Argentine Bonds, Stocks Tumble After Central Bank Ouster

Argentine bond and stock markets deepened their losses after the resignation of Central Bank President Juan Carlos Fabrega dimmed the prospect of a second peso devaluation this year.

Dollar bonds due 2024 have plunged 7 cents on the dollar to 83.65 cents and the Merval stock index has sunk 14 percent since President Cristina Fernandez de Kirchner on Sept. 30 publicly criticized the bank for allegedly leaking inside information, leading Fabrega to resign yesterday. She nominated securities regulator Alejandro Vanoli as her fourth central bank president in less than five years, according to a decree published today in the Official Gazette.

The replacement of Fabrega with Vanoli, a government loyalist, is spurring concern the government will focus on economic growth and avoid measures to protect reserves by devaluing the peso and boosting interest rates, according to Eurasia Group Ltd. Since taking the job in November, Fabrega oversaw the largest devaluation of the peso since 2002 and pushed the interbank interest rate used as the benchmark by the local financial system to a decade high.

“One of the last voices of reason of the current administration has departed,” Alejo Czerwonko, a New York-based strategist at UBS Wealth Management’s chief investment office, said in an e-mailed response to questions. “This development points towards further radicalization of monetary and fiscal policy in the country.”

Peso Stability

After Argentina defaulted for a second time in 13 years in July, the gap between the official exchange rate and the black market widened to 85 percent from 50 percent, fueling speculation of a second devaluation amid dwindling reserves, said Alejo Costa, a strategist at Puente Hnos Sociedad de Bolsa SA.

Fabrega clashed with Fernandez and Economy Minister Axel Kicillof over accelerating the weakening of the peso, he said.

“Fabrega wanted to bring forward a devaluation, something neither Fernandez nor Kicillof was prepared to do,” Costa, who studied under Vanoli at the University of Buenos Aires, said in a telephone interview. “Vanoli appears as someone who will be more receptive to the demands of Kicillof and Fernandez. We might see more creative ideas, such as the arrival of a dual exchange rate.”

Vanoli is tasked with establishing clear conditions for monetary and exchange rate stability, Cabinet Chief Jorge Capitanich said today in his daily press conference in Buenos Aires.

Fernandez Speech

In a speech Sept. 30, Fernandez said there was evidence that the central bank released inside information to lenders about a new policy obliging them to lower their foreign currency holdings. Fabrega attended the speech that took place in the presidential palace.

“It seems that information was leaked because there were banks that had sensitive information, and just when all the banks were buying dollars, they sold,” Fernandez said. “We want this to be investigated or that they explain this to us.”

Fabrega’s spokesman, Jose Luis Olivero, didn’t respond to two voice-mail messages seeking his response to the allegations.

Fernandez’s speech spurred a selloff in Argentine bonds and stocks yesterday on concern the president would boost intervention in the economy. Losses accelerated on speculation Fabrega had resigned.

Mariva Probe

Bonds due 2024 fell to 83.4 cents on the dollar at 10:50 a.m. in New York, a one-month low. Benchmark international dollar bonds due 2033 fell 1.2 cents on the dollar, bringing losses since Sept. 30 to 3.6 cents, the biggest two-day drop since August. The Merval index dropped 6.4 percent today after plunging 8.2 percent yesterday, the most since July, when Argentina defaulted on its foreign debt.

The securities regulator suspended Banco Mariva SA from stock and bond trading today as part of a probe into transactions with the blue-chip swap, a mechanism used to obtain foreign currency buy buying and selling assets in pesos and dollars, Clarin reported.

A person who declined to give their name at Mariva’s press office said no one was available to comment on the report.

Argentina missed a July 30 deadline for a bond interest payment after a U.S. judge blocked the distribution of an interest payment until holdouts from an earlier $95 billion default are paid in full.

The default diminished Argentina’s chances of returning to capital markets for credit. Foreign currency reserves have fallen 47 percent to $27.9 billion since January 2011.

Black Market

Vanoli was promoted to president of the securities commission in November 2009 after serving as vice president for three years. In October last year he said that posting the price of the black market exchange rate for the peso is equivalent to publishing the price of cocaine. Newspapers such as Ambito and Clarin publish the black market price.

The peso fell 1 percent to 15.75 per dollar in the black market today, according to Ambito. That compares with an official rate of 8.4435.

Fernandez hired Fabrega to replace Mercedes Marco del Pont last year amid sweeping changes to the cabinet that included the ouster of Economy Minister Hernan Lorenzino.

Before joining the central bank, Fabrega worked at Argentina’s biggest commercial lender for four decades. After landing a job straight out of high school at one of Banco de la Nacion Argentina’s branch offices, Fabrega worked his way up to becoming president of the company.

‘More Docile’

“Vanoli has been instrumental in pushing for increased government control over private companies,” Daniel Kerner, head of Latin America at Eurasia Group, wrote in a note. “We expect him to try to overplay his heterodox credentials in order to gain the president’s favor.”

Vanoli will act as interim head of the bank until his nomination is voted on by the Senate, where Fernandez’s coalition has a majority.

His appointment will mean less fighting between the central bank and Economy Ministry, Diego Ferro, co-chief investment officer at Greylock Capital Management LLC, said in a telephone interview from New York.

“His performance at the securities regulator was really aligned with this administration, so I’m sure this can be assumed as someone who’s going to be more docile to Kicillof,” Ferro said. “This was not a good call.”

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