In keeping with Argentina’s dangerous direction leftward, President Nestor Kirchner fired several members of his somewhat moderate cabinet, including his economy minister, Roberto Lavagna, and replaced them with far-left extremists who are deep in the Hugo Chavez camp of Argentine politics. They are also economic morons, set to take power in what is South America’s third-biggest economy, accounting for about two or three percent of the hemisphere’s GDP. Analysts speculate that since Argentina’s October regional elections are over with Kirchner comfortably in the lead, this may be his time to make changes.

I also suspect that President Bush’s refusal to exert influence at the International Monetary Fund, which is sought by Argentina for yet new loans, is behind this too. The IMF despises Argentina and has no intention of giving it any money. With no hopes for new loans, Argentina no longer thinks it needs to be ‘good’ anymore and can therefore go on a leftist populist tantrum that will be sure to set them back for decades.

Argentina’s stock market tumbled 4.5%, in the world’s worst performance of the day, and its currency slid in value to ARS3.02 to the dollar. This is not a sign of confidence.

According to investment bank Barclays Capital:

Besides the removal of Finance Minister Lavagna, President Kirchner made three other strategic changes that underscore a foreign policy that aims at strengthening ties with Venezuela. Specifically, President Kirchner appointed:

1) Deputy Minister of Foreign Affairs Jorge Taina to be the new Minister of Foreign Affairs. Taina was responsible for organizing the Americas Summit in Mar de Plata and he is the son of Jorge Taina Sr., Argentina’s former Ambassador to Cuba;

2) Argentina’s Ambassador to Venezuela Nilda Garre as the new Minister of Defense; and

3) Juan Carlos Nadalich as the Minister of Social Action, who is close to the former Minister of Social Action, Alicia Kirchner – Sister of President Kirchner and now a senator for the Province of Santa Cruz.

With the exception of the departure of Lavagna, the other appointments were the result of vacancies that followed the congressional posts that former ministers won after the sharp success of President Kirchner in the October congressional elections.

What a bunch of charmers! Here is what Goldman Sachs had to say:

President Kirchner decided on Monday to replace Economy Minister Roberto Lavagna and appoint the former head of state-owned Banco de la Naci????n Argentina, Felisa Miceli, as the new Economy Minister. Ms. Miceli is due to take office on Thursday.

In a press conference, outgoing Economy Minister Lavagna said President Kirchner had asked him to resign to inaugurate a “new stage” in the management of the Argentine economy. In his resignation letter, Mr. Lavagna said he was submitting his resignation attentive to the president’s desire to “introduce changes” following the parliamentary elections (held a month ago).

Government sources told the local press that the president’s aim in replacing Mr. Lavagna was to build a “more compact” government team … one fully aligned with the president’s ideas. It was reported that President Kirchner and Economy Minister Lavagna had disagreements lately about the future course of economic policy. The relationship between the two men had reportedly deteriorated over the past few weeks.

We provide a brief overview of the new Economy Minister. The new Economy Minister, Felisa Miceli, has already been part of the government as the head of Argentina’s largest public bank, Banco de la Naci????n Argentina, since 2003. Before that, she was the Ministry of Economy’s representative at the Central Bank (2002), an economic consultant in the 1990s, and a member of the Board of Directors of Banco de la Provincia de Buenos Aires (Argentina’s second-largest public bank) in the 1980s. She entered the government in 2002 as a member of Mr. Lavagna’s team and fully endorsed the policies of the outgoing Economy Minister. Since then, she became politically aligned with President Kirchner and reportedly built a good relationship with the president. She maintained a low public profile, focusing on technical rather than political issues. For this reason, she arrives at the Ministry of Economy as a politically unknown figure for most Argentines. In past press interviews, she endorsed a tough stance in negotiations with the IMF, downplaying the potential economic impact of breaking with the Fund. She is seen as a strong advocate of income redistribution policies.

Comment: It is still not clear what the “new stage in the management of the economy” that Mr. Lavagna mentioned will entail, but we view the replacement of Mr. Lavagna for Ms. Miceli as a negative development because we believe it raises the risks that the administration will adopt a more interventionist, heterodox and populist economic policy stance.

With the appointment of Ms. Miceli, it looks like President Kirchner does not want to have any politically autonomous figures in his cabinet (Mr. Lavagna was the only exception up to now). What this means is that the administration’s decision-making would be more centered on the president and his close aides, whom we see as more prone to taking interventionist and populist positions in economic matters than outgoing Minister Lavagna.

Our impression is that a tougher stance is likely to be adopted in negotiations with the Fund, or that there may not be any negotiations at all. In turn, the government’s stance in negotiations with utility companies will likely remain tough and its position of not negotiating with holdout bondholders will likely remain unchanged. As for monetary policy, we believe the weak peso policy will be maintained and that the government will likely resort to controls, taxes and micro regulation to reduce inflation. One big question is what will happen with the fiscal policy stance and the government’s attitude towards growing salary hike demands by labor unions.

If we are right, this would be bad news for the consolidation of Argentina’s economic recovery and asset prices in general. As for the peso-denominated debt in particular, we believe inflation risks will remain high, which means that they will remain as an attractive investment alternative for the time being.

Absolutely atrocious.

The Argentine bloggers share the same opinion as the investment bankers, with a Spanish-language roundup here:

EL OPINADOR COMPULSIVO‘s Luis pointedly says ‘I told you so’ and shows that he did forecast this change awhile back on the political logic of it. He says that because Kirchner manages all affairs with his wife for the benefit of his little friends, a cabinet shakeup was inevitable. He has a roundup which I have summarized below, and sinisterly calls it the ‘Cabinet of Doctor Caligari.’

BLOG BIS‘s Ruben calls these bozos ‘the team of champions’ and notes that it’s the second time Kirchner has run thorugh one of these so-called teams. The press is focusing on Lavagna’s exit and he thinks that’s overdone (as I do – Lavagna sucked, too, if truth be known). He notes that the old team is headed to the legislature and the new team is headed from the legislature to the executive, showing the unique interchangeability of politicians and the executive branch in Argentina, something he notes with disgust. He says that the worst of the exits was Foreign Minister Bielsa – then notes that with his replacement, he won’t be deprived of good material to kick around. Meanwhile, Pampuro is a dolt and has a long history of involvement with Exocets and the Six-Day War. He notes that Nilde Garre was the Argentine ambassador to Venezuela and was probably in the pay of Chavez, as well as a Chavista by nature – the impact of this will be profound and worrying, he says, as there are a lot of Caracas-Buenos Aires military angles. Then, there is Kirchner’s sister who got an appointment. All and all, it shows that this crummy city machine government is about to take over the great Argentine nation and run it like thier personal fiefdom

SINE METU‘s Guillermo notes with disgust that all of a sudden Lavagna is being blamed for all that is bad in the country and Kirchner is saying he stands for all that is good. Meanwhile, there is a lot of trash talk about the exchange rate – something he notes ruefully as lots of change where nothing changes.

ARGEPUNDIT‘s Isidro notes that new cabinet appointee Jorge Taiana’s great distinction was to have organized the Summit of the Americas earlier this month, a summit famous for its shop-trashing anti-American thugs. ‘God help us!’ he adds. Meanwhile, he’s also had the ‘honor‘ of running into the Caracas ambassador, Nilde Garre and says she’s a brute.

LA OPOSITORA‘s Nadia has a photo of Nilde Garre, the Buenos Aires ambassador in Caracas, and notes the news accounts that say the new cabinet will be loyal to Kirchner. ‘Are you preoccupied with fighting inflation? We don’t need more drama, how about some economic growth!’ she says in boldface. She doesn’t like Taiana, either, and cites the guy’s thuggish youth and past associations. In short, she sums it up as a government of terrorists.

BUENOS AIRES BLOG ‘s Mauro has a big tanking stock and currency chart and a discourse on the economic mess this new crew is making.

NUEVA MAYORA‘s Rosendo has a long professional-looking analysis of the change, saying that the cabinet change parallels that of Menem getting rid of Cavallo ten years ago, with Cavallo going out denouncing corruption. (There is much more well worth reading but I have gotten tired, so if you can read Spanish, dig in)

UPDATE: Reuters has an excellent roundup of reactions here.