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FT: In the path to prosperity Argentina tripped with the Kirchners

Nestor and Cristina Kirchner with their eyes and minds set on next year’s presidential election

The Financial Times, a reference for global finances, has published an editorial comment highly critical of Argentina’s presidential Kirchner couple and their latest attempt to keep their cash-strapped administration afloat: getting hold of Central Bank reserves to pay debts and recover long lost international creditworthiness.

The Financial Times describes Argentina’s Central Bank, and its president Martin Redrado, the country’s most credible institution and its reserves the most credible anchor of economic stability, in a country that is a byword for wayward policymaking.

According to the FT, Argentina had a good decade and a chance to develop its huge potential along the path of prosperity, but instead it got the Kirchners.

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Argentina strikes at central bank

Published: January 10 2010 18:45 | Last updated: January 10 2010 18:45

The summary sacking of Argentina’s central bank chief, Martin Redrado, by President Cristina Fernández de Kirchner, is further sign that this so potentially prosperous country is being steered in circles by the cut rudder of Peronist populism.

Mrs. Kirchner accused Mr Redrado of “misconduct” for refusing to hand over 6.6 billion US dollars from central bank reserves to a fund ostensibly intended to pay down debt. Argentina is seeking to return to international capital markets, from which it has been barred after its 2001 default on nearly 100 billion. Mr Redrado has been given a stay of execution by the courts but this may prove sadly ephemeral.

The government’s argument, that it is trying to restore Argentina’s credit by a new debt swap with outstanding bond-holders who refused to accept the heavily discounted terms offered after the default, is superficially attractive but ultimately disingenuous.

Under Mrs. Kirchner and her still powerful predecessor and husband, Néstor Kirchner, the government has had frequent recourse to unorthodox funding mechanisms to make up for Argentina’s lack of creditworthiness – notably through the 2008 nationalization of 30 billion USD in private pension fund assets. That came after Congress had struck down her imposition of a variable tax on farm exports – which rocked the country with protests.

This time, following the common practice of Mr Kirchner as president, Cristina Fernández has sought to circumvent Congress by issuing a decree – a device that weakens already enfeebled institutions.

Not only is the Central Bank Argentina’s most credible institution; its reserves are now the most credible anchor of economic stability, in a country that is a byword for wayward policymaking.

President Cristina Fernández says central bank reserves have risen to more than 48 billion USD, from around 8 billion when Mr. Kirchner took office in 2003. True, but this is more the result of windfalls from a large devaluation, a huge debt default, and a commodities boom than astute government policies.

The overwhelming impression is that the move on the central bank is part of a pattern of serial asset grabbing, not just to pay off debt but to free up cash for other spending ahead of next year’s presidential election – especially now the Peronists have lost their majority in both houses of Congress.

Argentina had a good decade, and a chance to set the country on the path to prosperity it should long ago have achieved. Instead, it got the Kirchners.