ARGENTINA: Economy Minister Jumps a Sinking Ship

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Apr 23 2002 (IPS) - Argentina’s Economy Minister Jorge Remes Lenicov resigned Tuesday due to parliament’s refusal to back a bill that would force savers to swap their fixed-term deposits for five or 10-year bonds, in the midst of the worst crisis in the history of Latin America’s third-largest economy.

A source with the Economy Ministry confirmed to the state news agency Telam that Remes Lenicov had resigned. According to the agency, President Eduardo Duhalde had accepted the resignation.

The failure of the government’s efforts to get parliament to urgently pass the draft law on the deposits-for-bonds swap had immediate and devastating effects: the resignation of Remes Lenicov and his team, a financial system one step closer to the brink, and Duhalde up against the wall.

The banks in Argentina have been closed since Monday. The Central Bank was planning to end the bank and currency exchange holiday on Friday, by which time the bill submitted to Congress by the Economy Ministry was to have been approved.

But now the future of the banks is also uncertain, as is that of the country’s nine million account-holders who have been unable to withdraw their money due to a partial freeze on savings in place since December to stave off a run on banks.

On Monday, Duhalde had confirmed that Remes Lenicov would be staying on as economy minister, and described him as “a minister de luxe.”

Remes Lenicov returned Monday from the International Monetary Fund (IMF) assembly in Washington, and informed Duhalde of the stringent conditions that the lending institution insisted on before financial aid would continue to flow again – but in any case, not until May or June.

After handing in his resignation, Remes Lenicov met with Energy Secretary Alieto Guadagni, who was mentioned as the economy minister’s possible successor.

Remes Lenicov resigned after the senators of the governing Justice (Peronist) Party decided to suspend, for the second day in a row, a session which was to discuss the bill on the savings-for- bonds swap.

That session was also to debate other initiatives, including a reform of the Central Bank charter and mergers of public banks.

The head of the cabinet of the presidency, Jorge Capitanich, explained that the ruling party senators had proposed modifying the draft law Tuesday, to incorporate greater protection for savers and to demand guarantees from the banks.

The lawmakers said that if such changes were not agreed, Duhalde should pass the new law as a decree, without seeking ratification in parliament, and assuming the political costs of his decision, according to Capitanich.

On Sunday, the president warned that he might step down if parliament refused to back his emergency initiative to save the crippled financial sector.

The president met with Remes Lenicov’s team, and afterwards with provincial governors, in search of an urgent solution to the crisis, which peaked in widespread protests, looting and the collapse of the government of Fernando de la Rúa in late December and that of his immediate successor in early January.

The economy minister’s resignation had been demanded by several ruling party lawmakers in meetings with government representatives, according to press reports.

The parliamentarians wanted Remes Lenicov’s plan to be put aside, and instead urged the convening of the Fenix Group – a group of prestigious economists who had recently called Duhalde’s attention to a more heterodox proposal than the solutions suggested by the outgoing minister.

One of the members of the Fenix Group is economist Aldo Ferrer, who believes it is necessary to revive the internal market before an agreement is reached in negotiations with the IMF, which is demanding further spending cuts despite a recession that has dragged on for four years.

Remes Lenicov has been criticised by governing party legislators due to his insistence on reaching an agreement with the IMF, which besides the cutbacks in expenditure, is demanding the elimination of bonds that have been issued to replace the devalued peso; the free flotation of the peso; and dismissals of public employees.

The IMF and the Group of Seven most industrialised countries, whose representatives met with Remes Lenicov last week in Washington, are demanding spending cuts and the immediate repeal of a bankruptcy law before further aid is disbursed, the minister told Duhalde on Monday.

But the president argued that there was no political maneuvering room for further adjustments in the midst of a severe depression in which 40 percent of the population of 37 million has tumbled below the poverty line.

Duhalde had planned to present the bill on the fixed-term deposits-for-treasury bonds swap Monday, with the aim of getting it approved by Wednesday. But things did not work out the way he wanted.

Senators and deputies of all stripes, including members of the president’s own Justice Party, put up resistance to voting for the unmodified original version of a bill that is staunchly rejected by savers, who are unable to withdraw their bank deposits, which total 40 billion dollars.

In a report to the Supreme Court, bankers’ associations warned Tuesday that the financial system is “on the verge of collapse” as a consequence of the withdrawal of deposits over the past few weeks, which continued even during the bank holiday.

“The situation is of unwonted gravity,” said the bankers.

The withdrawal of savings has been made possible for some account-holders by legal rulings that have ordered the banks to hand over deposits.

But if all of the savers brought lawsuits and were given a green light by the courts to withdraw their deposits, 75 percent would be left without money due to the banks’ lack of cash, the bankers added.

When it was still confident that the new bill would be approved by Congress, the government scheduled the bank and currency exchange holiday, to last until Friday, a Central Bank spokesman said Sunday. The president, however, said that without the new law, the banks would open, and things would be left “in God’s hands.”

Parliament refused to pass the bill in the midst of demonstrations by account-holders and other protesters, who surrounded Congress in an attempt to keep anyone from entering.

Hundreds of police officers were posted around the building, alongside a two-metre-high barricade, which failed, however, to keep demonstrators away, especially bank employees who fear for their jobs in a country where unemployment has soared to nearly 25 percent.

Under that kind of pressure, the legislators refused to pass the law without first obtaining a greater commitment by the banks that they would guarantee the debt issued in bonds. Outside Congress, savers celebrated what they saw as a victory, and warned that they would continue fighting to defend their deposits.