Argentines Questioning New Bank Restrictions

Banks worked Sunday to rejigger cash machines to limit cash withdrawals as Argentines expressed anger and confusion over sweeping new financial restrictions aimed at heading off a bank run that threatened to sink the fragile economy.

But some economists and bankers said the harsh measures and capital controls announced this weekend could bring stability to the financial system, combat endemic tax evasion and help lower interest rates in Latin America’s No.3 economy.

“This is being done to avoid a flight of deposits that could bring the financial system to the breaking point,” Carlos Heller, head of Banco Credicoop, told local radio.

A presidential decree on Saturday that cash withdrawals would be limited to $250 a week and a total of $1,000 a month for the next 90 days angered many Argentines who were unsure how easily and how soon they could adjust their daily lives to the rules.

Any transactions over the new limit must be carried out with credit or debit cards or checks.

The move comes as little surprise to investors, however, since Argentina has been struggling for months to avoid the messiest default in history on its $132-billion public debt, analysts said.

Domestic workers, taxi drivers, newsstand operators and other small-business people who operate on a cash basis, though, were expected to suffer as a confused public hesitates to part with its money. This could worsen an economy already in its fourth year of recession.

“It’s crazy what the government is doing. Now people are going to hold on to their money even more, they aren’t going to spend it,” a shoe seller told local television. Many Argentines are haunted by their experience in the late 1980s when then-President Carlos Menem froze deposits and turned them into bonds to stop a bank run. Some said the move did not respect their property rights.

“These measures constitute an inadmissible infringement of property rights, they don’t honor the promises that people’s deposits are untouchable and they bring us one step closer to a ‘hyper-recession’,” the Argentine business group CAME said in a statement.

Economy Minister Domingo Cavallo was expected to speak on national television Sunday night, according to a spokesman.

The restrictions came after nervous Argentines sucked cash machines in downtown Buenos Aires dry of pesos and dollars Friday. The government is trying to stabilize a banking system that has seen deposits drop about 18% this year. The new rules include a limit on transfers of funds abroad and a prohibition of peso bank deposit loan transactions. The limits are due to stay in place for three months--during which time the government expects to complete a massive debt restructuring.

The measures come as a visiting International Monetary Fund mission evaluates whether to pay $1.3 billion in promised aid, a decision that probably will hinge on signs the government will balance its budget in 2002 after overshooting an agreed deficit target for 2001.