Argentina: Surprise Appointment to Head Central Bank

C O N F I D E N T I A L BUENOS AIRES 000075

SENSITIVE
SIPDIS
TREASURY PLEASE PASS TO WLINDQUIST.

E.O. 12958: DECL: 2020/02/04
TAGS: ECON EFIN EINV ETRD PGOV AR
SUBJECT: Argentina: Surprise Appointment to Head Central Bank

REF: 10 BUENOS AIRES 61; 10 BUENOS AIRES 55; 10 BUENOS AIRES 25

CLASSIFIED BY: Tom Kelly, DCM; REASON: 1.4(B),(D)

Summary and Comment

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1. (C) In a surprise move, President Cristina Fernandez de
Kirchner (CFK) appointed Mercedes Marco del Pont to the post of
President of the Central Bank of Argentina (BCRA). Marco del Pont,
50, and the first woman ever to hold the job, is now serving as
Interim President until she is confirmed by the Senate after it
reconvenes in March. The new BCRA President has been President of
the state-owned Banco Nacional de Argentina since 2008 and is an
industrial micro economist with a Masters degree in developmental
economics from Yale. She served as a Kirchner-aligned
Congresswoman from 2003-2007. Marco del Pont is considered a close
CFK ally and an advocate of government intervention in the economy.
In 2007, she sponsored a bill -- which was not passed -- to rewrite
the BCRA charter. Critics claimed that the goal was to curb the
bank's independence, but proponents said that the purpose of the
legislation was to codify the bank's responsibility to work more
closely with the government and take more carefully into account
factors such as economic growth and unemployment in its decisions
regarding monetary policy. End Summary/Comment



CFK Defends Altering BCRA Charter

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2. (U) During the February 3 press conference announcing the
appointment, CFK defended the legislation Marco del Pont introduced
to alter the BCRA charter. She said that its goal was to increase
the BCRA's autonomy by adding job stability and economic growth to
the BCRA's mandate of preserving the value of the currency. CFK
added "If the economy doesn't grow, if wealth isn't created, if
consumption isn't created on a sustainable basis, the stability of
the currency doesn't last."



Appointment a Complete Surprise

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3. (C) The appointment of Marco del Pont as BCRA President came as
a complete surprise, even to people who consider themselves very
close to the sources of power in Argentina. At a February 3
meeting with EconCouns, the same day as the announcement of the
appointment, Diego Bossio, the Head of the Social Security Agency
(ANSES),emphasized several times that he is quite close to the
President and communicates with her regularly. He said that the
plan for the BCRA, now that the Redrado saga was over, was to have
Miguel Pesce, the former Deputy BCRA President, continue in his
role as Acting President for now. After a decent interval of
several months had passed, and the controversy had blown over, the
aim was to appoint respected economist and former BCRA President
Mario Blejer to the job. Since the entire Redrado imbroglio had,

in fact, begun with the premature announcement over a month ago by
Minister of the Economy Boudou that Blejer would be appointed to
the job, many, including Bossio, naturally assumed that it was only
a matter of time until Blejer took the job. The announcement of
Marco del Pont's appointment came about an hour after Bossio made
these remarks. In a meeting with the DCM and EconCouns on February
4, the Executive Director of J.P. Morgan in Argentina, Carlos de
Marcos, said that he had attended a February 3 bankers luncheon
meeting with Pesce, who had no idea of what was about to happen
when the meeting broke up shortly before the announcement. (The
front page of the February 4 edition of La Nacion features a photo
of a crestfallen, red-eyed Pesce sitting on a couch next to Marco
del Pont hours after the appointment.)



Reaction Divided but Mostly Negative

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4. (C) Reactions to the appointment have been mostly negative,
with many focusing on Marco del Pont's supposed lack of expertise
in macroeconomics and monetary policy. Businessman George
Mandelbaum told EconCouns that she is "in over her head" with
regard to monetary policy and will not provide serious leadership
for the BCRA. Javier Finkman of HSBC Bank told Dep EconCouns that
she is a well-regarded economist "but her area is industrial
economics. She knows very little about macroeconomics and monetary
policy." He feared that she will fully cooperate with the
Kirchners' spending plans, and allow inflation to increase. In her
defense, however, Finkman added that "she is fully aware of her
lack of macroeconomic and monetary policy expertise." Whether this
will impel her to seek expert advice or simply take the path of
least resistance in cooperating with the government, he couldn't
say. The press is also full of quotations from analysts who fear
for the independence of the BCRA and worry about Marco del Pont's
qualifications and ability to control inflation.



More Positive Views

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5. (C) On the other hand, de Marcos of J.P. Morgan expressed a
contrary view. He noted that reactions to the BCRA change of
leadership and other recent economic developments tend to be much
more negative outside Argentina than inside the country. He said
that Marco del Pont is a well-trained and serious economist who is
fully capable of continuing the stewardship of the BCRA along the
lines of her predecessor, Redrado (and has more formal training in
economics than he does to boot). De Marcos said that despite
Redrado's reputation to the contrary, the BCRA under his leadership
was already extremely accommodating to the government's wishes, so
there will not likely be any major changes in that regard, despite
Marco del Pont's presumed closeness to CFK. De Marcos did not
expect to see any significant changes in monetary policy in the
short-run and expected Marco del Pont to continue the BCRA priority
of ensuring exchange rate stability. However, he added that Marco
del Pont is very export-oriented, so that as dollars begin to flow
into the country to buy this year's expected strong grain harvest,
she is likely to begin to allow for depreciation of the peso to a
level lower than Redrado would have approved, but again, in a

carefully managed manner. Finally, he said that with respect to the
GOA's proposed debt swap to the holdouts of the outstanding $20
billion in defaulted Argentine bonds, J.P. Morgan continues to
recommend a buy to its clients.




6. (C) A well-placed private banker, Willie Stanley (protect) of
Banco Macro, expressed a similar view in a conversation with DCM.
Stanley said that Redrado was extremely accommodating to the
Kirchners, and if the first couple had been a little more patient
in waiting Redrado out, he would have played ball with them on the
Bicentennial Fund that triggered the dispute. Stanley added that
Redrado had many skeletons in his closet, including financial
misappropriation, and predicted that the vengeful Kirchners would
go after him in due course. Stanley said that he did not expect
great things from Marco del Pont, but over the long run her
management of the back would vary little from Redrado's.



Comment

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7. (C ) Overall, CFK's performance in the February 3 press
conference was more assured and less confrontational than the one
she gave on January 19 (ref: 10 Buenos Aires 25). She handled with
relative equanimity a question about her husband, former President
Nestor Kirchner's purchase of USD 2 million in currency in October
2008, repeating the explanation NK gave a journalist the day before
that the dollars were needed for the purchase of a hotel and were
"in no way speculative" (ref: 10 Buenos Aires 61). Her tone was
one of vindication, and her opening statement focused on the
argument that the country need not have gone through a month of
turmoil to get to the same place: her firing of Redrado. She
asserted that the Constitution granted the President the
unequivocal power to fire the Central Bank head. More broadly, she
argued, Argentina's opposition needed to accept democratic outcomes
and not challenge every new law in court when it failed to block
legislation, as was now being done with the 2009 media law.
MARTINEZ