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Buenos Aires - Argentina's central bank chief resigned on Wednesday after a long tussle with the economy minister and was replaced with a regulator seen as sympathetic to the interventionist stance of a government fighting one of the world's highest inflation rates.
Juan Carlos Fabrega had argued for tighter anti-inflation policies and opposed the government's heavy fiscal spending, but ran up against the powerful economy minister, Axel Kicillof, who pushed to boost growth in the stagnating economy.
Argentine debt prices fell on the news Fabrega had stepped down.
Alejandro Vanoli, head of Argentina's markets regulator, will take over as the central bank chief, a spokesperson for leftist President Cristina Fernandez said.
Fernandez has scaled up her interventionist policies in Latin America's No. 3 economy since it defaulted on its foreign debt in July, intensifying capital flight and piling pressure on shrinking foreign reserves and the peso currency.
In a fiery speech on Tuesday, Fernandez publicly suggested that the central bank had failed to prevent commercial banks from driving the peso lower.
"Fabrega handed in his resignation this afternoon in a way that was impossible to decline," a source at the central bank told Reuters.
Argentina's local US dollar-denominated bonds shed around two points on the news, with the Bonar 2017s sliding from around 88.40 to 86.75 and the Boden 2015s dropping from 91.75 to 90.0, according to brokers.
Rumors earlier that Fabrega would quit sparked a sell-off on the Merval stock index. It closed before the resignation was confirmed, losing 8.2% on the day.
Private economists estimate inflation is running as high as 40% in Argentina and policymaking had become increasingly erratic as Fabrega's central bank got sucked into a tug-of-war with Kicillof.
"Fabrega has been seen as the more orthodox side of the administration, and his departure will be negatively perceived by the market," said Alejo Costa, chief strategist at local investment bank Puente.
"Not a good sign," echoed Goldman Sachs analyst Alberto Ramos. "Fabrega was perceived to be a moderating voice and someone that really understood financial market dynamics."
'More uncertainty'
Fabrega was appointed in November last year. His supporters credit him with overseeing a sharp but orderly devaluation in January that Kicillof had opposed on the grounds it would hurt consumer demand. It was Fabrega's first and last major policy win over the economy minister.
In recent weeks, Fernandez has been angered by what she has called speculative attacks to weaken the peso in the aftermath of the debt default. In a televised address on Tuesday, she indicated the central bank had been complicit for years.
"The central bank has more than 80 000 records, some dating back to the 1980s, on exporters, banks and exchange houses that have violated currency laws, which it has not dealt with," Fernandez said.
In 2010, Fernandez fired central bank chief Martin Redrado when he resisted her plan to dig into the bank's foreign reserves to pay debt.
Vanoli takes over the helm of the central bank with foreign reserves standing at $27.9bn - or roughly four-and-a-half months import cover, while the black market peso has fallen through a series of record lows since the default.
Vanoli is viewed by analysts as more sympathetic to the policies of Kicillof, a Fernandez favorite. He has mostly defended the government's interventionist stance and was pivotal in pushing for increased government control over private firms.
Since the default, the government has tightened trade controls, further restricted the amount of dollars available to importers and signed a law empowering it to determine production and price levels of large firms in response to the deteriorating economic outlook.
"Fabrega's resignation clearly signals that Kicillof has gained full control of economic policy," said Ignacio Labaqui, who covers Argentina for New York-based emerging markets consultancy Medley Global.
Ernesto Ambrosetti, chief of the powerful Argentine Rural Society, which represents some of the biggest farms in the grains powerhouse, said Vanoli's appointment "means more uncertainty."
"We assume they appointed Vanoli because he will do less to slow down the policies of the economy minister, and that will not be good for Argentina."
