Use of the Central Bank reserves in Argentina: The saga continues

On December 2009 the Argentine Executive Branch issued the Need and Urgency Decree No. 2010/2009 (the “2010 DNU”) creating the “Bicentennial Fund”, which was to be funded with US$ 6,569 million of the Central Bank of the Republic of Argentina (the “Central Bank”) freely available reserves to pay debt owed to international financial organizations and private bondholders. This Bicentennial Fund met significant resistance in Congress and in the Courts which resulted in a debate regarding the limits to the use of the Central Bank reserves.

Within the framework of the conflict, the Judicial Branch issued a temporary injunction suspending the transfer of the Central Bank reserves to the Bicentennial Fund until the matter was considered by Congress in the terms of the procedure regulated by Law No. 26,122, as provided by Article 99 subsection 3 of the Argentine Constitution (for more information about this matter, please see our article in Marval News # 91 dated February 26, 2010).

Even when the Judicial Branch had ordered the suspension of the effects of the 2010 DNU until it was considered by both houses of Congress, the Executive Branch resolved to insist with a slightly revised version of the same plan, and to continue to challenge the limits the legislative and judicial powers attempted to impose on it. 

On March 1, President Cristina Fernandez de Kirchner announced the issuance of three new decrees. The first decree (Need and Urgency Decree No. 296/2010) resolved to abrogate the 2010 DNU which had created the Bicentennial Fund and amended Article 6 of Law No. 23,928 to allow the payment of debt to private creditors with Central Bank freely available reserves. Consequently, as the wording of article 6 was restated, the freely available reserves[1] would only be used to pay debt with international financial organizations. 

The second and third decrees reproduce the decision to use Central Bank reserves to pay debt in the same terms as provided by the now abrogated 2010 DNU, but splitting its provisions. First, by means of Decree No. 297/2010 the Executive Branch resolved to pay 2010 maturities with international financial organizations for an amount of US$ 2,187 million, pursuant to the authorization provided by article 6 of Law No. 23,928. Second, the Need and Urgency Decree No. 298/2010 created a new fund denominated the “Argentine Fund for the Indebtedness Reduction” to pay debt with private bondholders, which was to be funded with US$4,382 million of the Central Bank freely available reserves.  Additionally, this last decree also created the “Joint Standing Committee of Congress for the Follow-up of the Payment of Debt” which will be in charge of the supervision of the application of the proceeds of the Indebtedness Reduction Fund. The amounts, use of proceeds and considerations provided by these two new decrees are identical to the ones provided by the 2010 DNU.

Two of these decrees are “decrees of need and urgency”. Pursuant to the Argentine Constitution, these types of Decrees may be only issued by the Executive Branch under exceptional circumstances, such as the Congress being unable to operate or the matter being so urgent that it cannot be postponed until the normal legislation procedure may be followed.  The President announced these need and urgency decrees during her inaugural speech of the ordinary sessions in Congress, making the challenge to the legislative and judicial branches extremely evident.  

There is a technical improvement in splitting the payments that were provided previously by a single decree into two decrees. The use of freely available reserves of the Central Bank to pay international financial organizations is currently authorized by law (article 6 of Law No. 23,928).   This is not the case for payments to be made to private creditors.  By splitting the decrees, the Executive Branch isolates the payments to be made to international financial organizations from the discussion of this issue.

Following the Executive Branch instructions, the Central Bank transferred US$4,382 million to the new Indebtedness Reduction Fund.  A new judicial temporary injunction was immediately issued by Federal Judge Mrs. Claudia Rodríguez Vidal, freezing those funds and prohibiting their use until the corresponding decree of need and urgency was considered by Congress.

Within the scope of the debate of the use of the reserves, there was an issue regarding the integration of the Joint Standing Committee of Congress (Comisión Bicameral Permanente) which is in charge of considering the validity or invalidity of Need and Urgency Decrees. The conflict resulted in the issuance of a temporary injunction favorable to the Executive Branch that ordered the restitution of a senator of the governing party to the Joint Standing Committee of Congress, therefore re-establishing the prior composition of the Committee.

On March 30, 2010 the Federal Courts of Appeals in Administrative Matters Rooms I and IV admitted the appeals filed by the Executive Branch and revoked the temporary injunctions issued by Lower Court judge Rodríguez Vidal which had suspended the use of the Central Bank reserves. The Court of Appeals grounded their decision on the fact that as the 2010 DNU was abrogated the object of the prior claim was extinguished. Therefore, once that the abrogation took place the Lower Court judge did not have jurisdiction to issue the temporary injunction. These two rulings unlocked the funds and consequently eliminated the judicial restrictions for the Executive Branch to use the Central Bank reserves transferred to the Indebtedness Reduction Fund.  However, leaders of the opposition parties have stated that they will continue the discussion of this matter in Congress.  The saga continues.