ECONOMY-ARGENTINA: Savers Feel Resigned to New Banking Rules

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 4 2001 (IPS) - Argentine banks received anxious customers on Monday, people worried about the limits on withdrawals that the government announced over the weekend in a bid to prevent savers from emptying their accounts and to protect the financial system from collapse.

Nevertheless, the grim mood and bewilderment of the account holders did not lead to large, unruly crowds at the banks.

While many savers and workers stood in line with austere expressions on their faces, waiting their turns at the bank teller windows and automatic cash machines, many others decided to turn to the media in an attempt to understand what impact the new banking rules will have on their day-to-day lives.

Over the weekend, the government told Argentines that cash withdrawals from banks will be limited to 250 dollars a week and that restrictions have been slapped on the transfer of funds abroad, though account holders can freely write cheques and use their credit or debit cards.

The measures also call for increasing the number of people who receive and spend their income through the banking networks, which has prompted concern among those individuals who do not have access to banking transactions, whether due to past bankruptcies or failure to pay back debts, or simply because they operate outside the banking system. They wonder now if they will be able to open a simple account.

Among the general population, doubt seems to be the common denominator. “How am I going to pay the electrician, the gardener or the pool cleaner?” wonders Alejandra Ramos, an upper-middle class woman who lives in San Isidro, a residential area in the Argentine capital’s outskirts.

Ramos explained to IPS that now she will have to pay the workers with a monthly cheque, instead of weekly cash, due to the new restrictions that limit her cash flow.

The measures will not radically alter the average Argentine household economy, but will affect those who work as domestic cleaning and maintenance personnel, taxi drivers, and gardeners, among others.

Ramos’ husband, Marcelo Fernández, who works at an advertising firm, explained his strategy for facing the shortage of cash: “I am going to drive on roads with no tolls, I will give up coffee with my morning paper, and I will have to limit my children to their weekly allowances.”

The small shops in the neighbourhood are going to suffer, Ramos pointed out. “I prefer to buy everything we need in the supermarket, where I can pay with a credit card, and not spend the limited cash we have on small household purchases,” she said.

Furthermore, her family will have to cut back on gratuities, contributions to charities and other smaller expenses, she added.

Ramos’ two domestic employees are nervous. The measures announced by Economy Minister Domingo Cavallo imply that they will have to receive their wages through savings accounts. Ninety-five percent of such employees, who work for individual families without contributing to the tax or pension systems and who generally do not have health insurance, will now have to enter the formal economy.

The case of the Ramos-Fernández family illustrates just how many people will be hurt by a measure that – in spite of affecting people to varying degrees – is causing widespread ill humour.

Only the financial markets, the banks in particular, showed optimism as the measures put the brakes on the withdrawals that were bleeding the system dry. Since January, more than 15 billion dollars have flowed out in the hands of nervous savers and investors, fearful of a government- imposed freeze.

The stock exchange operated on an upswing Monday, and Argentina’s public debt titles recovered with respect to Friday, when they suffered their worst day in recent years.

The week thus began with a feeling of resignation among the general public, who had to concentrate on trying to understand how they will have to reorganise their lives as a result of the government’s unexpected move.

Indignation was most evident over the weekend, immediately after the government announced the surprise measures that officials had previously stated they were trying to avoid.

Minister Cavallo, who had announced the new banking restrictions on Saturday, was forced to provide explanations once again Sunday night on national television, preceded by a brief statement from President Fernando de la Rúa, who exhorted the Argentine people to collaborate with the measures.

Among economists, politicians, and unionists, nobody is saying that the bank rules will provide a real solution to the country’s profound economic woes. Most agree that it is a “band-aid” approach intended to prevent a currency devaluation, debt default or even greater catastrophes like bank closings and the loss of a large portion of small entities’ deposits.

De la Rúa stated that the distressed Argentines are in reality “winning a battle”. He said the measures were taken “to protect the wealth of the savers” who face what he described as an “attack by speculators”. The president asked for “understanding and good will” and said he is confident that there will not be massive layoffs.

But observers from the political, business and labour communities say the measures will only deepen the recession that began in 1998 and will push up unemployment, which stands at around 16 percent. And it will be extremely difficult to regain public trust enough that people will put their money in Argentina’s banks.

Mario Vicens, former treasury secretary, said the bank withdrawal restrictions constitute “one last chance” to prevent a debacle. Martin Redrado, an economist who heads the ‘Fundación Capital’, described the move as the “product of improvisation.”

For the General Confederation of Labour (CGT), Argentina’s largest trade union, the measures benefit “the usurious banking system” and jeopardise workers, who will only see their economic problems worsen.

The unionists believe the government chose to protect the banks and ensure them new customers instead of helping the vast majority of Argentina’s 35 million people.

The restrictions came in response to the massive withdrawals from accounts last Friday, estimated to total 500 million dollars, which endangered the survival of several banking institutions.

The withdrawals stood in contrast to the closing of the local phase of the debt bond exchange of 50 billion dollars – 45 percent of Argentina’s public debt. The swap is aimed at reducing the payments that come due in 2002 by 3.5 billion dollars, and to recover credit at more reasonable rates.

The country’s public debt surpasses 132 billion dollars, or nearly half the annual gross domestic product. The vulnerability of the Argentine economy is due to the fact that the titles on approximately 90 percent of the debt are in dollars and that the country is mired in a recession that has already lasted 42 months.

This situation means tax revenues are low, interest rates are on the rise, and credit is expensive.

Cavallo had said that the foreign phase of the debt swap would take place in 90 days but, now says that the so-called “vulture funds” are seeking to push the value of the titles down and force Argentina to default on payments, as occurred in Ecuador and Russia.

The reality is that the Economy minister did not freeze bank deposits, but limited cash withdrawals to 1,000 dollars a month. And the rest of the money in the counts is accessible through cheques, money orders, and credit or debit cards.

The government also made it clear that it will strictly monitor transfers of funds abroad, and limit the amount of cash travellers take out of the country.

Though the moves do not constitute a seizure of assets, they have caused widespread resentment, particularly among the 40 percent of Argentine workers who do not have access to social benefits because their employers resist paying the contributions to the government – another consequence of the economic crisis.

An association of small and medium businesses reports that some 600,000 establishments do not have the electronic terminals necessary to operate with credit or debit cards. As long as Argentine consumers are short on cash, these businesses will lose clientele to the supermarkets and other major stores that can handle transactions with the cards.