Argentina Declares a 2-Day Bank Holiday

The Argentine government, bedeviled by resurgent inflation and crushing foreign debt, unexpectedly declared a two-day bank holiday Tuesday night as a preface to a new economic program.

The action on the eve of critical talks with U.S. banks immediately triggered late night speculation that Argentina would follow neighboring Brazil in declaring a moratorium on repayment of its $53-billion debt to foreign banks.

The central bank’s decree of a nationwide holiday for banks and exchange markets today and Thursday came as U.S. Ambassador Theodore Gildred had an unscheduled meeting with Economy Minister Juan Sourrouille at the minister’s downtown office. Gildred later left to fly to the United States, where Argentinian representatives are scheduled to meet today with a steering committee of creditor banks to seek fresh funds and easier interest terms.

A government spokesman said earlier Tuesday that Argentine President Raul Alfonsin had called Brazilian President Jose Sarney to express Argentina’s “solidarity” with Brazil’s decision last week to suspend interest payments to foreign commercial banks on its debt of $108 billion.

Alfonsin also spoke repeatedly with Brazilian Finance Minister Dilson Funaro, the spokesman said, and sent Treasury Secretary Mario Brodersohn to confer with Funaro in Brasilia on Tuesday.

A joint communique issued in the Brazilian capital late Tuesday said without specifics that the two ministers had analyzed “the problem of the foreign debt” as well as mechanisms for economic integration. In Washington, meanwhile, U.S. Treasury Secretary James A. Baker III told a Senate Appropriations subcommittee he is confident that Brazil will solve its economic problems. He urged U.S. financial markets not to panic over the country’s suspension of payments on foreign commercial debt. Bank stocks, which came under heavy selling pressure on the New York Stock Exchange on Monday, were mixed in Tuesday’s trading.

Federal Reserve Board Chairman Paul A. Volcker also expressed confidence in Brazil, saying that it has the potential to grow out of its debt problems but would need sizable financing and a new internal economic program.

Volcker also told reporters that the U.S. government is ready to work with Brasilia in seeking a solution to international finance problems.

Alfonsin and Sarney, who are promoting unprecedented economic integration of Argentina and Brazil, both insist that sustained economic growth is the only long-term solution to the debt crisis.

Brodersohn left Argentina describing such continued growth as “non-negotiable” and warning that Argentina might follow the Brazilian example if creditor banks were not forthcoming with new funds. He met extensively with Alfonsin in preparation for the sessions with the steering committee of bankers that opens today in New York.

Argentina, whose economy expanded a healthy 5.5% in 1986, says it needs $2.15 billion in new money from the banks to promote growth while continuing to meet interest payments on its $53-billion foreign debt. Reports from New York have described the banks as leery of a new commitment that large and resistant as well to Brodersohn’s call for a 10% reduction in interest repayments.

The bank holiday declared Tuesday night was intended to cool banks, markets and exchange speculation in advance of Sourrouille’s presentation of the new economic measures in a nationwide address tonight.

Financial sources said Alfonsin had agreed to new measures that would include wage adjustments to offset inflation of 7.6% in January, the immediate restoration of stiff price controls and a pledge not to allow debt obligations to undermine economic growth.

Controls, which have now eroded, were a key element in Alfonsin’s so-called Austral Plan that reduced inflation to 80% last year from almost 1,000% in 1985.

Amid tension in financial markets Tuesday and a steady rise in the free-market dollar, some observers also anticipated either that the new measures would include a sharp devaluation of the austral, the Argentine currency, or an accelerated series of mini-devaluations.

Following a 1.99% devaluation of the austral Tuesday, one of a series of devaluations that the government announces periodically, the currency was quoted officially at 1.43 to $1. But the unofficial rate was 1.84, a discomfiting spread of 30%.

Argentina needs a new agreement with its creditor banks in order to get a $1.35-billion standby agreement from the International Monetary Fund, as well as an additional $480 million to compensate for falling international prices for Argentine exports, principally grains.

In negotiations with the IMF to win the standby agreement, the Alfonsin government promised to hold inflation to 42% this year.

The 7.6% inflation rate in January, however, is expected to be followed by a 6.4% figure for February. Projections for March, traditionally a month of high inflation after the end of summer holidays in the Southern Hemisphere, are for an 8%-9% rate.

Foreign bankers say that without new countermeasures, inflation will exceed 100% this year.