UN to launch Haiti appeal for $550m

Thousands of people injured in Tuesday’s massive earthquake in the Caribbean country spent another night waiting for help, many lying on sidewalks, as their despair turned to anger.

A spokeswoman for the UN Office for the Coordination of Humanitarian Affairs (OCHA) said 17 search and rescue teams were deployed in the capital Port-au-Prince, with six more on their way, but no further teams were needed for now.

“There are pockets of survival, we shouldn’t give up hope,” spokeswoman Elisabeth Byrs said. “They are working around the clock.”

No further field hospitals were required but medical teams including surgeons and medicines were badly needed, Byrs said.

At least 10 percent of housing in the capital was destroyed, making about 300,000 homeless, but in some areas 50 percent of buildings were destroyed or badly damaged, according to a preliminary assessment by UN disaster experts.

Under the UN appeal, the World Food Programme will seek to provide life-saving food rations to two million destitute people for the next month. A longer-term operation is planned up to July 15.

“We need high-energy biscuits and ready-to-eat meals as quickly as possible,” WFP spokeswoman Emilia Casella said.

The WFP had reports from partner aid agencies that its warehouses in Haiti had been looted, but had not been able to reach them yet to verify whether its stocks were gone, she said.

“In an emergency, looting is something that is not unusual. Stores have been cleaned out. People in a desperate situation will do what they can to get food for their loved ones,” Casella told reporters in Geneva.

The WFP distributed food to 4,000 people gathered at the prime minister’s compound in Port-au-Prince on Thursday following an earlier hand-out in the town of Jacmel.

“We are trying to get the food we do have our hands on to people. What we have been able to do so far is a drop in the bucket,” Casella said.

The WFP was also exploring the possibility of setting up some 200 collective kitchens in Port-au-Prince to feed the homeless, she said.

Car makers may face tougher CO2 curbs

The 27-country bloc has set manufacturers a goal of cutting emissions from new cars by around 15 percent by 2015, after a lengthy battle that pitted environmentalists against auto-making nations France, Germany and Italy.

“It can be important to try and review – did we go far enough at the time? Because this is a field where technology is really moving very fast,” Connie Hedegaard told a European Parliament hearing to evaluate her for the job of climate chief.

“Often we’ve seen industry will protest and say it’s going to be extremely difficult, in fact it’s almost impossible,” the Dane said. “But then it turns out that when we do these things, we can often do it quicker than assessed before, and claimed before, and they can do it even more ambitiously.”

Hedegaard said she would push for further work on cutting emissions from road freight, if parliamentarians approve her nomination when they vote on January 26.

“We still have not done what the EU should do on lorries. There will come an initiative on lorries, that will be one of the first things.”

It was unclear whether she was referring to existing EU proposals to improve the fuel efficiency of vans and light trucks by over 10 percent by 2016, or whether she planned to target heavier freight vehicles.

UN sanctions no deterrence for Eritrean mining

Eritrea is seen on the threshold of a mining boom, with hopes it may boost an agriculture-based economy that has suffered from irregular rainfall.

The UN voted last year to punish Eritrea for its alleged support of Islamist insurgents in Somalia. The decision initially weighed on Nevsun’s shares.

Stanley Rogers, the head of the Bisha project, however said the industry was not feeling the heat and all eyes were on the movement of the price of gold.

“There has been no slowdown whatsoever since the announcement, the momentum has continued. I don’t expect anything to change with respect to our project. Our production start date remains the same. I would have thought it was the same at other projects,” he said.

“For (investors), the international price of gold is a more decisive factor than sanctions imposed on a single country.”

External perceptions of Eritrea are at odds with the internal reality, he added. “Internally, this is a stable place to do business. My view on this hasn’t changed,” he said.

Bisha is Eritrea’s most advanced mining project. Its 27 million tonnes of ore are believed to contain one million ounces of gold, 700-800 million pounds of copper and one billion pounds of zinc. Production is expected by the end of the year.

Ethical dilemma
Asmara is accused by the UN and others of fuelling the chaos in Somalia – where 18,000 people have died in violence since the start of 2007 – by sending funds and arms to rebel groups battling the UN-backed transitional government.

Sanctions include an arms embargo, travel bans and asset freezes. They do not target the interests of mining companies operating in Eritrea, where licenses are held by groups from Australia, Canada, China, Libya and the UK.

But some observers argue there is now an ethical obligation on the part of these companies – some hailing from nations who were vocal supporters of the sanctions – not to put millions of dollars in the pockets of the Eritrean government.

“Absolutely not the case,” said Rogers, “External investment is up to the individual. We’re not forcing people to spend money [in Eritrea]. We’re not involved in the politics of the nation or internationally … people are still investing.”

Apart from small-scale artisan mining and some minor extraction by Italians during the colonial era, Eritrea’s mining potential is not fully exploited.

Gold, zinc and copper are the main interests, and more than a dozen foreign companies are now exploring or about to begin combing its arid plains.

Before sanctions were imposed in December, Nevsun spent a record $21.7m on its Bisha project in the third quarter of 2009.

China fuel exports seen flat to lower

February gasoline exports will likely remain steady versus January levels due to high refinery runs, though icy weather has disrupted some cargo flows at northeastern ports, they said.

Other than this, the key refineries in the northeast have so far seen few disruptions to inbound crude cargoes or outbound fuel shipments, industry sources said, after massive sea ice floes built up following a cold snap early n January.

At least four plants – Jinzhou, Jinxi, WEPEC and Dalian – all under PetroChina that regularly import crude and export gasoline and diesel, are located in the areas hit by the cold front.

Diesel outflows are expected to be stable in the two months at 300,000-400,000 tonnes each, down from December volumes of around 400,000-500,000 tonnes, traders said.

Chinese oil companies may also be holding more domestic supplies in anticipation of further fuel price hikes in the wake of escalating crude levels, they said.

“I think China’s diesel exports for January and February could fall versus December, which were boosted by record refinery run rates,” said a distillates trader.

“Run rates will continue to remain high, but diesel exports for this month and next could ease because of speculative stockpiling ahead of another possible fuel price hike, and before the Chinese New Year festivities,” he added.

In November, China said it would raise gasoline and diesel prices by around seven percent to reflect the rising cost of crude oil, taking pump prices to their highest ever.

The price hike was the first adjustment in two months and the eighth this year, after four previous rises and three cuts.

Industries in China, as well as transport and logistics firms, are expected to accumulate diesel supplies in the run-up to the Lunar New Year in mid-February, in readiness for a pick-up in production activity after the holiday celebrations.

Some gasoline disrupted
China is expected to keep February gasoline outflows stable at around 350,000-380,000 tonnes, as high refinery crude runs sustain export volumes, traders said.

However, freezing temperatures have disrupted some gasoline shipments at ports including the Bohai area off north China, as ships are taking more time to sail into and out of harbours.

The build-up of sea ice, the worst in nearly three decades, have hit operations of oil drilling platforms, port activities and crude production at Shengli offshore oilfield, the largest producer under Sinopec Corp in Bohai Bay.

“But I think that should resolve within a short span of time, and you will see parcels being moved out soon,” said a trader. “I think 350,000-380,000 tonnes for each month is a fair estimate.”

China has been moving an average of at least 300,000 tonnes of gasoline a month to Asia since last April, hitting the year’s peak of nearly 560,000 tonnes in June, intensifying competition for other sellers grappling with meagre regional demand in 2009 amid the economic crisis.

But demand has started to recover this year.

“I think the January market will be well-supported by demand from Vietnam and Indonesia, and there is room for Chinese exports,” said a second trader.

Indonesia’s gasoline imports are expected to stay above five million barrels for three-straight months since December, as outages affected its supplies.

A delayed start-up in Vietnam’s refinery at Dung Quat also lifted sentiment, coming at a time of strong demand in the country.

China’s top 12 major refineries that account for more than a third of its capacity, plan to process 2.88 million bpd of crude in January, after registering record runs in November, and as one unit resumed operations after maintenance in December.

Sapporo sees strong North America growth

Sapporo, known for its Yebisu and Sapporo beer brands, may build a new factory in the US to further tap North American demand, chief executive Takao Murakami told reporters in an interview.

Murakami also said he expects higher profits this year, as cost-cutting helps the company ride out the economic downturn.

The smallest of Japan’s major brewers, Sapporo has so far been overshadowed by rivals such as Kirin Holdings and Suntory Holdings in overseas expansion.

“We had sales volume of over 150,000 kilolitres in North America last year and we expect it to grow by more than 10 percent this year and next year,” Murakami said, adding that production has been moving near capacity.

“We will cope with (the production capacity shortfall) by expanding the amount of production we contract out this year, but eventually there will be an investment in a capacity increase,” he said.

Sapporo acquired Canada’s third-ranked brewer Sleeman in 2006 and also sells its Sapporo brand in North America.

Murakami said the firm is considering options to meet demand in the region, including a new plant in the US. Such an investment would likely be around 10bn yen ($109.8m), he said.

Sapporo is likely to have at least met its 12 bn yen operating profit estimate for calendar 2009, Murakami said. That would represent an 18 percent decline from the previous year.

“Given weak consumer spending and deflation, a fall in sales cannot be avoided, but as a result of our efforts to improve profitability we can surely achieve our profit target,” he said.

Japanese brewers are under increasing pressure as the home market has been in steady decline as the population ages and tastes change.

Kirin and Suntory have been in talks for several months on a merger that would create one of the world’s largest beverage and food firms on a par in revenue terms with US-based Kraft Foods and Pepsico.

In December, Sapporo said it would enter Vietnam by taking a 65 percent stake in a beer joint venture with Vietnam National Tobacco Corp to tap fast-growing demand.

“Currently, Vietnam’s beer market size is one-third that of Japan but it is likely to surpass Japan in about 15 years,” Murakami said. “It’s a big growth market.”

He also said the company wants to expand into neighbouring markets, such as Thailand and Malaysia.

Japan retail mutual funds value jumps in 2009

The value of Japanese trust funds aimed at retail investors rebounded 18 percent in 2009 as global share prices and economies recovered from the previous year’s financial crisis, an industry group announced recently.

Japanese individuals, who hold $15trn in savings – with much of that parked in low-yielding accounts – shifted some of their savings into overseas and emerging market funds to diversify their portfolios and get higher returns.

The value of retail investment trust funds, or toushin, totaled $674.2bn in 2009, up 17.7 percent from a year earlier, the Investment Trusts Association of Japan said.

Net fund inflows by retail investors in 2009 grew by more than four times to three trillion yen from 686bn yen a year earlier. The market has seen net inflows for six consecutive years, the association said.

“An overall recovery in markets after the crisis helped lift the value. In addition, asset management companies launched many attractive products to match preferences of investors,” Fumio Inui, the association’s vice president, told a news conference.

The appetite for riskier assets returned especially after the launch of Nomura Asset Management’s currency selection-type US junk bond funds in January 2009, which drew solid demand as investors saw it as a bargain-hunting opportunity.

On a monthly basis, the overall value of toushin in December rose 5.6 percent from the previous month to 61.3trn yen due to sharp gains share prices and falls in the yen.

How will Google case impact foreign investors in China?

The case has prompted concern among the foreign investor community and public calls from US officials for China to safeguard the business environment there, raising questions about the difficulty and risks of doing business in the world’s third-largest economy.

What is the most immediate impact for other firms?
Heightened awareness of the potential damage from cyber attacks, not just for technology companies.

Google said its investigation into the attack on it in mid-December showed at least 20 other large companies in fields ranging from finance to chemicals were also hit.

That raises the bar in foreign companies’ battle against one of their long-standing complaints about doing business in China – IP theft – and could prompt them to more vigorously defend their own IP.

Reflecting the alarm created by increased threats to companies’ intellectual property, Brenda Foster, president of the American Chamber of Commerce in Shanghai, called the attack against Google and other firms a matter of “extreme concern”.

Stronger awareness of the prospect of hackers in China or elsewhere stealing software code, product designs or other trade secrets also means some firms that do not operate in China could see themselves as more at risk than they previously thought.

That could help drive demand for the services of security companies such as McAfee Inc, Symantec Corp and Trend Micro, some analysts say.

Will foreign companies be scared off?
Beijing’s renewed defense of censorship could make companies involved in the internet industry and new media more cautious about the content and services they provide, even if they do not pull out of the country.

A crackdown on online and mobile content was already seen as potentially stunting the prospects of that sector, which could hit big developers such as Electronic Arts and Activision Blizzard.

For other firms, a big worry will probably be whether the issue turns into a trade conflict with the US and other countries that might prompt Beijing to retaliate quietly by moving more slowly – or even backpedalling – on other reforms.

Many other industries, from financial services and express delivery to wind power and autos, are hoping for reforms that would give them freer access to the Chinese market.

The EU Chamber of Commerce in China said in its annual position paper in September that Beijing was backsliding on reforms, with rising government intervention in industrial policy and restrictions on foreign investment making China less and less attractive to European companies.

What other risks loom?
Even for companies that do not face serious barriers to entry, or that only sell their products in the country rather than making them there, serious concerns over transparency and the rule of law remain.

That was brought into focus by the detention of a senior executive at Rio Tinto and three of his subordinates last July on spying allegations, a case that was sent to prosecuters in early January.

Those detentions rekindled awareness about the risk of doing business in China, which lacks an independent judiciary.

However, given the big investments many companies have made in China and the fact that sales there are an increasing source of profits for many firms now that demand in Western markets has softened, most will likely continue to prod Beijing for improvements in those areas but live with the consequences in any case.

Greece pledges to cut deficit

Greece’s three-year fiscal consolidation plan targets a budget deficit of 2.8 percent of GDP in 2012, the finance minister has announced.

Greece, whose fiscal ills have prompted ratings downgrades and higher borrowing costs, is under pressure from markets and EU peers to take drastic action to restore its public finances.

“According to the plan, the deficit in 2010 will be cut by four percentage points, from 12.7 to 8.7 percent of GDP,” George Papaconstantinou told a cabinet meeting.

“In 2011 it will be cut further by three percentage points to 5.6 percent of GDP. In 2012, by 2.8 percentage points, falling to 2.8 percent of GDP.”

The so-called stability plan is the roadmap to return to fiscal health and seen as key to boosting Greece’s credibility as markets worry whether the country’s socialist government can implement the required belt tightening without social unrest.

For financial markets, the government’s ability to enact it will be the key.

The plan will be submitted to the EU executive on Friday, Greek Prime Minister George Papandreou told the televised meeting.

“The efforts in the next three years will be decisive for the country’s course,” Papandreou said. “The targets are achievable, we can do it.”

Papaconstantinou said Greece’s ballooning debt will start declining in 2012 and will be at 113.4 percent of GDP in 2013.

The text of the plan has not yet been made public.

White House stimulus saves two million jobs

Obama, anxious to reduce double-digit US unemployment which has dented his popularity, has already called for additional government measures to boost jobs on top of the $787bn stimulus package he signed in February 2009.

Christina Romer, head of Obama’s Council of Economic Advisers, said she expects positive job creation by the spring, but stressed that there was definitely a need for additional “targeted action” to aid employment.

“There is uncertainty about where the economy is going … when will the private sector come back,” Romer told reporters on a conference call to discuss a quarterly report to Congress on the stimulus package.

“Where are we going to be a year from now, do we see consumer confidence come back, do we see firms … starting to invest again,” she said.

The country suffered its worst recession in 70 years after the collapse of the US housing market set off a global financial crisis, forcing the jobless rate to 10 percent.

In response to Obama’s call for more measures, the House of Representatives in December approved another $155bn jobs package. The Senate is expected to take up its version of fresh jobs legislation shorlty.

The White House, using two different approaches to figure out the impact of the stimulus package, estimates that US employment had been raised by between one and a half and two million jobs by the end of 2009 as a result of the stimulus measures.

Romer said she thinks the stimulus measures will have saved up to 3.5 million jobs by year’s end.

In addition, the White House said 640,000 jobs had been saved or created by direct recipients of stimulus money, implying that this estimate may be on the low side.

Money pumped into the economy can have an amplified impact on hiring that goes beyond the value of its dollar amount because of so-called multipliers that gauge the ripple effect on the economy as the government pumps in money.

Roughly a third of the stimulus package has already been spent or received in the form of tax cuts. If money that has been pledged but not yet spent is included, that sum rises to over half of the total.

The White House estimates that this added between three and four percentage points to growth in the third quarter and between one and a half and three percentage points in the fourth quarter.

The US economy grew at an annualised pace of 2.2 percent in the third quarter after shrinking by 0.7 percent in the previous three months.

“Without the recovery act we would have continued to decline in the third quarter,” Romer said. She noted that private-sector analysts forecast four percent growth in the fourth quarter, and said much of this activity would also be thanks to the stimulus package.

Manila may issue up to $1bn in Samurai bonds

The Philippines may raise up to $1bn from a planned Samurai bond issue, up from its previous plan of $500m, if it gets favourable pricing and good demand, a senior government official said recently.

“If we can raise $1bn through samurai, we will do that,” Finance Undersecretary Rosalia de Leon told reporters.

“We will try to maximise whatever we can from the Samurai bond market,” she later said.

The government secured a large portion of its foreign debt needs after it sold $1.5bn worth of dollar bonds early in the month, the first sovereign debt issue in Asia this year which was met by strong demand from investors. It also plans to use part of a $1bn bond sale in October to finance its 2010 budget deficit.

Neighbouring Indonesia also plans to raise up to $1bn from a second samurai bond offering this year to diversify sources of funding.

Manila has said it was hoping to sell yen bonds of about $500m in January, possibly completing its 2010 foreign borrowing needs this year.

But National Treasurer Roberto Tan said the timing of the samurai sale had been pushed back due to documentary requirements.

The Japan Bank for International Cooperation (JBIC) has guaranteed the sale of up to $1bn in Samurai bonds to help Manila finance a record budget deficit.

De Leon told reporters that the government would like to complete its foreign debt issues in the current quarter. It had raised its 2010 foreign debt issues to $2.5bn from an original plan of $2bn to help bridge a higher fiscal gap and refinance debt.

The government faces another record budget deficit this year of 293 billion pesos, or 3.5 percent of GDP, after a shortfall of 290 billion pesos, or 3.7 percent of GDP in 2009.

EU trade chief nominee backs Russia’s WTO entry

The nominee to be the European Union’s trade chief said this week that he supported Russia’s accession to the World Trade Organisation. Karel de Gucht told a hearing in the European Parliament that much now depended on Russia and whether it wants to join the WTO as part of a customs union with Belarus and Kazakhstan.

He also said Moscow was violating agreements on tariffs with the EU but he hoped these were temporary measures.

“Yes, I support the entry into the WTO of Russia. But of course it depends on Russia,” de Gucht said.

“They have been concluding this customs union with Belarus and Kazakhstan … Will they give pre-eminence to the customs union or will they give pre-eminence to the WTO?”

Russia, the largest economy still outside the 153-country WTO, has increased some tariffs, including on timber exports and imports of new foreign cars.

De Gucht, setting out his policy plans to the European Parliament before it votes on January 26 on whether to approve the new European Commission, said this could be a problem.

“We also see that Russia, for example, is presently acting contrary to the engagements that they have been taking with the EU on their entry to the WTO, although they are temporary measures,” he said. “It is a very touchy matter.”

Russia has said it will give the WTO a document to clear up confusion over its plans to join the world trade body.

The WTO has said Russia cannot join as a customs union with Kazakhstan and Belarus but they could join simultaneously as  separate entities. The two former Soviet republics are further from entry than Moscow.

South Africa’s Zuma says worst of economic downturn may be over

Zuma was addressing tens of thousands of supporters gathered in Kimberly, about 380 km (236 miles) south west of Johannesburg, for the 98th anniversary of the ANC party’s creation.

“There are some indications that we may be recovering from the worst of the (global) crisis but this recovery may be slow and perhaps even temporary,” he said in a speech broadcast on SABC.

Zuma sought, however, to lessen the expections of his supporters that new jobs will be created soon.

“It should also be expected that the creation of new jobs on a massive scale will lag behind the economic recovery,” he said.

A survey conducted by Ipsos Markinor between October and November 2009 showed the ANC had consolidated its support after narrowly failing to achieve a two-third majority in last year’s election, with support of 71 percent of eligible voters.

The party drew most of its support from the ranks of the unemployed with more than two-thirds (67 percent) of their supporters jobless.

The poll, published on January 9, found Zuma’s approval rating has increased since he took office to a mean of 7.6 from 6.1 on the scale of 10, the most notable increases in minority racial groups such as Indians and whites.

Zuma assured his supporters that the ANC was still committed to its target of creating four million jobs by 2014, providing quality healthcare and ending corruption and crime.

Zuma is under pressure to deliver on election promises made last year, including drastically reducing unemployment which stands at about 25 percent after last year’s recession slashed nearly one million jobs.

Due to the economic downturn, Zuma was unable to meet his pledge of creating 500,000 new jobs last year.

The ANC government also faces pressure to improve basic services. Riots erupted in several poor townships across the country last year as residents protested over the lack of running water and electricity.

Oil hits new 15-month high on demand, dollar

Oil prices rose 1 percent on Monday, hitting a fresh 15-month high above $83 a barrel, supported by data showing China’s crude oil imports surged by nearly 25 percent in December and as the US dollar weakened.

The prolonged cold snap in the US and Europe continued to boost demand for heating fuel, lending support to oil prices.

US crude for February delivery rose 67 cents to $83.42 a barrel by 0958 GMT, off an earlier peak of $83.67, the highest price since October 2008.

London Brent crude gained 60 cents to $81.97.

But oil is still 43 percent below its July 2008 high of more than $147 a barrel.

“The weak US dollar, cold weather and robust Chinese import data are all supporting oil today,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.

“At the moment the market is only looking at positive data, not negative numbers,” he added.

China, the world’s second-largest energy consumer, imported over 20 million tonnes of crude for the first time ever in December, up almost a quarter from November, according to Customs data published on Sunday.

Asian equities rose to a 17-month high on Monday as a strong rebound in China’s exports raised optimism about the region’s economic outlook, while the dollar fell 0.53 percent against a basket of currencies.

A weaker US currency makes commodities priced against the dollar, like oil, cheaper for those holding other currencies.

Tensions in Nigeria’s main oil producing region have removed some supplies from the market, supporting prices, and traders will be watching carefully for further developments.

Chevron said on Saturday it had been forced to shut down 20,000 barrels per day (bpd) of crude oil production in Nigeria, a day after security sources said gunmen had attacked a pipeline operated by the US firm.

Saudi Arabia, the world’s top crude exporter, has kept February oil supply to major Asian buyers and one European major largely steady against January levels, as the kingdom takes the lead in sticking to OPEC supply cuts, industry sources said on Monday.

With little US economic data this week, corporate results will be carefully watched to gauge the state of recovery in the world’s largest energy consumer.

US equities could be in for a bumpy ride this week as three major companies in the Dow Jones index kick off the quarterly earnings reporting season, with investors looking for reassurances on future profits.

BofA says bonuses will rise, but no record payouts

In December the largest US bank joined others on Wall Street that repaid billions in bailout funds to the government, ending restrictions on top executives’ pay.

“We had some units that had very, very good results and the compensation will reflect that,” said the spokesman, Robert Stickler. The bank pays bonuses based on the performance of the individual, his or her business unit and the whole company, he said.

The top payouts will likely be for employees in the capital markets division, which was one of Bank of America’s best performing businesses last year, Stickler said.

That unit had total sales and trading revenue of $15.5bn for the first nine months of 2009, compared with a loss of $1.04bn a year earlier.

But while compensation broadly will be more than last year, there will not be any record-breaking payouts.

“When you look at the overall pool or the individual payouts, they will not be a record,” said Stickler. “They will be up from last year, but last year was significantly depressed.”

Structure
Rising bonuses have drawn criticism from politicians and others, who complain that Wall Street’s losses seem to be socialised while its profits are privatised.

Regulators and lawmakers have pressed banks to tie compensation to longer-term performance and to pay more in stock.

Bank of America will likely pay banking employees’ compensation roughly 75 percent in stock and 25 percent in cash, according to a person briefed on the matter. This is likely to be in line with other Wall Street firms, the source said.

Stickler declined comment on the structure of Bank of America’s bonuses. Compensation plans will go to the board for approval and nothing is set until it is finalised, he said.

Bank of America came under fire a year ago over bonus payments made to Merrill Lynch & Co employees before the bank’s acquisition of Merrill was completed on January 1, 2009.

Compensation at US banks has been a hot-button issue since the government handed out billions of dollars in bailout money to shore up banks during the financial crisis.

Banks including Goldman Sachs Group and Wells Fargo & Co have been seeking to defuse the outcry over bonuses by announcing proposals to pay top executives entirely in stock for 2009.

Argentine president fires central bank chief

Argentine President Cristina Fernandez on Thursday fired the country’s central bank president, who had rejected her calls to step down for refusing to use Argentina’s foreign currency reserves to pay debt.

Fernandez issued a presidential decree removing Martin Redrado from office, citing misconduct and dereliction of duties. He was replaced by Central Bank Vice President Miguel Pesce, a government ally, who will serve as interim president.

The conflict has highlighted uncertainty in Argentina as Latin America’s number 3 economy tries to win back investor confidence and return to global markets with a bond issue eight years after a massive debt default.

It also threatens to open a protracted legal battle led by an emboldened opposition that has backed Redrado and is looking to challenge Fernandez after she lost control of Congress in mid-term elections last year.

Redrado will step down to respect the decree and plans to present a court injunction against his firing, a central bank official told reporters.

The former central bank head did not comment publicly about his ouster as constitutional experts questioned the legality of Fernandez’s decision.

His firing came after Argentine stock, bond and currency markets closed, but the spread on Argentine bonds over comparable US Treasuries widened 25 basis to a nearly three-week high of 681, according to the J.P. Morgan Emerging Market Bond Index.

The deadlock between the government and Redrado has heightened political tensions and cast a shadow over the government’s attempts to reshape its image among investors.

The Argentine leader on Wednesday asked Redrado to resign after he failed to act on her order to use $6.6bn in foreign currency reserves to meet debt payments next year.

Economy Minister Amado Boudou, in comments to Radio 10, said the government would hold talks with Mario Blejer, who headed the central bank in 2002 and is a former International Monetary Fund official, about taking over permanently as the bank’s chief.

Debt repayment fund
Under the central bank’s charter, the executive branch can dismiss a member of the bank’s board but must have a recommendation from a special congressional committee.

The presidential decree, however, stated that Congress is in recess and its recommendation is nonbinding.

Some Argentine legal analysts said the dispute may be headed for more legal wrangling.

Constitutional lawyer Gregorio Badeni questioned the legality of Redrado’s dismissal. “It is indispensable to have the opinion (of a congressional commission), although opinion wouldn’t be binding,” he told local television.

Redrado angered Fernandez when he refused for three weeks to move on her presidential decree creating a debt repayment fund called the Bicentennial Fund aimed at guaranteeing the country’s 2010 debt payments.

Argentina’s debt obligations rise steeply this year to $13bn, and economists estimate a funding gap of $2bn to $7bn.

The fund’s announcement last month helped add to a recent rally in Argentine bonds and drive down the costs of issuing new debt. Fernandez is hoping to tap global credit markets paying a single-digit interest rate.

But opposition leaders criticized the plan and some filed lawsuits seeking to block the use of reserves to pay off debt, saying it threatens the central bank’s autonomy and could lead to a sharp increase in government spending.

Redrado questioned Fernandez’s decision, worried the fund could be targeted by international creditors who have filed lawsuits stemming from the country’s default.

Boudou has pledged to continue with a $20bn debt swap, planned for later this month, that aims to mop up leftover defaulted bonds and clear the way for Argentina to issue a major bond.

A crisis over foreign reserves – which total about $48bn – could raise Argentina’s borrowing costs just as it tries to return to markets. Signs the debt fund will move forward could give a boost to bond prices.

Pesce, the new central bank president, belongs to a wing of the opposition Radical party allied with Fernandez and her husband and predecessor former President Nestor Kirchner.

“He’s a 100 percent loyal aide to the Kirchners,” Claudio Loser, an Argentine economist and ex-IMF official told local television.

In comments to the state-run Telam agency, Pesce signaled he would move ahead with the debt repayment fund.

“The only thing left to do is to implement (the decree)”, he said.