ARGENTINA: Court Declares Freeze on Accounts Unconstitutional

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 2 2002 (IPS) - Argentina’s Supreme Court ruled Friday that a freeze on bank accounts decreed by the government on Dec 3 is unconstitutional, in a verdict that threatens to drive some financial institutions into bankruptcy.

The decree that slapped restrictions on withdrawals of wages and savings “annihilates the right to private property” guaranteed by the Argentine constitution, ruled the Supreme Court, in a decision that took both the government and society by surprise.

President Eduardo Duhalde held an emergency meeting with his cabinet chief to analyse the implications of the ruling. It was reported that the launch of an economic crisis strategy that Economy Minister Jorge Remes Lenicov was to announce Saturday might be postponed.

The Supreme Court decision could trigger a run on banks by account-holders desperate to withdraw their deposits in pesos or dollars, which have been held out of their reach since early December due to the restrictions, known as the “corralito.”

The Central Bank is deciding whether to declare a bank holiday on Monday, which would perhaps be extended for several days.

The Supreme Court upheld a verdict handed down by a judge who ordered the release of a fixed-term deposit, according to a communique issued after the banks had closed Friday, and at the end of a one-month judicial recess.

The Court also ruled that the controls on bank withdrawals amounted to a violation of the constitution, which stipulates the right of people to freely dispose of their assets.

The decree that restricted withdrawals from savings accounts, current accounts or fixed-term accounts was signed by then- president Fernando de la Rúa, who resigned on Dec 20.

The aim of the measure was to prevent a run on banks triggered by the economic and financial crisis that threatened the stability of the banking system.

The caretaker authorities who have ruled since then have tightened the restrictions, which were initially to remain in place for three months, thus fanning the widespread discontent among account-holders.

Many savers turned to the courts, complaining that the freeze on accounts was unconstitutional.

The government and a majority of local economic analysts say many banks would be unable to withstand a mass withdrawal of deposits, until they recover the loans they have granted.

Duhalde recently declared that “the dollars are not there,” which means the banks cannot return them to savers – a statement that triggered an outcry and led to even greater numbers of protesters taking to the streets to bang on pots and pans in the past 48 hours.

Many people demonstrated outside the banks, which are selling dollars at an exchange rate of 1.7 pesos to the dollar – 30 cents of a peso higher than the official exchange rate of 1.4 pesos to the dollar.

A leading opposition parliamentary deputy, Elisa Carrió, said that even though she believes that the “corralito” is unconstitutional, the Supreme Court ruling is dangerous.

A week ago, Carrió’s Alliance for a Republic of Equals proposed returning the deposits from a fund to be created with contributions from the banks’ large debtors.

Carrió said she fears the collapse of the most vulnerable banks, which means account-holders would lose their money “forever.” She further warned that it would be the public banks and national private banks that would be affected.

She urged the government to design a “rational” mechanism for the release of deposits, that would protect everyone’s savings – including those who had entrusted their money to national private or public financial institutions – and that would avoid disorder that could pose physical risks to clients who showed up at the banks.

Carrió warned that the Supreme Court resolution could face the government with “an extreme situation.”

The nine-member Supreme Court responded with its ruling to increasing protests regarding its legitimacy and a growing wave of demands that its members step down, said the lawmaker.

Every Thursday in January, thousands of protesters gathered outside the central court building to bang on pots and pans, to protest against what it saw as the Court’s partiality.

The rising pressure to remove the magistrates led legislators to once again take up complaints that had been shelved in parliament, demanding the impeachment of the members of the highest court. Each protest march ended in front of the home of one of the members of the Court.

The credibility of the Supreme Court began to decline when former president Carlos Menem (1989-99) decided, in his first years in office, to increase the number of magistrates from five to nine, in order to pack the court with loyal judges.

The complaints mushroomed into outrage in the past few weeks, when the Supreme Court ruled against the lawsuits brought by private parties trying to get their money out of the “corralito.”

The Court backed the bank freeze, but without pronouncing itself on the underlying question – whether the Dec 3 decree was constitutional, the most controversial aspect. Account-holders complained that the violation of the right to private property could not be ignored.

According to the press release, the Court “invalidated the successive provisions” that were adopted based on the original decree.

Friday’s verdict was made public just when the government was putting the final touches on a plan that contemplated the lifting of restrictions on the withdrawal of salaries, full flotation of the peso, and the conversion to pesos of debts in dollars owed by large companies.

The last measure was expected to spark controversy, due to the huge cost that the conversion to pesos of debts would entail for a bankrupt state.