Argentine Government Buys Time, Banks Shut Monday

By: Reuters
The New York Times, February 04, 2002


Buenos Aires, Argentina - Argentine banks and the foreign exchange market will be closed Monday as the government buys time to clear up confusion over a court ruling that overturns a freeze on savings and to implement its new strategy for tackling the economic crisis.

Economy Minister Jorge Remes Lenicov unveiled the plan late Sunday, saying Argentina would ditch the dollar, fully float the devalued peso and partially lift a savings freeze that sparked public outrage and bloody riots.

The government intends to make the economy run just on pesos, turn all dollar bank loans into pesos at the pre-devaluation one-to-one rate and give people full access to wages paid into the bank.

But the impact of the Supreme Court's surprise Friday ruling against curbs on cash was still unclear. Some experts say the ruling overturning the savings freeze has left banks and the currency facing possible collapse.

There was little chance of an immediate bank run but there could be an avalanche of lawsuits by savers seeking their cash, encouraged by a court ruling Remes Lenicov slammed as ''irresponsible.''

The banking and foreign exchange market holiday is due to run through Tuesday.

But the new banking holidays could well outrage Argentines who have already staged violent protests against the restrictions and lined up for hours to try to retrieve savings halved in dollar terms after last month's painful peso devaluation.

``The real test for this policy will be Wednesday when the bank holiday ends,'' said Omar J. Borla, a senior economist with Santander Investment in New York. ``The government is trying force the population to accept the peso when it is obvious that the population prefers dollars. So we can expect strong pressure on the peso.''

Remes Lenciov did not say when the peso -- which has already been partially floated on the foreign exchange market, where it has fallen to around two to the dollar since devaluation -- would be fully floated.



``We are going to need international help, because it will help us speed up our exit from this crisis,'' Remes Lenicov told a news conference Sunday evening, adding he planned to send an ''austere'' 2002 budget to Congress Tuesday.

``The complexity of the situation requires us to call a banking and foreign exchange holiday for...(Monday) and Tuesday,'' he added.

The court ruling plunged the economy into fresh uncertainty just as Argentina's crisis appeared to be bottoming out, and hopes of fresh international aid raised.

President Eduardo Duhalde, Argentina's fifth leader since December after bloody riots against the curbs toppled the elected government, has described it as tantamount to ''blackmail'' by judges who have faced mounting pressure to quit amid allegations of corruption and cronyism.

Economists said the decision could send Argentines rushing to withdraw their deposits, which were blocked above a 1,500 pesos a month limit since December to avoid a run on the banks, which already lost a record 20-25 percent of deposits last year.

Completely lifting the freeze could destroy many banks, already on their knees after a debt default and peso devaluation, and possibly spark another massive depreciation of the peso.

With the government plan and Supreme Court ruling at odds, the confusion appeared to feed through to the public.

There was no sign Sunday night of the kind of street protests of recent weeks in which angry Argentines banged saucepans in protest at the curbs and demanding access to their savings. The freeze has choked consumer spending and left many retailers facing bankruptcy.

Remes Lenicov said he hoped to start aid negotiations with the International Monetary Fund this week and hoped in March to start talks with foreign debt holders hit by the nation's default on part of its $141 billion sovereign debt pile.

International lenders like the IMF are demanding deep spending cuts as conditions for financial aid the bankrupt economy badly needs to help it clamber from a recession in its fourth year.

The government admits the plan will not be enough to create growth this year -- it expects the economy to contract around 5.0 percent in 2002 -- but says it will help slow the slide.

Some, however, were upbeat about the strategy.

``This gives everyone something to work with,'' said David Roberts, senior international economist at Banc of America Securities. ``It sounds like an economic plan rather than a set of almost unconnected announcements, which is what they've had up until now.''

Argentines with dollar bank loans come off best, with the loans turned into pesos at parity to the dollar. But savers stand to lose out, with dollar savings forcibly turned into pesos at the government's official 1.40 to the dollar rate.

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