Argentina is certainly not a stranger to problems with sovereign debt defaults and its precarious cash position in the face of $13 billion worth of debt coming due this year makes the situation potentially volatile in 2010. President Christina Fernández de Kirchner, struggling with falling popularity numbers, recently proposed that Argentina use a significant portion (approximately $6.5 bil of around $48 billion) of its foreign exchange reserves to help service the debt payments due to be made this year. Kirchner's proposal was rejected by the Central Bank President, Martín Redrado, whom Kirchner subsequently fired by decree.
This is all typical of a country whose sovereign debt shouldn't be touched with a ten foot pole. The New York Times is reporting this morning that a federal judge has blocked the firing of Mr. Redrado and the Kirchner government seems prepared to appeal the decision. This conflict between the different branches of government is always disconcerting, yet it should be especially so considering Argentina's unique financial history. Unfortunately, Argentina has no EU to bail it out, nor would an IMF bailout go over particularly well in a country scared by the organization's history.
As of now, Argentina is not in imminent danger of default and will most likely be able to meet its obligations this year by one way or another. Nevertheless, political warfare of this kind (not to mention the mockery of central bank independence) should be seen as a warning signal of further problems down the road. Mrs. Kirchner is proposing to use the reserves in order to avoid paying the estimated 15% rate that a sovereign debt investor would require to finance Argentine debt. According to her, "anyone with an elementary education can understand" that this would be surrendering to speculators. Unfortunately, it appears Kirchner's elementary economic education has not taught her that those high rates are partly the result of actions just like her own.
Disclosure: The author does not hold a position in Argentinean debt, nor should you.