This morning, former presidents of the Central Bank Martín Redrado and Alfonso Prat-Gay responded to President Cristina Fernández de Kirchner’s speech yesterday, in which she criticised the two men.

While inaugurating a new washing machine factory in Haedo with Buenos Aires Governor Daniel Scioli yesterday, President Fernández defended her policies and offered strong critiques of her detractors, among them Prat-Gray and Redrado.

Fernández criticised Prat-Gray, currently a senator and part of the Coalición Cívica, for his recent comment that Vice Minster of the Economy Alex Kicillof was still “sucking his thumb” when Prat-Gray was president of the Central Bank.

The president responded that Kicillof “is not a child.” Alluding to Prat-Gray, she stated, “there are people who are really sick with their own importance,” and suggested he was forced to leave his post because he “fought with the minister of the economy.”

In an interview with La Red today, Prat-Gray replied that the president’s critiques were “great praise”, and stated that former president Néstor Kirchner had invited him to continue in his position when his term ended, but that he had turned down the offer.

What’s more, he declared that Argentina has entered a “recession with very high inflation” and that “this combination is lethal.” He also criticised the president’s speech itself, stating “it worries me that she spends her time on me when there are other things to do. The speech yesterday was an effort to deny that these problems of inflation and the recession do exist.”

The president also criticised Redrado directly, declaring that in a conversation that the two allegedly had in 2009 when he was the president of the Central Bank, the economist over estimates the foreign trade surplus two-fold.

Speaking with Radio Mitre today, Redrado countered that this conversation never happened, and stated, “I am surprised by the degree of [the president’s] confusion.” He further accused the president of being “tied to the past” and “trying to create a new history.”

He countered that the figures that the president was referring to were actually the results of the Survey of Market Expectations (REM), a study organized by the Central Bank that had included the input of 50 economics institutions. He further stated that his “role as president of the Central Bank was never to make projections”.

In yesterday’s speech, President Fernández also criticised the media, stating that there was a “national channel of fear and despondency” that would not report on positive events such as the factory opening. Her statement comes after several groups have criticised her own use of the national public channel in recent weeks.

Redrado replied to this allegation by declaring, “There is no channel of despondency: the economy is worse and the people are worse.”

President Cristina Fernández de Kirchner announced yesterday a measure obligating banks to give loans to Argentine businesses equivalent to 5% of their total deposits. The new measure will result in $15bn in loans towards the production of goods and services on a three year term minimum with a fixed interest rate of around 15%. In addition, 50% of the credits will go to small and medium enterprises.

The measure has been put in place to tackle the reluctance of the banking sector to invest in Argentine business.  Credit represents only 15% of GDP in the country, a low for the region. Despite the robust nature of the financial system, credit is increasingly limited.

Banks must pay 5% of the level of private sector deposits in June. 31 public and private banks will be taking part, comprising 20 private banks that make up 1% of the Argentine financial system and 11 more that act as financial agents for the provinces.

“We will ask a group of banks to do in a year what the National Bank did in four and a half years for Argentine businesses and workers,” said president Fernández, speaking at a press conference at the Casa Rosada yesterday.

She criticised the lack of investment made by private banks in comparison to the efforts made by the state to support business.

“The state shows a lot of confidence in business, from the credit lines of the National Bank, which give $1.3bn loans a week to business, to the Bicentennial Programme” she said yesterday

Ex head of the Central Bank, Martin Redrado criticised the policy on Radio10 this morning however as “kind but ineffective.”

Speaking in a press conference he agreed the need for more investment in Argentine business but questioned President Fernández’ solution:

“This measure relies on a trust in economic policy which doesn’t exist” he said.“The real question is why is there no investment in Argentina:  Is there a lack of investment because of a lack of credit or because of a lack of conditions?”

This new measure will add to the reform of the Charter of the Central Bank which has given the financial sector a more active role in the promotion of long term credit to industry.

It comes amidst a series of policies targeted towards consumer credit in Argentina. Unlike consumer credit programmes however, loans to enterprises require longer term and more involved negotiations.

Critics argue, however, that these longer time frames are still not long enough to make effective business loans.

Redrado pointed out this morning that few businesses have investment plans which fit the three year time frames necessary for the credits to work.

The policy will today be improved by the board of the Central Bank, led by Mercedes Marcó Del Pont who yesterday held a talk with banking leaders to discuss the implications of the measure.

From 31^st June, banks will have up to six months to make loans to companies purchasing capital assets. The deadline will be extended for more complicated investments.

Yesterday, Congress met for the first session of the year. Some significant bills were passed in both chambers, marking a positive start to the political calendar.

In a significant step for women in Argentina, a controversial legal figure in the penal code is on its way to being removed. The diplomatic war of words continues as the Senate released a statement on the issue of sovereignty of the Malvinas/Falkland Islands, and a bill proposing reforms to the Central Bank was passed by the Chamber of Deputies.

Removal of “Avenimiento” from the Penal Code

“Avenimiento” is a legal figure in the penal code, which states that if a rape victim over the age of 16 marries her rapist, the rapist may be freed from prison.

The removal of the figure from the penal code was voted on unanimously by 51 senators yesterday.

During the presentation, Entre Ríos Senator Guillermo Guastavino asked “How can one think that a person that has been subjected sexually can freely take decisions on equal footing in front of her attacker?”

The bill comes after an 18-year old woman was killed by her 26 year old husband in December 2011. The couple from La Pampa married after Marcelo Tomaselli had raped Carla Figueroa in a field. Tomaselli stabbed his wife and brutally beheaded her in front of their son.

The law was created in 1999, and has been subject of much criticism from international human rights organisations.

Salta Senator Sonia Escudero explained: “We are eliminating an intolerable legal figure, which does not understand the vulnerability of victims of crimes against sexual integrity, and offers criminals of this act a passport to impunity.”

Statement on the Malvinas/Falkland Islands

The Senate has released an official and extensive statement, which seeks to affirm Argentina’s sovereignty over the Malvinas/Falkland Islands, following the growing diplomatic tensions of the past few months.

The statement declares “the legitimate and imprescriptible sovereignty of Argentina over the Malvinas/Falkland Islands, South Georgia, South Sandwich and the surrounding maritime areas.” The document also states that the conflict between the Argentine and UK governments should be resolved “peacefully in accordance with the provisions of the General Assembly of the United Nations.”

The Senate and Chamber of Deputies also warned the international community against the “militarisation and the introduction of nuclear weapons in the South Atlantic” by the UK government.

The statement goes on to thank countries such as Chile, Brazil and Uruguay for their recent support over the issue of the Malvinas/Falklands Sovereignty.

Reforms to the Central Bank

Importantly, the Chamber of Deputies voted on reforms to the Central Bank, a significant part of President Fernández de Kirchner’s speech that begun the legislative year.

The bill seeks to amend the Central Bank’s charter. The new bill will add more functions to the Central Bank: to ensure financial stability and to promote economic development through the handling of credits for long-term investments.

The controversial bill was passed with 142 votes in favour and 84 against, after ten hours of debate.

The government presented the reform as a “key tool diametrically opposed to the neoliberal model” and stated that it would help to improve employment and social equality.

Critics of the proposed reforms see the changes as a way for the government to access the Central Bank’s foreign reserves.

It is possible that the bill will be passed as a law before the end of the month.

The price of buying dollars soared yesterday as the result of new AFIP restrictions on money exchange policies that went into effect Monday.

The black market price of a dollar climbed 20 Argentine centavos to $4.90 in the city of Buenos Aires. In other areas of Argentina, the dollar sold for as much as $5.

Many people, who are finding it difficult to buy foreign currency through legal means, have withdrawn their savings from banks and turned to black markets to exchange their pesos into dollars.

The supply of Central Bank reserves lost $150 million dollars yesterday despite not putting dollars out for sale themselves. The depletion is due, instead, to private account holders withdrawing their deposits in dollars.

Ninety-four percent of these deposits are made by people who had bought dollars and put them in a savings account instead of putting them in a safety deposit box or hiding them in their homes. Now, these same people are worried their dollars will be confiscated, so they are withdrawing them and making other arrangements for their safekeeping.

Former cabinet head Alberto Fernández says that the government’s restrictions on exchanging money are only scaring people into doing just that.  “It is a measure that was taken to prevent dollars from exiting, but the dollars are continuing to leave,” he said.

Yesterday the dollar closed at $4.28 on the official market.

A new regulation goes into effect today requiring banks to perform background checks on all buyers of foreign currency.

This means that until further notice, anyone wishing to buy dollars can only do so through a bank clerk or a foreign exchange agency and not by ATMs or the internet.

The measure, a resolution of the Federal Administration of Public Income (AFIP), Argentina’s national tax agency, will record in a computer system the total amount in pesos of each foreign exchange transaction.

Resolution 3210, the regulation’s official name, is designed to “eliminate the inequality between those who pay taxes and those who do not, deter money laundering, and give greater transparency to the market,” according to Economy Minister Amado Boudou.

Additionally, the government is hoping to ease pressure on Central Bank reserves amid high levels of capital leaving the country.

Reserves are down more than $US2 billion since the end of August from $50 billion to $47.6 billion, as of the close of day Thursday.

Other strict measures have been implemented recently to increase the supply of dollars on the local market. Foreigners who buy Argentine companies and real estate are required to deposit the full amount of the sale into Argentine financial institutions. Additionally, oil and mining companies must repatriate proceeds of export sales and insurance companies are required transfer all monies held in foreign accounts back into the country before the end of the year.

It is estimated that this year that 20 billion dollars have left the country  to be invested in foreign accounts. In that same time period, the peso has weakened 6.1% versus the dollar.

Mercedes Marcó del Pont will stay on as head of the Argentine central bank (BCFA), following a decree signed by President Cristina Fernandez de Kirchner, shortly before she left for New York to attend the UN summit.

The vice president, Miguel Angel Pesce, and directors Waldo José María Farías and Santiago Carnero will also remain in their posts following an announcement made yesterday.

Marcó del Pont was originally appointed in February to replace Martín Redrado in the midst of the row over the use of bank reserves to pay off foreign debt.

Redrado strongly opposed the proposal and was, after a lengthy impasse, removed from office by presidential decree.

This sparked controversy over the autonomy of the bank at the time and questions were raised by opposition figures regarding the legitimacy of the president’s intervention.

Rumours that Marcó del Pont would stay on have been circling for months, but have gathered more momentum in the last few weeks as the president has shown public support for BCFA policies under her stewardship.

Reform of the BCFA’s charter has, for example, been backed on several occasions by the president.

The candidates will fill these positions ‘on commission’ until they are ratified by the senate after which they serve for six years.

Yesterday the Argentine Congress began its new session with an address to the Legislative Assembly by President Cristina Fernandez de Kirchner. Kirchner arrived just before 11am along with her husband, the former president Néstor Kirchner. She began her address by expressing her solidarity with the people of Chile following the devastating earthquake at the weekend and said that Argentina is sending aid. The president then announced that she was repealing the Bicentennial Fund.

Kirchner announced the creation of the Bicentennial Fund in January this year using a  Presidential Emergency Decree (DNU). The fund planned to take US$6.5 billion from the central banks foreign currency reserves to pay back some of the country’s remaining debt from when it defaulted payments during the economic crisis of 2001. She planned to use this new fund to pay back the debt instead of using money allocated in the national budget for this purpose. Kirchner claimed the move would allow the government to use the money in the budget for social and productive purposes.

The Bicentennial Fund met with great opposition from other political groups and resulted in Martín Redrado being removed from his position as president of the central bank. When she announced the repeal of the fund yesterday, the audience responded with loud applause.

But after announcing that the Bicentennial Fund was no more she stated that a new DNU decree had been signed which will release US$4.2 billion from the central bank to pay back the debt. La Nacion newspaper reported yesterday that the central bank had already made the transfer of $4.2 billion to the government. She said that a special commission of eight senators and eight congressmen had been created to monitor the payments from the reserve.

The president slammed the legal system for preventing the first decree, claiming that the courts had deprived her and Congress of their rights to govern and legislate. Kirchner said: “I have repealed the 2010 Decree of the Bicentennial Fund, because the degree of judicial interference has weakened the powers belonging to the legislative and executive branches of government.”

After announcing the new DNU she stated that the settlement of outstanding debt is important so that Argentina can return to global markets for the first time since the default in 2001 and start to borrow at lower interest rates. Responding to critics who had asked what would she do with the money from the central reserve she said:  ”Does anybody think that you can take reserves out of the central bank and take it home and then take it to a different place? I mean, please!”

In her speech Kirchner also paid homage to the abuelas of Plaza de Mayo, who are also strong supporters of her administration and support her government’s record  in encouraging the prosecution of human rights violations. She said: “Our courts should speed up the prosecution of human rights violators, so once and for all we can turn the page of this sad history, in order to have the better history that Argentina deserves.”

Kirchner’s address was broadcast on large screens outside the Congress building in Buenos Aires, attracting large crowds of people and bringing traffic to a standstill in the area.

In a press conference held last night, President Cristina Fernández de Kirchner confirmed the removal of Martín Redrado from his position as president of the central bank and then announced the appointment of Mercedes Marcó del Pont as his replacement. Redrado’s removal had become a political spectacle over the last month.

On 6th January Redrado was dismissed by way of an emergency presidential decree following his refusal to transfer US$6.6bn to a government fund established for the payment of foreign debts. Redrado appealed to the courts, claiming that the president did not have the authority to relieve him of his duties, and three days later a federal judge ruled against both his removal and the transferring of the funds, stating that only a special congressional committee and not the executive had the power to enact such changes.

This committee, comprising representatives of Congress and the Senate, and headed by Vice President Julio Cobos, gave its decision to the president on Tuesday. Although the president chose not to make public the contents of this council, congressional sources let it be known that, by a majority of two to one, the committee favoured the removal of Redrado.

The former president of the central bank had already submitted his resignation last Friday amid heavy criticism of the government for its interference in the independence of the central bank but the resignation was not accepted.

During the press conference, Fernández admitted that the conflict had generated an “institutional decay”, but blamed the opposition for the situation, stating that “there is an excessive ritualism used by some to obstruct rather than cooperate.”

The choice of Marcó del Pont surprised many both in and out of the government. “I heard it on the television,” confessed Michael Pesce, who had been in charge of the central bank since the initial firing of Redrado. Until yesterday Marcó del Pont had been the head of the Banco de la Nación Argentina, a state-owned bank and the largest in the country. Last night Pesce met with Marcó del Pont for more than two hours at the central bank.

What remains open is the future of the ‘Bicentennial Fund’, as the government has dubbed the reserves of over US$6.6bn from the central bank, that the president wants to use to secure the payment of government debt in 2010. For now, it appears that again the congress will have the last word on the matter, and will have to decide on whether to endorse the decree that created the fund when it reconvenes in March.

Friday, a judge has halted the presidential plan to use over $6.5bn in central bank reserves to pay Argentina’s national debt. The judge temporarily suspended President Cristina Fernandez de Kirchner’s application of the decree to use currency reserves to pay foreign debts; a plan which caused central bank chief, Martin Redrado, to step down from his post on Thursday.

The government argues the move is urgent and necessary to retain international creditors’ confidence, decimated after the country’s economic crisis in 2001-2002. President Kirchner had strongly backed the use of dollar reserves to cover $6.59bn of debt that is due to mature soon, in a bid to return Argentina to international credit markets.

However, the boss of Argentina’s central bank, Martin Redrado, rejected the order, refusing to transfer cash to government coffers. Mr Redrado’s stance drew support from opposition lawmakers, who vowed not to give his dismissal parliamentary backing.

But President Kirchner on Thursday bypassed this congressional opposition, citing misconduct and dereliction of duties in a decree dismissing Mr Redrado. A spokesman for him said he had agreed to step aside but not to resign, and was launching a legal challenge.

Constitutional lawyers say the decree may be illegal, as the central bank chief can only be removed by Congress. In the emergency decree, President Kirchner said the central bank governor had “failed to fulfil the duties of a public servant”, and urged prosecutors to seek unspecified “legal measures” against him.

She later named Mr Redrado’s deputy, Miguel Pesce, as his interim successor. Mr Pesce had supported the government’s move to use reserves to cover debt.

Following this, Judge Maria Jose Sarmiento issued an injunction preventing the government from carrying out its debt-reduction plan, said the Judicial Information Center, the government’s court reporting service. Another federal judge, Norberto Oyarbide, will analyze the misconduct allegations in the president’s decree firing Mr Redrado, and a third federal judge, Liliana Heiland, will rule on a motion by Mr Redrado to nullify the government’s decree removing him from his post.

Argentina owes $13bn in total, and Investors have voiced concern that President Kirchner’s decisions could spark a protracted political battle with opposition, paralyzing the country’s political system.