May 19, 2016
The New York Times reported last week that Argentina’s former President Cristina Fernández de Kirchner was indicted “on charges of manipulating the nation’s Central Bank during the final months of her administration.” Reading the article, however, as well as other media coverage, and even the 147-page court document, it is tough to figure out what actual violation of law is alleged here — either committed by Kirchner or her finance minister, Axel Kicillof, or her central bank president, Alejandro Vanoli, who are also charged. There is no allegation that any of them profited or received kickbacks from any transaction. Nor are there allegations that others connected with the defendants profited, or that there was any corruption involved. In other words, there is no crime here, and it seems very likely that the indictments will be thrown out by a higher court.
Many central banks intervene in foreign currency markets in order to influence the value of the country’s currency. In this case, the Argentine Central Bank intervened by selling futures contracts (in pesos) between September and November of last year. According to press reports, the average exchange rate for these contracts was 10.6 pesos per dollar. The official exchange rate during this time was about 9.5. On December 10, 2015, the right-wing presidential candidate Mauricio Macri, of the opposition coalition Cambiemos (Let’s Change), became president and soon lifted currency controls; the peso fell from 9.8 to 13.9 and is currently at about that value after falling further and recovering some. On this basis, the court accuses Kirchner et al of a crime, because the government would lose money — although in pesos, not dollars — in paying off the contracts before June.
However, when the government sold the futures contracts it was not at all clear that Macri would win; in fact the candidate of Fernández’s party, Frente para la Victoria (Front for Victory), Daniel Scioli, was ahead in the polls for most of this time. And Macri, as well as his future ministers, made contradictory statements about devaluation. So, it is not surprising that the average market rate was what the government received for these contracts. And most importantly, there is no evidence offered that the government sold these contracts at anything other than the market price.
There is a legitimate argument over which exchange rate policy — that of the prior government or the new government — is the better one. But there is no legitimate or legal argument that the Central Bank committed a crime by selling dollar futures contracts, on the dollar futures market, at the going rate, in order to intervene in the foreign exchange market. In fact, as Kicillof notes in his response to the charges, the Macri government also intervened in a similar fashion after it was elected, selling dollars on the spot (current) market, in order to keep the peso from falling further at one point. Under the reasoning of this indictment, they could also be charged with a crime.
The indictment is therefore a political and not a judicial act; in fact it is a gross abuse of the judiciary and prosecutorial power for political purposes. The obvious purpose is to tarnish the former president, to prevent her from running for office again four years.
Kirchner would be a formidable candidate in 2019. If she had been able to run in the last election, she probably would have won, since the Kirchners presided over a massive improvement in living standards for the vast majority of Argentines.
The parallels with the right-wing opposition strategy in Brazil are striking. In Brazil, the right-wing coalition has just formed a new government while they impeach President Dilma Rousseff of the Workers’ Party (PT). Like the Kirchners in Argentina, the PT also presided over a large improvement in living standards in Brazil, most of which have not been lost in the last couple of years of recession. Dilma is being impeached for an accounting maneuver that is not a crime, and had been done by previous presidents as well as governors. In both Brazil and Argentina, a hostile, oligopolized, anti-government mass media has been used to make these non-crimes look like they are somehow tied to corruption. In both countries, the investigation is led by a blatantly partisan judge (Sergio Moro in Brazil). And the smearing of Lula da Silva, who was perhaps the most popular president in the history of Brazil, is also meant to prevent his candidacy in the next presidential election (2018).