ECONOMY-ARGENTINA: An End to Bank Curbs

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 28 2003 (IPS) - The Argentine government has announced a definitive solution for the 20 percent of savers in the country whose deposits have remained frozen in the nation’s banking system since December 2001.

Economy minister Roberto Lavagna announced that President Eduardo Duhalde has in his hands a decree for the – complete release" from the so- called ôcorralito" (little fence) that has kept untouched the savings of Argentines who expected reimbursement in quotas, and others who refused to accept bonds with extended maturity dates.

Saver Angela Elías, an attorney who is anxious to recover the nearly 40,000 dollars she had deposited, says the economy minister’s announcement ôis very good news."

In a conversation with IPS, she said that in February 2002 she filed for legal protection of her property, though had not received any response from the courts so far.

The solution now on the table ôdoesn’t seem so bad," in comparison to some of the plans proposed during the past year, said Elías.

ôI could soon have access to a good part of the money now, and begin to look for a house to buy, which was our plan for those savings originally," she said.

Her husband, Martín González, believes however that it would be better to wait for the courts to force the bank to return the total in cash, and in dollars, just as they had deposited in 2001.

ôIt’s true that the announced solution is the best of the options available so far. Many who are in our same situation believe this too, but I figure that the bonds offered in compensation represent a third of our savings, and in 10 years who knows what could happen with the state? Who knows if it will be able to return our money in dollars?" González told IPS.

Lavagna explained that depositors of up to 30,000 dollars as of December 2001 – when the Argentine peso was still pegged at par to the dollar – could receive their money immediately, but in pesos, at a rate of 1.4 pesos per dollar plus an indexed compensatory sum.

The difference between the total resulting from that calculation and the current exchange rate – which closed Thursday at 2.89 pesos per dollar – would be compensated by the state through 10-year dollar bonds.

The obligatory conversion of dollar deposits to pesos at the 1.4 rate, decreed in early 2002, makes 30,000 dollars into 42,000 pesos, plus the corresponding bonus.

That is the maximum sum the accountholders can receive, but because it is no longer the equivalent of 30,000 dollars, the state will make up for the difference in dollar bonds that come due in 2013, or which can be exchanged immediately at 45 percent of their value.

This solution to the frozen banking accounts will cost the Argentine state some 3.0 billion dollars.

Depositors who held balances of 30,000 to 100,000 dollars can recover their money through a similar procedure, though they face a 90-day wait.

Those with more than 100,000 will have to wait 120 days to gain access to their cash and the state-issued bonds.

The Duhalde government is trying to put an end to the serious financial problem that was unleashed at the end of 2001, when then-minister of economy Domingo Cavallo made the surprise announcement that bank accounts would be frozen for 90 days in order to halt the massive withdrawal of funds.

The move outraged savers, who were forced to use debit cards instead of cash, and sharply limited to how much they could withdraw each month. The crisis deepened as cash reserves dried up and Cavallo resigned.

One day later, he was followed by president Fernando de la Rúa, forced to step down amidst profound social and political crisis.

In massive street protests, Argentines demanded the president’s resignation. Looting became widespread. Some 20 people were killed in the chaos and in clashes with police.

Congress named Adolfo Rodríguez Saá to the presidency, but he lasted just 10 days.

The institutional crisis seemed to be on its way to recovery on Jan 1, 2002, when Congress designated Duhalde president.

But his economy minister Jorge Remes Lenicov lifted the decade-old regime that maintained the peso on par with the dollar, which meant an immediate devaluation of the national currency.

Frozen bank accounts, on top of the devaluation, triggered further angry reactions from savers, who demanded their deposits returned in dollars or in pesos at the going rate on the exchange market.

The currency was in a free fall. By April 2002, one dollar was the equivalent of more than 3.8 pesos.

The forced ôpesification" of dollar accounts at a rate of 1.4 was soundly rejected by savers, many of whom turned to the courts. The pesification also hurt banks because Remes Lenicov decided that loans in dollars could be paid back in pesos. á The banks, needless to say, have been demanding compensation ever since.

Minister Lavagna said Thursday that the resolution of the financial sector’s demands will be achieved through legislation to be presented before Congress next week, not through a government decree. á Duhalde and Lavagna had enacted a series of palliative measures for account holders during 2002.

These included the return of cash in small sums, reprogramming fixed-term deposits for three- to 10-year stings, and distributing state bonds in pesos and dollars.

With a more stable economic climate – though still in recession – Lavagna began in December to draw up a solution for the savers with more than 30,000 dollars in the banks.

Lavagna noted that the peso has been recovering in recent months and that the price stability on the domestic market provided conditions for the return of people’s savings.

Nevertheless, he expressed concern about what he said are ôabrupt" and ôundesirable" fluctuations in the exchange market.

= 03281825 ORP023 NNNN