ECONOMY-ARGENTINA: Repeal of Law Prevents President’s Resignation

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, May 31 2002 (IPS) - The revocation of a law cracking down on bank corruption in Argentina, the repeal of which was demanded by the IMF, narrowly warded off President Eduardo Duhalde’s resignation.

The “law on economic subversion” was overturned late Thursday by the Senate, after the double vote of the president of the upper house, Senator Carlos Maqueda, broke a tie.

“If this was not approved, I was going to step down,” Duhalde told the daily La Nación after the law was repealed.

“The truth is that I could not have stayed one more mimute in the government” if the Senate did not abolish the law this week, as required by the IMF (International Monetary Fund) as a condition for providing financial assistance, the president added.

Duhalde was also worried that a failure by Congress to overturn the law would lead to a further depreciation of the peso, which has been losing value this week.

The local currency traded at 3.7 to the dollar on the free market Friday, after standing at par with the dollar for 11 years under the currency board system, which was scrapped when Duhalde was appointed caretaker president in January.

Two legislators of provincial parties joined the majority of ruling Justice (Peronist) Party senators in voting in favour of overturning the law.

Most of the senators were voting against what they had argued two weeks ago, when they sought to amend, rather than repeal, the law, in order to prevent corrupt bankers from getting off scot- free.

Duhalde himself stated at the time that he did not want a total repeal of the law, which gave judges wide powers to investigate banking practices. Economy Minister Roberto Lavagna tried to convince the IMF that the law should be kept on the books in a modified form.

However, the risk of failing to obtain enough votes to amend the law led governing party lawmakers to completely do away with it.

Those who wanted to ditch the law argued that Argentina’s penal code already cracks down on financial crimes. But legislators who wanted the law to remain on the books maintained that if the criminal code truly covered the same ground as the law on economic subversion, the IMF would not be demanding its abolition as a requisite for disbursing financial aid.

The law, which was enacted in 1974 and partially amended 10 years later, enabled judges and prosecutors to take legal action against corrupt bankers and business owners. It had fallen into disuse, but took on new life with the banking crisis that broke out last year.

Argentina defaulted on 141 billion dollars of debt.

The IMF argued that the law scared off investors, due to fears that financiers would be made scapegoats for the financial crisis in this Southern Cone country of 36 million.

The federal courts in Argentina used the law to arrest the president of the Banco General de Negocios, Carlos Rohm, and to issue an arrest warrant for his fugitive brother, José Rohm. Also investigated under the law was the vice-president of Credit Suisse First Boston, David Muldford, who was also a member of the board of directors of the Banco General de Negocios.

In addition, charges were filed against a dozen high-level executives of Argentine and foreign banks for defrauding savers whose deposits remain trapped in the banks since December by restrictions on withdrawals known as the “corralito” or “little fence”, adopted to curb a stampede.

Among those cited to testify were the presidents of the Rio- Santander, BankBoston, Galicia, Scotiabank and HSBC banks.

“The repeal of the law has no other objective than that of saving from legal action people who did great harm to this country,” Senator Carlos Maestro, of the opposition Radical Civic Union (UCR) party, protested in Thursday’s parliamentary session.

Centre-left lawmaker Elisa Carrió, of the new Argentines for a Republic of Equals movement, said the revocation of the law amounted to “an amnesty that those who plundered the country granted themselves,” and “a suicide by the entire Argentine political class,” which allowed that impunity to be imposed.

“The law on economic subversion was on the IMF agenda at the request of bankers who could be prosecuted, and its repeal means total impunity for those involved in pulling (huge amounts) of capital out of the country,” said Carrió.

The increasingly popular opposition legislator said the repeal of the law would lead to the dismissal of many cases involving financial crimes, and stand in the way of the investigation of others.

The government is now apparently one step closer to receiving financial aid from the IMF, funds that will be used to pay off debts to multilateral lenders, including the IMF, that fall due this year. Another requisite set by the lending institution, the approval of a new bankruptcy law, has already been met.

The Duhalde administration believes an agreement with the IMF will also shore up its own deteriorating credibility, and will unblock accords with the World Bank and European governments. Those funds, in turn, would be used to finance exports and shell out unemployment subsidies.

“There was extortion all the way down the line” to overturn the law on economic subversion, said UCR Senator Rodolfo Terragno. “The IMF extorted the president, the president extorted the governors, and the governors extorted their legislators,” he maintained.

Argentina’s need for financial aid to pull out of its dire crisis has become more and more desperate in the past few months. After four years of recession, with 23 percent unemployment, 50 percent poverty, and a huge public debt, the government’s strategy has focused on securing financing from abroad.

Duhalde is now putting all of his efforts into negotiations with the governors to reduce spending and cut the provinces’ fiscal deficits by 60 percent. Nine provinces have already signed an agreement, and 11 others are negotiating a deal in exchange for disbursement of funds owed by the central government.

An agreement with the governors to cut spending in the provinces is the third requisite for an IMF accord, which according to the Economy Ministry could be signed by Jun 30.

The Economy Ministry will reportedly announce Saturday a solution to the “corralito”, entailing the swap of deposits for medium- to long-term bonds in pesos and dollars, as well as safeguards for account-holders in case banks collapse.