What's next for Argentina? Stars and Stripes for the national flag?

Louis Proyect lnp3 at panix.com
Mon Dec 3 08:16:16 MST 2001

NY Times, December 3, 2001

Argentina Limits Withdrawals as Banks Near Collapse


BUENOS AIRES, Dec. 2 — The government has limited cash withdrawals from
banks and taken a step toward adopting the dollar as Argentina's currency,
as part of a desperate effort to avert a run on banks and a chaotic

The measures, announced late Saturday, were another sign that Argentina is
on the brink of a default on its $132 billion in public sector debt. It has
already cut the interest payments it makes on $45 billion in bonds in
recent days.

Economists said the government was scrambling to save a banking system that
was once a free market model for Latin America. On Friday, depositors made
frantic bank withdrawals.

A collapse of the Argentine economy, South America's second largest, could
send shock waves through neighboring economies, particularly Brazil's,
which, like Argentina, is burdened by a huge foreign debt.

President Fernando de la Rúa ordered that bank account withdrawals could
not exceed $250 a week for the next 90 days. For needs beyond that,
payments can be made by check or credit card.

He also limited transfers abroad in a decree he signed without consulting

"Argentina has been subjected to speculative attacks by people who seek to
benefit from a devaluation of our currency," said Economy Minister Domingo
Cavallo. "These measures will serve to preserve the savings of Argentines."

Argentines responded in a panic, rushing to cash machines before the
machines ran out of money. Opposition politicians attacked the moves as an
authoritarian act by a tottering government that may be planning to
confiscate accounts to pay its bills.

Mr. De la Rúa's decree stopped short of ordering the conversion of peso
accounts into dollars, reversing earlier statements by senior officials.
Mr. De la Rúa said depositors could freely convert their peso accounts to
dollar accounts, and mandated that high interest rates awarded to those who
save in pesos be reduced to the lower levels paid to people who save in

Senior officials said the measures were intended to save a decade-old
policy of pegging the value of the peso to the dollar and to avert a
devaluation. But economists noted that depositors now have every reason to
trade their peso savings into dollars, in what is most likely the first
step toward dropping the peso as the currency altogether in favor of the

Panama and Ecuador already use the dollar as their currencies, and El
Salvador and Guatemala make it easy for people to spend dollars sent by
relatives living in the United States. 

But the adoption of the dollar by Argentina, with its 36 million people and
sizable economy, would have widespread implications, perhaps even presaging
the eventual acceptance of the dollar by the entire region as a common
currency in the decades to come, much as Europe has accepted the euro. 

The government was forced to act when rumors spiraled late last week that
the government was about to freeze bank accounts and devalue the peso. Some
lending rates among banks soared to as high as 900 percent on Friday.

The rumors were incited by what appeared to be the disappointing results of
a visit by an International Monetary Fund team considering whether
Argentina deserves a $1.3 billion payment this month, after the government
failed to rein in its deficit to the fund's targeted level.

As it appeared increasingly likely that the fund would withhold the money
for at least a month, economists worried that the government would not be
able to meet its foreign debt obligations.

Full: http://www.nytimes.com/2001/12/03/international/americas/03ARGE.html

Louis Proyect
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