The Middle Class Struggles to Find Dollars

By: Jennifer L. Rich

The New York Times, February 6, 2002


Buenos Aires, Feb. 4 With banks and exchange houses closed today, the first day of a two-day emergency bank holiday declared this weekend, black market dollar- dealers known as arbolitos, or little trees, for all of their green are doing brisk business in the city center.

On Wednesday, when the government's partial relaxation of month-old restrictions on bank withdrawals takes effect, the early morning lines in front of downtown exchange houses, while normally large, are expected to wrap around the block.

As the bankrupt government does everything it can to stop Argentines from cashing out of the insolvent banking system, the desperate and mostly middle-class depositors have been scrambling to stay one step ahead of the restrictions, trying everything, from boat trips to Uruguay to buying shares on the Buenos Aires stock market, to protect their wealth.

"It's a shame, but Argentines tend to expend more energy trying to get around the system that is in place than coming up with new solutions to our problems," said Nicolas Ducote, executive director of the Center for the Implementation of Public Policy for Equity and Growth, a research group known here as Cippec.

After years of economic upheaval and hyperinflation, Argentines began depositing money in the banks in huge amounts by the mid-1990's, believing in the strength of the 1991 convertibility plan, which pegged the peso to the dollar. Deposits swelled from $41 billion in 1995 to $89 billion by the end of January 2001, according to Central Bank figures.

But the confidence was in the dollar, and that is where Argentines sought refuge when government finances started to weaken significantly last year as a result of a four-year recession. By the time the government clamped down on bank withdrawals and transfers in December, deposits had fallen to $69 billion. Around $2 billion more has left the banking system since then.

The capital flight has been so pronounced that prosecutors and government officials have opened a series of investigations here, saying that bankers may have illegally spirited hundreds of millions of dollars out of the country before or even after restrictions were imposed.

Last week, the Argentine judge running one of the investigations, Maria Servini de Cubria, said that a local bank, Banco General de Negocios, in which J. P. Morgan Chase, Credit Suisse First Boston and Dresdner Bank are minority shareholders, may have been the vehicle for an illegal transfer of $70 million or more out of the country after the withdrawal restrictions were put in place.

Part of that investigation was suspended after the supreme court ruled Friday that the banking freeze was unconstitutional, but the vice president of the bank, José Rohm, remains in custody. A J. P. Morgan spokeswoman in New York said the bank was cooperating with the investigation but declined to provide further details.

Unlike most of the country's wealthy, who private bankers say saw what was coming down the pike and sent their money abroad as much as a year ago, the middle class has had to find ways around the constantly changing restrictions or the reports, often unfounded, of more.

In the days immediately after the government's ban on money transfers abroad, hundreds of millions of dollars were deposited in banks in Uruguay, just a short boat ride across the Río de la Plata. Customs officials across Argentina are now on alert to stop people with bulging suitcases of cash. Last week, a woman was stopped at the Buenos Aires international airport trying to get on a flight to Brazil with $70,000 in her carry-on bags.

Partly as a result of rumors that the government would ask foreign banks to freeze Argentine assets held outside the country, many Argentines withdrew dollars from the bank and stuck them in safe deposit boxes. Then last week, a rumor that the government was going to confiscate the contents of safe deposit boxes sent Argentines scrambling to the bank to empty them out. Much of Argentina's wealth may now be locked up in home safes or mattresses.

Some people with money caught in the withdrawal freeze were able to transfer money into brokerage accounts and buy stock on the Buenos Aires exchange. Local shares could then be converted into dollar-denominated American depository receipts on the New York Stock Exchange. The Merval stock index has jumped around 130 percent since the middle of November, to levels not seen since last June.

Experts say that some business owners with access to the export market will return to a practice common in the 1980's of hoarding dollars abroad by undervaluing exports and overvaluing imports.

"Say my product is worth $10," Mr. Ducote of Cippec explains. "I send it abroad with a bill for $5, and the importer deposits the other $5 for me in a foreign bank account."

Many Argentines do not plan to stick around long enough to work around the system. Middle-class Argentines of Spanish, Italian or Polish descent have been lining up at embassies around town looking to claim dual citizenship and seek a better life abroad.

Most everyone agrees that the money is not going to be returning anytime soon. That is bad news for Eduardo Costantini, a local businessman who founded the Museum of Latin American Art in Buenos Aires last year and relies on donations to finance the rotating exhibits.

"Convertibility was supposed to be the solution for Argentina, but the public institutions were all mismanaged all of them: the court, the pension funds, everything," Mr. Costantini said. "Not only do families have much less than before, but they have suffered great psychological damage."

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