In fact, a personal friend of Mr Lavagna says the problems started even before Mr Kirchner got to power. "On a two-day trip the two took to Brazil early in 2003 Kirchner hardly spoke to him," he says. "Lavagna could not believe it."

So perhaps Mr Kirchner's decision on Monday to replace him should not have come as such a surprise. Tensions had been mounting and, according to Sergio Berensztein, a political analyst in Buenos Aires, "they had reached the point of no return".

One point of friction came when Mr Lavagna said recently that Argentina would work towards an agreement with the International Monetary Fund. His comments had not been authorised by the president. They also came in the wake of the Summit of the Americas in the Argentine seaside resort of Mar del Plata, which Mr Kirchner had used to lambast the fund.

Another, more serious run-in came last week when Mr Lavagna accused several companies vying for public road-building contracts of acting as cartels. The criticism hurt, particularly as Mr Kirchner took it as a criticism of Julio De Vido, the planning minister and an old and trusted friend.

More generally, his triumph in October's legislative elections has filled Mr Kirchner with a new confidence, and he wanted Mr Lavagna to fall into line. As Mr Berensztein puts it: "Kirchner wanted a more submissive Lavagna, one who would bow to the president's priorities. Instead, he found a Lavagna determined to be equally, or perhaps more, autonomous than before."

So where does the change leave Argentina's economy and Mr Kirchner's leftwing government?

Much of the answer will inevitably depend on Felisa Miceli, Mr Lavagna's replacement. Until this week, Ms Miceli, a 51-year-old economist, headed the state-owned Banco de la Nación.

On Monday the markets appeared to make up their own mind: Argentina's Merval Stock index dived 5 per cent on the news of Mr Lavagna's departure and Ms Miceli's appointment and stayed depressed yesterday.

But Rogelio Frigerio, who heads Economía y Regiones, an economic consultancy in Buenos Aires, says such a reaction is premature. "Markets simply react to what they don't know, and they don't know her."

Javier Alvaredo, director of MVA Macroeconomía, a local consultancy, says Ms Miceli will have to act quickly on public spending. Mr Kirchner's expensive campaign in October's mid-term elections put a dent in Mr Lavagna's otherwise impressive record in reining in costs, and spending has risen 24 per cent this year.

Experts fear that a loss of discipline on the fiscal side combined with difficulties in increasing private investment could aggravate already rising inflation. Prices have leapt since last year and are expected to reach double figures this year.

As for the politics, some observers are worried that Mr Lavagna's departure could presage a more emboldened phase of Mr Kirchner's administration as he attempts to consolidate - and build on - his power base.

For all his fights with the IMF, Mr Lavagna won the respect of the international community. In particular, it saw him as a bridge between a government with the mindset of a small provincial administration - Mr Kirchner has never held a full cabinet meeting - and the rest of the world.

One possible sign of this new, more inward-looking phase is the decision to promote Nilda Garré to defence minister. Until this week, Ms Garré had been ambassador to Caracas, a post she had used to defend the radical administration of President Hugo Chávez in Venezuela.

Her appointment to cabinet level, says Mr Berensztein, is a clear sign that Mr Kirchner sees Venezuela as an increasingly useful ally. And perhaps with reason: Mr Chávez has bought hundreds of millons of dollars' worth of Argentine bonds this year and he has supplied the country with fuel oil vital for staving off a domestic energy crisis.

"The path Kirchner has taken is one of increasing isolation, a focus on the domestic market and to close ranks behind Chávez," says Mr Berenzstein. "It is a big decision, and he is creating a lot of uncertainty in terms of the world's perception of Argentina."

Source: Financial Times