuelan, and Bolivian governments.

Photo: http://www.flickr.com/photos/jglsongs/ / CC BY 2.