After a turbulent few weeks in Buenos Aires, Martin Redrados time as central bank governor of Argentina after more than five years is over. His departure will be Argentinas loss.
In December, president Cristina Kirchner issued a decree stating that the central bank had to supply $6.6 billion in reserves to meet the countrys financing needs. The money represents a change to the initial budget set out last year; the pesos set aside to pay for dollar reserves would be retracted and placed in a separate debt-repayment fund.
Redrado refused to agree to the request. He feared that central bank reserves could be attached to government assets and therefore seized by the holdout bondholders from the 2005 debt restructuring. He also believed, quite rightly, that such a move would compromise the central banks autonomy.
Kirchner claimed the funds were needed as a liability management tool and would be used to buy back sovereign debt. This, she argued, would reassure bondholders and demonstrate Argentinas willingness to pay debts that mature within the next 12 months.
Her argument is disingenuous.
If Kirchner has decided that a new market-friendly stance is important then why didnt her government buy back the debt nine months ago when it was trading at near to 20 cents on the dollar, rather than wait for the bonds to rally to a 12-month high?
Perhaps a clue can be found in the opinion polls Kirchners approval rating is at an all-time low. She needs money to spend on social programmes to shore up her core voter base.
With Redrado refusing to play ball, however, Kirchner issued a decree on January 7 to remove the governor. Redrado had both this and the decree on reserves overturned by a judge as unconstitutional and returned to office.
However, three days into a congressional committee established to give their opinion on Redrados status, he resigned, saying the decision was in the central banks best interests. Bizarrely, the government refused to accept his resignation, arguing that it was waiting for the committees views first.
None of this reflects well on Argentina or the countrys governing class.
Its crucial that the next central bank governor does not become a government puppet. The role of central bank governor of Argentina has long been one of the toughest jobs around, beset by a particularly volatile mixture of domestic and international pressures. Against this state of flux, Redrado has brought a level of stability and transparency that has served his country well.
But this was a battle Redrado could not win. His principled stand was welcomed initially but by the end he was losing support, as most Argentines just wanted the saga to end.
The political wrangling was potentially jeopardizing the planned swap of $20 billion of defaulted bonds that were excluded from the 2005 restructuring a transaction the government must do soon if it wants to return to the international capital markets.
Redrados reputation remains intact and will possibly be enhanced in time, especially if the central bank wobbles without his steady hand at the tiller.
And if Kirchners popularity with the electorate continues to wane, or international markets decide to withdraw their support for Argentina, then it is the president who will rue falling out with her esteemed central bank governor.