Argentina limits cash bank withdrawals, trying to stem nationwide run on banks
Monday, December 3rd 2001, 12:00 am
By: News On 6
BUENOS AIRES, Argentina (AP) _ Argentina's government began Monday to bar people from withdrawing more than dlrs 250 in cash per week from their bank accounts, trying to stem a nationwide run on banks and prevent an economic collapse.
Long lines formed all weekend at cash machines as Argentines tried to get out their money before the restrictions went into effect. More than dlrs 700 million was yanked out of accounts on Friday alone amid growing fears about the economy's future.
Economy Minister Domingo Cavallo said the restrictions were needed to help stave off speculative attacks from investors he said were trying to force a devaluation of the nation's currency, the peso, and push Argentina into defaulting on its dlrs 132 billion debt.
The plan also restricts transfers abroad to dlrs 1,000 a month. Argentines can continue to use bank debit cards, credit cards or checks to pay for goods.
Cavallo slammed the speculators as ``vultures,'' saying they would not push Argentina into a financial crisis as they did Russia and Ecuador.
``All year long they have wanted to destroy Argentina,'' Cavallo charged in a television address Sunday. ``This time they are not going to walk away with our money. They are not going to defeat us.''
The Argentine peso has been pegged one-to-one with the dollar since 1991, but the system is based on having the same number of pesos in circulation as dollars in reserve. Heavy withdrawals of dollars throw the currency peg off balance and threaten the value of the peso.
In a separate televised address Sunday, President Fernando De la Rua promised that Argentina would not pushed into relinquishing the peso's one-to-one connection with the dollar.
``There will be no devaluation, we are maintaining convertibility,'' De la Rua said, adding the measures were taking to protect the savings of all Argentines.
Seeking to dampen fears among Argentina's 36 million population, the government said the banking restrictions would remain in place for just 90 days as it tries to complete a debt swap with foreign creditors.
Cavallo on Friday concluded a swap of more than dlrs 50 billion in bonds, more than a third of the staggering debt burden that is dragging South America's second-largest economy close to the brink of default. He said the first phase of the swap, done with local lenders, was a success and the 90-day restrictions would allow time to complete the debt swap with foreign lenders.
The government is asking creditors to turn in high-interest bonds for new ones bearing no more than 7 percent interest. The swap is expected to save Argentine dlrs 5 billion a year in debt servicing costs.
The 3-year economic crisis has fueled 16 percent unemployment and set off frequent social protests over cost-cutting measures including pension reductions and cutbacks in state worker salaries.
In recent weeks, the downturn has grown even worse. This past week the stock market fell to a 10-year low.
Friday's withdrawals continued what has been a months long slide in bank deposits. Banks in Argentina have lost dlrs 14.5 billion, or 17 percent of their deposits, since January, causing a sharp decline in central bank reserves.
With the government also issuing more than dlrs 2 billion in negotiable scrip _ special government bonds _ to pay thousands of state workers, the pressure on the peso has been building.
Separately, Argentina's powerful unions lashed out at the severe measures and called an emergency meeting of labor leaders for late Monday to discuss steps to take. The influential labor unions have staged several national strikes in the past two years but did not immediately if they would organize new protests.