Buenos Aires -- "I should have known better than to trust a bank," sneered Laura Alonso, 62, a retired waitress who walked out of a BankBoston branch Friday with a wad of pesos stuffed in her bra.
As Alonso has regularly done since a partial limit on withdrawals was imposed here in December, she withdrew her monthly maximum and prepared to rush the cash to the only savings institution she still trusts: her mattress.
"I will never willingly put a cent in a bank again!" she fumed during an interview on a busy downtown street, drawing a round of applause from other bank customers. "They talk about how dumb it is to keep money at home, about the danger of thieves. Well! I tell you that the real thieves are in there!" she said, gesturing at the bank window.
The banks in Argentina were once considered to be among Latin America's strongest and most trusted, especially as subsidiaries of foreign giants such as U.S.-based Citibank and BankBoston built themselves into the nation's leading financial institutions. But today, Argentines view them as among the worst places to stash their cash -- highlighting a breakdown of trust in the banking system that analysts are calling one of the biggest obstacles to economic recovery in Argentina.
The Argentine financial system is in deep trouble after four years of recession that led to a massive government debt default and the devaluation of the peso in January. A dramatic run on the banks last year wiped out more than $17 billion -- a quarter of the deposits -- in just a few months.
But despite restrictions imposed in December limiting monthly withdrawals to 1,200 pesos -- worth about $650 today -- deposits are still flowing out, though at a slower rate of about $1 million a month. Leading experts describe the banking system as "a ticking time bomb." Massive costs associated with the peso's devaluation and mounting bad debt in both the public and private sectors have analysts predicting that as many as 100 of the nation's top 200 financial institutions may fail or merge to survive in the coming months. Argentina's largest privately owned bank, Banco Galicia, is reportedly trying to strike a deal with foreign investors to stay afloat.
Yet the banks' biggest long-term problem is not financial. It is psychological: Argentines simply don't trust their bankers anymore. The very wealthy, who have long used offshore banking to evade taxes, are now doing so even more. Meanwhile, many average Argentines now see mattresses and wall safes as far better than big-name banks.
A big source of their anger is the limit on cash withdrawals. Another is that depositors have lost 40 percent or more of the value of their savings since the peso devaluation.
Before devaluation, when the government guaranteed that one peso was worth $1, most Argentine business loans, home mortgages and bank deposits were denominated in dollars. Under the government's "pesofication" program, most businesses and workers who borrowed dollars from banks and whose income is in pesos are getting a break by being allowed to repay their loans in the same amount of pesos as they owed before.
The measure helped spare thousand of Argentine debtors, but in return banks demanded that Argentines with deposits in dollars had to pay a price, too. Depositors were barred from withdrawing their dollars and instead have effectively been forced to convert their dollar savings into devalued pesos at a fixed, below-market exchange rate -- or risk having them turned into government bonds of even more dubious value that take up to 10 years to mature.
After the conversion of loans into pesos, "there was no way banks could give back deposits in dollars," said a top executive of a foreign bank operating in Argentina. "You would have seen massive collapses and banks simply walking away from Argentina."
Not surprisingly, Argentine depositors feel betrayed, especially by foreign-owned banks, which now make up seven of the nation's 10 largest financial institutions. Though many had used references to their international standing when luring customers during boom times, depositors have now learned that banking laws hold only local subsidiaries responsible for covering deposits in Argentina -- not the foreign-based home offices of major banks.
"This is the biggest rip-off of the people imaginable. These banks would never behave like this in their own countries!" said Elizabeth Browne, 37, a Buenos Aires secretary who is suing BankBoston for her elderly parents' $21,000 in savings. Browne had drawn on those funds to pay for critical health care and nursing services for her parents, and she now fears for their future.
With deposits continuing to flow out and confidence at a low point, analysts say it could take months or even years for banks to begin major new lending. That delay could seriously extend a credit crunch here and hamper economic recovery.
For Argentina, it marks a stunning reversal of fortune. During the 1990s, when Argentina opened its economy and became a model of Washington's vision of a new, capitalist Latin America, foreign banks invested billions of dollars here and were rewarded with big profits. In return, the influx of foreign capital enabled a sounder banking system to offer unprecedented corporate lending and give many Argentines access to financial services such as home mortgages and long-term business loans for the first time.
Now, all of that is on hold.
"The huge confidence problem with banks is worsening the crisis." said Carina Espino, an analyst with Standard & Poor's in Buenos Aires. "Money is merely being withdrawn, not deposited. So the question is, with no new deposits, where will new lending come from?"
"We may be shifting back to the kind of banking system Argentina had in the 1980s -- a system for simple bank transactions but with very little lending," she continued. "Clearly, that is not the best formula to emerge from a crisis, or for future growth."
Both domestically owned and foreign banks declined to comment publicly. But privately, bankers complain of being unfairly blamed. Banks here have indeed taken sharp losses, with total charges estimated to be as much as $15 billion, primarily from having to redenominate dollar loans into pesos at the pre-devaluation rate of 1 to 1. That's a loss of more than 50 percent at the current market rate of about 2.10 pesos to the dollar.
For depositors, however, that is little consolation. Popular rage is running so high that depositors last week hurled excrement at bank windows. Many banks have installed steel shutters and extra security at branches after a rash of window smashing and looting -- some by common thugs but many by hordes of fuming customers.
Tens of thousands of Argentines have staged more peaceful protests by banging pots and pans in front of banks. In Buenos Aires, the capital, bank robberies average about one per day. More than 60,000 lawsuits have been filed against banks in the past month. Spurred by angry banking clients, a federal judge last month banned 20 top bank executives from leaving the country during an ongoing probe into alleged irregularities.
"We are being made a national scapegoat," said a top executive of a foreign bank here. "These people talk about responsibility. But I would like to ask each one of those middle-class depositors banging their pots and pans, 'How many of you paid your taxes last year?' This is not about responsibility; it's about people being upset because their wallets were touched. I understand that. But when you try to explain that the alternative for banks is calling in loans and forcing thousands of their countrymen into bankruptcy, they don't seem to care. It's about me, myself and I."
But depositors are equally critical of banks, arguing that the bank headquarters in New York and Madrid could recapitalize their local subsidiaries and gradually repay deposits in dollars. Bankers insist, however, that the cost of such a course would be "prohibitive."
And, they add, many Argentines did not have "real dollars" in their accounts. Rather, many customers deposited pesos and then made electronic transfers from peso accounts into dollar accounts before the January devaluation, when the two currencies were still interchangeable at a 1-to-1 rate.
Bankers concede that restoring faith will be hard but insist it will happen. Key, they say, will be the ability of the Argentine government to strike a new agreement with the International Monetary Fund to bolster confidence in the country, its currency and its banks.
But that could take a while.
"Damn banks," muttered Alonso, the retired waitress, as she walked away from her bank. "They should just burn them all down."
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