ARGENTINA: Savers May Be Forced to Swap Deposits for Bonds

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Apr 22 2002 (IPS) - The Argentine government sent a legislative proposal to Congress early Monday for authorisation to enact an obligatory exchange of fixed-term deposits for five- to 10-year bonds in an attempt to prevent the collapse of the country’s financial system.

Experts and lawmakers alike criticise the bill, saying it means transferring to the national treasury the debt that private and public banks have had with depositors since early December, when the government of Fernando de la Rúa froze bank accounts, in what was dubbed the “corralito”, Spanish for “little fence”.

But thousands of savers are angry about the potential restriction of collecting their fixed-term deposits only in five years, in the case of Argentine pesos, and 10 years in the case of foreign currency deposits, most of which are in dollars.

Senators said Monday, in reaction to the proposal President Eduardo Duhalde presented earlier, that they are reticent to debate a bill “under pressure”, with hundreds of people who have lost access to their money gathered at the doors to the legislative palace and the president demanding a immediate action.

The legislative bill presented by the Duhalde government, which on Friday decreed a banking and foreign exchange holiday that is to continue indefinitely, also entails the merger of state banks and the modification of the Central Bank’s charter.

The president also asked Congress to overturn the bankruptcy law and the so-called “economic subversion” law, which serve as the basis for the lawsuits currently being brought against numerous business owners and bank executives. The annulment of those laws is required by the International Monetary Fund (IMF) for the release of further funds for Argentina.

“If (Congress) does not approve the bills, the banks will open anyway and it will be in God’s hands,” said Duhalde in response to lawmakers who said the proposed legislation is “extortion”.

Thousands of Argentines flocked to the banks Friday to try to withdraw their savings amidst the early rumours of the deposits- for-bonds swap, which initially were believed to affect current and savings accounts as well.

Such accounts are used so that employers may directly deposit the wages of their employees, who can then withdraw it in quotas, and to deposit cheques, in which case last week’s were to have been credited this week for payout.

But the bank clients’ attempts to withdraw money in the last three days were blocked by the banking holiday and by empty automatic cash machines, some of which had been left dented by frustrated depositors.

The Central Bank announced that the banks are not obligated to re-stock the cash machines as long as the banking and foreign exchange holiday continues, which could last as long as a week.

The decision to close the doors on the banking system also meant that retirees are unable to collect their pensions this week. Many of them, mostly elderly, arrived at the banks early Monday anyway in hopes that that the institutions would at least open long enough to take pay them their due.

“They want to kill us! They don’t care if we have money to buy medicine! We know that our money was deposited in the banks, but they won’t give it to us!” shouted a desperate man who had waited in vain outside the Banco Ciudad de Buenos Aires.

The bill being considered by Congress proposes to create a five- year bond for fixed-term deposits in pesos, and another for 10 years for those whose savings are in dollars. In the period from emission to maturity, bondholders would be able to periodically collect interest on the principal or use the titles to pay taxes or to purchase goods.

Economic analysts already calculate that these titles would have an immediate market value of 25 percent below nominal value due to the serious confidence crisis Argentina is suffering. The greatest advantage would be for those who wait until the bonds come due, in 2012 for those with dollars.

The legislative bill aims to end the banking “corralito”, imposed in December by then-minister of Economy, Domingo Cavallo (currently under arrest on arms smuggling charges), in an attempt to halt capital flight. But the measure only worsened the situation by deepening the lack of confidence in Argentina’s banking system.

The lawsuits that savers have filed in order to recover their money have been increasingly successful recently, which threatened to escalate the financial crisis.

In response, the Duhalde government, under pressure from the banks, drew up the bond swap plan and decreed the banking holiday.

The alarm was sounded Thursday by Scotiabank Quilmes, a subsidiary of Scotiabank of Canada whose operations were suspended for 30 days by the Central Bank because it could not handle the release of deposits ordered by the courts.

If the government-sponsored bill now in Congress is approved, the new bonds mean the state will assume the banks’ debts to savers in exchange for recovering the devalued public debt titles in the hands of the financial entities.

“The state would no longer owe the banks, but would owe the savers,” said assistant minister of Economy Jorge Todesca.

The government is seeking rapid approval of the bill in Congress in order to confront the crisis as soon as possible, but many legislators say they are irked that the executive branch is attempting pressure them into taking quick action.

“This is outrageous. They are putting a knife to our throats,” protested opposition senator Rodolfo Terragno.

Even the head of the governing coalition’s bloc in the Chamber of Deputies, Humberto Roggero, complained, saying the government is “extorting” the legislators by decreeing the ongoing banking holiday.

Duhalde admitted that the bill had been sent to Congress shortly after meeting with Economy Minister Jorge Remes Lenicov, who just returned empty-handed from a meeting with the IMF in Washington.