The limits to the use of the Central Bank reserves are being intensely discussed in Argentina.
According to Argentine law, the reserves of the Argentine Central Bank must be applied to support 100% of the monetary base. Reserves exceeding that percentage are "freely available reserves". And under the Argentine Constitution, Congress has the power to arrange the payment of the country's internal and external debt.
In 2006, Argentina applied these freely available reserves to cancel its debt with the International Monetary Fund for $9.53 billion. The payment was implemented by a decree issued by the executive branch, which was then ratified by a law passed by Congress.
Argentina restructured 76% of its debt with private creditors in 2005. As part of a new restructuring offer to be made to the remainder, the Argentine executive branch issued a Need and Urgency Decree in December 2009 creating a fund that it named the Bicentennial Fund, which was given $6.57 billion of the Central Bank's freely available reserves.
|Ricardo Beller, Marval OFarrell & Mairal|
The conflict arose when the Central Bank chairman, Martín Redrado, refused to transfer the Central Bank reserves to the Fund. Redrado alleged that the transfer risked being "attached" by several creditors with outstanding claims against the Republic of Argentina given that (i) the funds would ultimately be used to pay private creditors, as opposed to sovereigns, and (ii) the transfer was being made without the prior consideration of a committee of both houses of Congress, which would confirm the claim of the creditors that the Central Bank is an alter ego of the executive branch, as opposed to an autonomous entity. This conflict ultimately resulted in the removal of Redrado as Chairman of the Central Bank.
The debate as to the use of the Central Bank reserves continues. Federal Judge María José Sarmiento issued a temporary injunction suspending the funding of the Bicentennial Fund until the matter was considered by Congress, and her ruling was affirmed by the Chamber of Appeals. In order to overturn such rulings, the Argentine government filed an extraordinary appeal for the matter to be considered by the Supreme Court.
As of December 2009, the majority of Congress is controlled by the opposition. So the executive branch will have an uphill battle. However, as of February 15 2010, the matter has not been resolved.