Brazil & Southern Cone - 28 September 2004

ARGENTINA: Kirchner forces out central bank chief

Southern Cone 28 September 2004 Modified: 28 September 2004 2 views

Argentina's President Néstor Kirchner has replaced his central bank governor, Alfonso Prat-Gay. In a surprise move, the government decided not to renew Prat-Gay's tenure, which expired on 23 September. He has been replaced by the current secretary of economic relations at the foreign ministry, Martín Redrado.

Another power play?
The government did not give any reason for Prat-Gay's departure, but there is no way that his performance in office was to blame. He has gained plaudits at home and abroad for managing inflation in Argentina, bringing it down from around 40% when he took over in late 2002 in the wake of devaluation to its current level of around 4%. His ability to control inflation without restricting growth endeared him to the financial markets, which reacted poorly to Prat-Gay's removal . Such dissatisfaction was heightened by the strong suggestion Prat-Gay had been the victim of the kind of power struggle which has come to define Kirchner's presidency.

The president said later that Prat-Gay 'didn't want to carry on' in his job, but such an explanation belies the clash of ideas which occurred when the pair met on 16 September to discuss the management board of the central bank which was up for renewal. Prat-Gay is believed to have wanted to promote his spokesman Pablo Curat and generally to increase the bank's independence from the government. Kirchner wanted the exact opposite. As tends to be the case, Kirchner got his way. Four other directors of the bank, including the vice-president Pedro Lacoste, were fired and replaced by allies of the president.

At the same time, it was also suggested that Prat-Gay's position was no longer tenable because of his opposition to the way Argentina was handling negotiations over its US$88bn defaulted commercial debt. The central bank governor had, however, only once criticised the process in public even if he did disapprove in private. And while that comment did rile the economy minister, Roberto Lavagna, the relationship between the two men at the centre of Argentina's finances was positively rosy compared to that of their predecessors. Before Prat-Gay arrived, public clashes between their respective institutions were par for the course and four central bank presidents had been fired within 18 months.

Soaring number of political parties

Despite apparently losing all faith in their politicians as a result of the 2001 economic collapse, Argentines now have a record 696 legally recognised political groups from which to choose. At the start of 2003, the number stood at just 122. The reason for the sharp rise is legislation passed in June 2002 which made it far easier for parties to survive. The legislation scrapped the requirement whereby parties which gained less than 2% of the vote in two consecutive national elections lost their legal recognition. Optimists say that the surge in parties (41 of which operate at a national level and the rest of which are regional or specific to certain sectors and industries) is a sign that Argentines are engaging with the political system again. Critics point to the fact that many of these parties are single-issue pressure groups which contribute nothing to the wider national debate. They also serve to slow down the democratic process with a variety of self-serving alliances; in the chamber of deputies alone there are some 40 different blocs. It is also a cause for concern that all 700 or so political parties are entitled to money from the budget.