Economic Rut in Argentina Grows Deeper

The president threatened to resign, but his aides said later that he wasn’t serious. The economy minister, however, did resign, not long after a group of angry bank depositors shut down Congress and torpedoed his plan to rescue Argentina’s ailing economy.

Exhausted and out of cash because of a five-day banking freeze, Argentines on Friday reached the end of what was perhaps the worst week in this nation’s economic and political crisis since days of rioting and looting drove President Fernando de la Rua from power in December.

Now it is new President Eduardo Duhalde who is teetering on the brink after being forced to backtrack on key elements of his economic plan.

To prevent the collapse of the nation’s banking system and to secure bailout funding from the International Monetary Fund, Duhalde had pressured Congress to pass legislation that would have taken millions of dollars in Argentines’ deposits and converted them into 10-year government bonds.

“If Congress doesn’t approve these measures, then they will have to appoint another president,” Duhalde said Monday. Congress elected Duhalde president in January, the fourth successor to De la Rua.

Congress rejected Duhalde’s plan Tuesday--but he remains president. Now the former governor of Buenos Aires province is facing increasing questions about his ability to govern and keep the banking system solvent.

“We have a president who has a presidential sash, we have governors and legislators, but there is no more political power in this country,” said Cristina Kichner, a senator from Santa Cruz province. “Our society is no longer willing to accept what their leaders order.”

Since taking power, Duhalde has faced a series of challenges as he tries to lead Argentina out of a four-year recession. First, he has wrestled with provincial governors and Congress to implement the economic and legal reforms demanded by the IMF as a condition for further loans--including sharp reductions in provincial budgets.

Second, he has struggled to keep the nation’s banking system alive as untold numbers of Argentines withdraw their savings and use them to buy dollars, which they keep in their homes, or spirit away to foreign bank accounts. And he has labored in vain to protect the Argentine peso, which is now worth about a third of its December value.

Duhalde had kept in place banking restrictions first implemented by De la Rua last year that froze most savings accounts. But the Supreme Court overturned those restrictions this year, allowing depositors to file suit in local courts to free up their savings. Millions of pesos began to leak out of the banking system every day.

In an emergency decree April 19, the government announced that it would shut down banks and foreign exchange houses this week. Argentines’ only access to their bank accounts was via ATMs, but most of those had run out of cash by the weekend.

Fernando Sanchez, a 28-year-old gas station employee, found himself in a predicament shared by many here: down to his last 20 pesos (about $7) and unable to get his money out of the bank.

“They say they refilled the automated tellers, but it isn’t true,” he said. “I eat what I can get here [at the station] because there’s nothing left in my refrigerator.”

Silvana Oliver, a 56-year-old businesswoman, spent Monday and Tuesday in the banking district, wandering from branch to branch in search of cash for her business. All she found was bankers who gave her dirty looks.

“I can’t deposit money, I can’t transfer money, I can’t pay salaries, but I can’t fire anyone either,” Oliver said. “People only believe in the dollar. Everything else is painted paper.”

By the end of the week, the Buenos Aires daily Pagina 12 summed up the impact of the banking freeze on the city’s economy: “empty businesses, movie theaters without audiences, bars that wait in vain for the regulars to arrive . . . taxis without passengers and traffic in downtown Buenos Aires as light as during the summer holidays.”

Congress, meanwhile, debated a measure that would allow the banks to reopen--the legislation that would convert most savings into government bonds.

On Monday night, as debate on the proposed bill was scheduled, about 2,000 protesters surrounded Congress to prevent the legislators from entering the building. The legislators quickly got the message: Once they managed to get inside Congress on Tuesday afternoon, the bonds-for-deposits plan was dead.

The defeat led Economy Minister Jorge Remes Lenicov to resign--he had spent months traveling between Washington and Buenos Aires to work out the details of the plan.

According to published reports here, the president then briefly considered a “Plan B” backed by hard-liners in his Peronist party--breaking with the IMF, defaulting on the rest of Argentina’s foreign debt and battening down the hatches against the wave of social disorder that would surely follow the collapse of the nation’s banking system.

“This isn’t a game for cowards,” one of Duhalde’s advisors told the daily La Nacion.

But by Wednesday, Duhalde had once again promised that Argentina would fulfill its “international obligations,” including payment on its massive foreign debt. On Thursday, Congress passed a measure that would allow people to withdraw their savings--but only if an appeals court ruled in the depositors’ favor. That move was expected to slow down the flight of money from the banking system, if only temporarily.

And on Friday, after much hesitation, the government announced that Roberto Lavagna--Argentina’s ambassador to the European Union--was to become the nation’s new economy minister.

Lavagna’s first mission: to find a way to please the IMF, and a restless populace worn down and demoralized by an economic crisis that shows no signs of abating.

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Vanessa Petit of The Times’ Buenos Aires Bureau contributed to this report.