Mr Lavagna, who took over stewardship of the economy with Argentina still mired in crisis after its default and devaluation at the end of 2001, was asked to resign by President Néstor Kirchner.

The Argentine peso fell from 2.985 to the dollar to 3.002, but the move was curbed by the central bank selling dollar futures contracts. Bond prices slid sharply and the yield on the restructured dollar bond due in 2033 rose to 9.641 per cent from 8.169 per cent. The Merval stock index slid almost 4.5 per cent to 1556.52.

Friction between Mr Kirchner and his economy minister has intensified in recent weeks - first because Mr Lavagna had refused to participate in October’s legislative elections and, more recently, because of remarks he made last week. In particular, Mr Lavagna said there had been over-pricing in a number of public contracts to build roads. That was taken as a direct attack on Julio De Vido, the planning minister and a confidante of the president.

Mr Kirchner also demanded the resignation of Guillermo Nielsen, the finance secretary. Earlier this year, Mr Nielsen successfully concluded the biggest sovereign debt restructuring in history.

Felisa Miceli, who until now had worked at the state-owned Banco de la Nación, will replace Mr Lavagna.

“It was a real surprise,” said Javier Alvaredo, director of MVA Macroeconomia, a Buenos Aires-based economic consultancy. “To get rid of a respected minister like Lavagna is a decision that brings its risks.”

One uncertainty concerns Argentina’s fiscal performance. Under Mr Lavagna, the country posted record primary surpluses (before taking into account debt interest payments). He told the FT recently that he had done so by “saying no to the vested interests”. Some analysts worry that Mr Lavagna´s successor may not be as tough, particularly given mounting pressure from trades unions for wage rises.

Government spending has risen 24 per cent this year, a jump that many associate with Mr Kirchner´s long and expensive political campaign ahead of legislative elections last month. Mr Kirchner’s supporters in the centrist Peronist party scored a big victory at the polls, increasing their representation in the legislature.

Inflation, another concern, is rising this year at an average of almost 1 per cent per month and the central bank expects that it will finish the year in double figures. Last year, by contrast, inflation rose by only 0.5 per cent per month.

Mr Alvaredo said: “The new minister carries less weight than Lavagna. So she will have to send a clear message to the markets that she will be strong on fiscal policy and inflation.”

The relationship between Mr Kirchner and Mr Lavagna had been awkward from the outset. While Mr Kirchner was confrontational, Mr Lavagna was more diplomatic, especially in controversial areas such as the government’s relationship with privatised utility companies and the International Monetary Fund.