ARGENTINA: Savers Still Wary, but Deposits and Credit Flow Are Rallying

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Oct 13 2004 (IPS) - "I wouldn’t completely rule out keeping some money in a savings account," says Fabián Waldman, a graphic designer in Argentina. "But I would keep most of what I had saved up for my future in dollars, in safe-deposit boxes."

Luckily for banks in Argentina, not all savers are as wary as Waldman.

Nearly three years after this country’s political and economic collapse, when millions of depositors suffered a freeze on their accounts, people are opening savings accounts again.

Credit, however, remains tight, with banks still reluctant to grant loans.

According to Central Bank statistics, total deposits in Argentine pesos in August exceeded the level prior to the December 2001 meltdown in Argentina, when then president Fernando de la Rúa (1999-2001) and his economy minister Domingo Cavallo announced a freeze on deposits known as the "corralito" (financial playpen).

Before that measure was taken, deposits had shrunk from 73.1 billion to 59.6 billion pesos between 2000 and late 2001. That total was equivalent at the time to the same amount in dollars under the "convertibility" law or currency board that pegged the peso to the dollar for over a decade.

But after the worst of the crisis was over, deposits slowly began to recover in 2003, to 76.2 billion pesos by last August – although that is now worth just 25 billion dollars due to the depreciation of the local currency since the peso-dollar peg was scrapped in January 2002.

However, banks in Argentina, Latin America’s third largest economy, are still hesitant to offer credit. Credit flows, which totalled 62.7 billion pesos in 2000, plunged to 35.2 billion after the December 2001 crisis and to a low of 30.9 billion last year, before climbing back up to 35.7 billion pesos in August.

The president of the Argentine Association of Banks, Mario Vicens, said confidence has not rallied to pre-crisis levels, but has improved considerably, much more than was expected, thanks to the financial and monetary stability that Argentina began to enjoy again in late 2002.

Vicens, who represents the foreign private banks that operate in Argentina, which account for 38 percent of the financial sector, told IPS that with the crisis, credit dried up, and flows did not begin to recover until this year.

But a former banker who preferred to remain anonymous commented to IPS that the local financial system actually has a surplus of funds to lend, although the conditions are stricter than ever for those applying for loans, which means the credit flow is not rallying as fast as deposits.

The controversial "corralito" dealt the coup de grace to an already badly weakened banking system that had been losing deposits for at least eight months due to capital flight, against the backdrop of a worsening recession and mushrooming foreign debt.

After the freeze on withdrawing money from savings accounts and fixed-term deposits caught Argentines off guard in early December 2001, the financial crisis worsened, the tight money supply heightened the recession, and a wave of protests and looting of supermarkets broke out.

The unrest prompted the resignation of economy minister Cavallo on Dec. 19, and of president de la Rúa himself the next day, just half-way through his term.

In early January 2002, caretaker president Eduardo Duhalde got the "convertibility" law overturned by Congress, and the peso was left to float freely, which made it even more difficult for depositors to recuperate their savings.

Many people in Argentina had savings in dollars or had taken out loans in dollars, confident that the currency board would remain in place for years to come, as its creator, Cavallo, promised in his first stint as economy minister under former president Carlos Menem (1989-1999).

Duhalde’s interim government, which preceded the current administration of Néstor Kirchner, not only devalued the peso but ordered banks to return in pesos fixed-term deposits that had been made in dollars, at an exchange rate of 1.4 pesos to the dollar.

But at the same time, the government allowed people who had taken out credit in dollars but whose paychecks were in pesos to pay back the loans at the pre-devaluation exchange rate of one peso to the dollar.

The banks protested, and won compensation from the state to cover the difference between the deposits and loans.

Many people with savings in dollars were not willing to accept 1.4 pesos for each dollar, since the value of the local currency had plummeted to nearly four pesos against the dollar in 2002, before rallying slightly to three pesos.

Tens of thousands of lawsuits were filed, and some depositors won back their savings at the original exchange rate, while many others are still waiting.

In the meantime, the number of banks operating in the country diminished from 106 to 91, while the number of branch offices dropped from 4,212 to 3,862. Consequently, the total number of bank employees fell by 16 percent, from the 2001 level.

Foreign banks, which prior to the crisis were seen as the most reliable by savers, left many depositors high and dry when the head offices failed to back up their local Argentine branches.

Public confidence in Argentina’s state-owned banks has since grown, and of the five banks that now have the largest total deposits, three belong to the state.

But like Waldman, many people remain sceptical about placing their money in a savings account.

"I’ll never again leave my money in a bank. I don’t even want to put it in a safe-deposit box. I prefer to stash it in the place you would least expect," said Carlos Moritán, a small businessman who is still waiting for the courts to rule on the lawsuit he filed to reclaim his 40,000 dollars in savings.

Although she did not lose so much money, office worker Patricia Hoogen told IPS that "if I had savings, I would not put them in a bank, but would look for some other way to invest, like in the stock market."

"I don’t have any faith that there will be no repeat of the freeze on accounts, where people couldn’t get their money back, although I don’t think it will happen again in the near future," said Hoogen, referring to the country’s current monetary stability and the resurgence of economic growth.

Lawyer Ana Rielo said that although the corralito did not catch her unawares with her savings in the bank, her confidence in the financial sector is still "very low".

"I’m not fervently opposed to banks, but I would prefer to keep my money in a safe-deposit box," she admitted.