MercoPress. South Atlantic News Agency

Mrs. Kirchner ratified before Congress use of central bank reserves to pay debts

The Argentine president inaugurates 2010 congressional sessions

President Cristina Fernandez revoked on Monday a controversial “necessity and urgency” decree to tap 6.6 billion US dollars in foreign reserves from the Central Bank to pay debt replacing it with two new decreed to tap about 4.38 billion USD and 2.18 billion USD to pay private and multilateral creditors (World Bank).

Mrs. Kirchner said her order was signed using a 2006 law that allowed the country to draw on reserves to cancel 9.5 billion USD it owed to the International Monetary Fund and ratified plans to meet the 2010 public debt agenda by decree and with central bank reserves.

The decrees were announced when Mrs. Kirchner inaugurated the 2010 sessions of Congress with a “state of the nation speech”. She said the decrees only cover 2010 maturities and included the creation of a Congressional committee, 8 senators and 8 members of the Lower House “to monitor and control” the compliance with the purpose of the measure.

“I revoked it because of the high grade of involvement the Judicial system had gained affecting the authority and faculties of the Executive and Legislative branches”, said Mrs. Kirchner.

The original controversial December 14 decree calling for the use of central bank reserves to create a Bicentennial Fund to pay creditors was blocked by a federal court and opposition leaders promised to reject it once the summer recess.

In January Mrs. Kirchner after a long court battle ended firing central bank president Martin Perez Redrado for refusing to back her plans. She has since named a new president totally aligned with the Executive and supportive of her argument that the bank’s reserves are better used in paying sovereign debts and helping development projects.

“For our international reserves deposited in Switzerland we are paid 0.5% and in money markets Argentina, --because of the 2001/02 default and consequences--, can only obtain credit at 14%. And the funds we are going to use are precisely to end with that legacy, of which this government is not responsible. Once Argentina normalizes its pending debt, we will have access to normal rates”, argued Mrs. Kirchner.

However the opposition believes Congress support is needed for such a decision and considers the whole operation a smoke screen to keep her administration spending profligately, as has been so far the case with the Kirchners.

An Argentine government source said the monetary authority had started transferring the roughly 4 billion USD in funds to the Treasury, while opposition parties said they would ask the courts to freeze the new decree.

The idea of the Bicentennial Fund was first thought as a tool to help with a plan to swap 20 billion USD in sovereign defaulted bonds.

The situation has left Argentina out of voluntary money markets and exposed it to asset embargoes by bond-holders organizations.

The political side of the issue is that Mrs. Kirchner has lost control of both houses of the new Congress which emerged from the June 2009 mid term election. Since her urgency decrees strategy was challenged in court and she does not have enough votes to sustain vetoes, Mrs. Kirchner has been forced to adopt a new approach towards Congress.

Mrs. Kirchner also used her hour and a half speech to praise the success of her administration’s economic policies (and massive spending) saying “that developing a strong domestic market was what gave us the possibility of dodging the international crisis.”

The president mentioned several figures and statistics to support the most important economic topics she unfolded during her speech: as regards GDP growth, she mentioned that “from 2003 up to 2008, Argentine GDP had grown 63%”.

During the course of her speech Mrs. Kirchner attacked the media using a metaphor to express how she considers Argentina to be nowadays. “Lately, two countries have arisen: one is the real country, and the other is a virtual one. They are clashing, and the virtual nation is constantly criticizing the real Argentina, the one that breaks records in employment, production, social policies. The virtual Argentina invented by the big media conglomerates and economic groups only discredits our successes and forgets they sponsored an Argentina where everything went wrong and collapsed at the beginning of this century” she declared.

Later on, she went deeper on issues such as the judicial system and the judges themselves. “I know some lawmakers that, whenever they don't get the amount of votes they need, they resort to judges they know are willing to support them,” the President said. “Those judges are said to be driven by us, by the government,” she then expressed.