The news broke earlier yesterday as I was starting my podcast, and you may recall that I mentioned that a federal judge had suspended the decree that would allow the government to use foreign reserves to pay debt. The same judge reinstated Redrado.
Here’s an update,
On Friday morning, federal judge Maria Jose Sarmiento granted an injunction request by two opposition parties barring the central bank from transferring money into the so-called Bicentennial Fund, which Mrs. Kirchner had hoped to create with $6.57 billion from the reserves.
A few hours later, Judge Sarmiento ordered the reinstatement of the bank president, Martín Redrado, whom Mrs. Kirchner dismissed on Thursday for refusing to make the transfer.
Since Fernandez does not control the legislature, she’s facing strong opposition:
Mrs. Kirchner faced a further threat on the legislative front, as Argentina’s vice president, Julio Cobos, moved Friday to call Congress out of recess for an emergency session on the reserves dispute. Mr. Cobos has fallen out with Mrs. Kirchner and her husband, former President Nestor Kirchner, and is their chief rival before next year’s presidential elections.
Mr. Cobos has questioned the legitimacy of the special decrees of “necessity and urgency,” which Mrs. Kirchner used both to enact the Bicentennial Fund and to fire Mr. Redrado. Some constitutional scholars said such decrees were intended for use only in emergencies, such as natural disasters. Congressional leaders maintain that the legislature must be consulted to replace the central-bank president and has final control over the reserves. Mrs. Kirchner’s faction of the Peronist party lost the majority in Congress in June midterm elections.
The government’s dealings with the central bank represent “a new abuse of the republic’s institutions,” said Ricardo Alfonsín, a leader of the opposition Radical Party.
Mrs. Kirchner accused Mr. Cobos of conspiring against her with Mr. Redrado, and lashed out at the Radicals, saying they presided over economic debacles when in power.
“If they didn’t know how to govern at least let us do it,” she said.
Underlying the dispute is the Kirchner administration’s need for funds to sustain the Peronist patronage machine. Last year, public spending grew at three times the rate of revenue.
From the government’s standpoint, paying debt with reserves frees up resources for politically popular spending programs. It also helps to persuade skeptical financial markets of Argentina’s willingness to pay its debts.
She can’t persuade them.