A few months ago, Luis Gonzales was laid off from his job as produce manager at a suburban grocery store here. Like countless other Argentines who have recently joined the ranks of the unemployed, he took his severance pay--about $20,000--and put it in a savings account.
On Thursday, Gonzales awoke to find that the government was holding his money hostage. Under extraordinary new banking restrictions, he won’t be allowed to make any withdrawals until June 2003.
“I thought it would be safer to put my money in the bank,” said Gonzales, who now makes ends meet as a chauffeur. “But now I know I should have put it under my mattress instead.”
Millions of Argentines found themselves in a similar situation Thursday, victims of a government plan to prevent a catastrophic run on banks. Under the emergency measures, all deposits that were made in dollars will be frozen until sometime between January and September of next year, depending on the size of the account. Two-thirds of all bank deposits here are in dollars.
By freezing the savings of so many people and businesses for so long, the measures will bring a sizable chunk of this nation’s economy to a standstill. Even some accounts in Argentine pesos will be frozen until between March and December of this year.
The measures struck a sharp blow at confidence in the nation’s banking system, seen by many as a pillar of strength and confidence just a year ago.
The restrictions are an especially bitter blow to a populace already exhausted by recession, social upheaval and political instability that has seen five men serve as president in less than a month.
“If this keeps on going like this, they’re going to start a civil war,” said Analia Vazquez, whose pharmaceutical supply company suddenly lost the ability to spend $300,000 in desperately needed cash. “What they’ve done is install a financial dictatorship.”
Thursday night, thousands of angry people, banging pots and chanting insults, cut off traffic on half a dozen major streets in the capital. Because violence has occurred in some previous protests, security was increased around government buildings.
News of the account freeze hit hard at all levels of society.
“What will happen to someone who has $70,000 saved and needs to take out 2,000 pesos a month to pay for things like food, medicine and rent?” asked the daily newspaper La Nacion.
Government officials said they had little choice but to implement the measures, given the precarious state of the banking system. In the last nine months, nervous customers have withdrawn $15 billion, about 20% of all deposits.
“This government is trying to build a new house out of the ashes,” said Martin Redrado, a Foreign Ministry economist. “In any system, if you have all depositors rushing into the bank to get [their money], it would make the system crumble.”
Such statements come as little consolation to people like Gabriela Hernandez, 26, who fears she and her husband may have lost most of their $15,000 in savings for good.
“What we’re most afraid of is that the government will end up just keeping all of the money,” said Hernandez, an English teacher who recently saw a 30% wage cut.
In past economic crises in Latin America, governments have confiscated dollar deposits and converted them into local currencies at a devalued exchange rate, wiping out the savings of depositors. The Argentine government has promised it will not take such measures.
But many economists fear that the situation here could become much worse before it gets better. Despite the government’s attempts to put barriers on the flight of capital, the very depth of the crisis and the draconian nature of the banking freeze may drive even more money out of Argentina.
“That could serve to destabilize an already tenuous and fragile environment,” said Lawrence Goodman of Globalecon, a New York consulting firm.
Most economists see several threats on the horizon as Argentina moves to devalue its currency. Exchange houses are scheduled to reopen today, after a three-week government-ordered shutdown.
“The most sobering scenario is that of hyperinflation,” said William R. Cline, chief economist at the Institute of International Finance, a Washington research firm. Just a decade ago, Argentina witnessed annual inflation rates as high as 4,500%.
The freeze on bank withdrawals also could sharpen Argentina’s nearly 4-year-old recession. If that happens, it will only make the government’s budget deficit larger.
The government of recently installed President Eduardo Duhalde finds itself in a bind with no clear avenue of escape. The widely unpopular banking freeze may provoke the middle-class protests that helped drive former President Fernando de la Rua from office last month, bringing on a wave of successors. On the other hand, the nation’s banks might not survive without the strict controls.
“I don’t think there’s an option,” said Fernando Losada, an economist with ABN Amro in New York. “Anxiety is still there. They lift the controls and the money is gone.”