Economy & Trade, Headlines, Latin America & the Caribbean

ARGENTINA: Tens of Thousands of Savers to Finally Recover Funds

Marcela Valente

BUENOS AIRES, Dec 28 2006 (IPS) - Five years after Argentina’s economic and political meltdown, when the savings of around one million people were frozen in the banks on government order, the courts finally decided on a solution for tens of thousands of people still unable to access their funds.

The Supreme Court ruled Wednesday that the banks must reimburse account-holders with an amount equivalent to the real value of their savings in December 2001.

But it also decided that a measure by which banks were ordered to transform deposits and loans in dollars into pesos was constitutional.

The Supreme Court ruling, awaited anxiously by a group of savers outside of the courtroom, ordered the banks to reimburse account-holders for “100 percent of the dollar value of the deposits” that had been converted into pesos.

“The goal of this ruling is to promote social peace and show that it is possible to reach a consensus of difficult issues that worry our community,” said the verdict.

The president of the Argentine Association of Savers (AARA), Carlos Báez Silva, told IPS that the verdict, which will apply to tens of thousands of outstanding cases, is not a legal solution.

In his view, the judges merely came up with a formula to reimburse savers instead of limiting themselves to ruling on the legality of the freeze on accounts ordered in 2001 by then economy minister Domingo Cavallo.

Cavallo’s unexpected decision was announced in early December of that year in the midst of a severe crisis of confidence in Argentina’s financial system, with the aim of curbing capital flight that posed the risk of total financial collapse.

But the measure had the opposite effect. It accentuated the lack of confidence, the amount of money in circulation shrank, the recession deepened and social unrest grew.

Cavallo resigned on Dec. 19, 2001 as hundreds of thousands of people took to the streets, forcing then president Fernando de la Rúa to step down the next day.

Caretaker president Eduardo Duhalde later devalued the peso, scrapping the currency board established by Cavallo, which had pegged the peso to the dollar for a decade.

The peso depreciated to nearly four to the dollar, and account-holders became desperate, unable to withdraw their savings because of the freeze on deposits, known locally as the “corralito”.

The “corralito” (little corral or fence) was applied to some one million accounts holding around 50 billion dollars in pesos and dollars.

Outraged savers took to the streets, going so far on occasions as breaking the windows and doors of banks and threatening or hitting bank employees.

In response, banks in central Buenos Aires put up sheet metal to protect their entrances, which were gradually covered with graffiti painted by angry account-holders.

The Duhalde administration finally decided in 2002 to order the banks to convert loans in dollars into pesos, to keep the debts from tripling in size. To compensate, the order was also applied to deposits in dollars.

A number of strategies began to emerge to allow the gradual withdrawal of savings. One proposal involved withdrawals by means of purchases of assets such as real estate, cars or machinery. Others involved swaps for treasury bonds.

As the economy slowly began to recover and grow in late 2002, accepting treasury bonds started to look like an increasingly attractive option, as did swapping savings for real estate that later climbed in value. But some savers were pressed by circumstances to withdraw their funds in pesos, at a major loss.

Those who refused to accept any of the options were left with only one alternative: to turn to the courts.

Tens of thousands of account-holders were able to withdraw their money after court rulings ordered the banks to honour their deposits, whether they were in pesos or dollars. But in other cases, banks refused to release the funds, and the claimants appealed to the Supreme Court.

The savers were confident that the Supreme Court would now argue that private property is inviolable, as established by the constitution, and that the so-called “pesification” of deposits was unconstitutional. But that argument was used by only one of the magistrates. The others opted for a political solution that would enable savers to recover their deposits.

After a lengthy debate, the justices decided that the 2002 conversion of dollar deposits into pesos at an exchange rate of 1.4 pesos to the dollar was legal. But they created a formula by which savers will recover their deposits – in pesos – at an exchange rate slightly higher than the current rate of around three pesos to the dollar.

The end result is that some 50,000 savers with outstanding complaints will be fully reimbursed.

Nevertheless, the ruling is controversial. “They are returning our capital, but what about the cost of keeping that money immobilised for five years?” asked Báez Silva, who gave IPS a brief rundown of the most dramatic costs of the crisis: the cases of people who fell ill or died without being able to access their savings.