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"Not A Good Sign" Argentine Stocks, Bonds Crash As Central Bank Chief Resigns

Just a day after Argentine President Cristina Kirchner, in a televised speech, accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency, Juan Carlos Fabrega - the head of Argentina's Central Bank - has quit. As WSJ reports, unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%; and it appears the sanity of Mr. Fabrega was too much to bear for Kirchner (and Kiciloff - who had reportedly clashed with the Central Banker also). The reaction - not good - the stock index collapsed over 8%, bond yields spiked and the black-market peso dumped to record lows at 15.65 to the USD (drastically worse than the 8.51 official peso rate).

Fabrega’s departure is "Not a good sign," said Alberto Ramos, a Goldman Sachs analyst Alberto Ramos, Reuters reports. 

 

"Fabrega was perceived to be a moderating voice and someone that really understood financial market dynamics."

As The Wall Street Journal reports,

Argentine President Cristina Kirchner replaced the head of the central bank Wednesday, marking the second overhaul of her economic team in less than a year.

 

Mrs. Kirchner named her top securities and exchange regulator, Alejandro Vanoli, as central bank governor after she accepted Juan Carlos Fabrega's resignation, according to a statement posted on the presidency's press website.

 

Mr. Fabrega's resignation came a day after Mrs. Kirchner in a televised speech accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency. Argentina's central bank has little autonomy from the federal government and the president in practice can hire and fire its senior executives at whim.

 

"You blame me for the flight of capital and the rising dollar, that's fine," said Kirchner speaking to Fabrega in the front row of her public speech. "I feel for the dollar losses and not another one should leave the country. Besides that, you continue to have a problem with the economy that I don't have to solve. Just be sure another dollar does not leave the country."

 

Mr. Vanoli, who had served as head of the National Securities Commission since November 2009, takes the helm of a central bank whose main task is financing the federal government. Unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%.

 

Since 2010, the Kirchner administration has also borrowed tens of billions of U.S. dollars from the central bank's reserves to pay creditors. High inflation and declining reserves, now at $27.9 billion, have undermined faith in the currency and spurred some Argentines to seek the safe haven of the U.S. dollar.

 

Mr. Fabrega was widely respected among the country's bankers thanks to a career of more than 40 years at the country's largest bank, state-run Banco de la Nacion.

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Stocks crashed...

 

Bonds tumbled...

 

and the Dolar Blue collapsed...

 

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Good luck Mr. Vanoli...