Argentina's dash for cash.

Argentina's dash for cash.

Argentina's dash for cash.

What the foreign papers are saying.
April 30 2002 11:49 AM

Cash but No Carry in Argentina

Argentina's banks reopened Monday after a nine-day emergency shutdown, though the restrictions on withdrawals enacted last December still severely limit account-holders' access to their savings. The dollar closed at 3.09 pesos Monday—a fall of nearly 70 percent since the 1:1 peg was removed in early February. Last week, banks were dispensing cash exclusively through ATMs, many of which were depleted. (A Buenos Aires-based blogger described his cash quest here.) The only other path to plata was via the courts; judges looked favorably on depositors who sued to free their funds, though according to Argentina's La Razon the courts favored the rich—almost 75 percent of the total number of permitted withdrawals were of sums greater than $100,000. The rash of court-sanctioned withdrawals led to the collapse of the Argentine branch of Canada's Scotiabank. This loophole was closed off when Congress barred depositors' access to funds until the banks' appeals have been decided.

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Last week, Economy Minister Jorge Remes Lenicov resigned after Congress rejected his "Plan Bonex," which was designed to prevent a run on the banks by converting savings into 10-year government bonds. His successor, Roberto Lavagna, is a veteran of international organizations—until last week he was Argentina's ambassador to the European Union—which may help persuade the International Monetary Fund to make new loans to Buenos Aires, without which the Argentine banking system threatens to collapse.

June Thomas June Thomas

June Thomas is managing producer of Slate podcasts.

Britain's Guardian said that as soon as President Eduardo Duhalde reaches a broad agreement on a rescue plan, the IMF should "step in and offer a loan to reverse the fall that is taking place in real incomes, employment and investment." The editorial also attacked financiers who extended too much credit to Argentina, knowing that "in the event of a bankruptcy, an IMF loan would mean that they would get their money back." To prevent such reckless lending, the IMF should "demand that private investors write off the debt owed to them from bankrupt countries. It is what happens with poor nations. It should be done for Argentina too." The Financial Times opposed fresh IMF loans, declaring: "The IMF is not an aid agency. It must ensure that any money lent is to support a coherent recovery programme with realistic fiscal, monetary and exchange rate policies." If the government fails to live within its means, "it deserves no support from the IMF. There is no point throwing yet more good money after bad."

The FT worried that the nation's 23 provincial governors currently wield too much power. Although the governors rallied around Duhalde last week—consenting to a 14-point plan, including the repeal of two laws the IMF considered unfair to the banks—they threatened to withdraw their support if the situation doesn't improve within 90 days. The public spending cuts the IMF deems necessary (as much as 60 percent in some provinces, according to La Nación of Argentina) could cost the jobs of thousands of provincial civil servants—a step politicians up for re-election are likely to avoid. Still, no one seems keen to face early elections. The Economist said that if Duhalde survives, "it will only be because there is little idea of how to replace him. … [T]here are few volunteers to manage the political mess and moribund economy while the voters choose a new president."

Toronto's Globe and Mail blamed Argentina's problems on the current government's lack of legitimacy: "With confidence, Argentina's citizens might leave their savings in banks, foreign investors might halt the selloff of pesos and government bonds, and the IMF might extend much-needed loans." The editorial also noted that Argentines have little faith in their politicians—in last October's midterm election, 40 percent of voters spoiled their ballots or left them blank. Canada's Financial Post reported that demonstrators are angry with the entire political class—the most common slogan at demonstrations is "They all must go." An editorial in Clarín of Buenos Aires noted:

We must remember that the distrust of Argentina by domestic and foreign investors, foreign governments, and international organizations isn't only rooted in macroeconomic variables, but also in the inability of the political leadership to postpone its power plays and concentrate on responsible administration of the state and of the crisis.

La Nación said Duhalde has just two weeks to solve the current crisis or Argentina could find itself isolated from the rest of the world:

In two weeks it will be known if the world is willing to accept Argentina again, and if the country is determined to rejoin the world. … The U.S. government and the IMF have recognized, hesitantly, that Argentina cannot continue on bread and water for much longer. There's a risk that [Argentina] could become a political satellite outside everyone's orbit.