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Monday, 4 February, 2002, 20:39 GMT
Argentina blocks lawsuits over cash limits
Street protest in Argentina
Relaxing banking curbs may soothe popular anger
The Argentine Government has issued a decree suspending for six months all lawsuits against the unpopular restrictions on cash withdrawals from bank accounts.

The move followed a ruling by the Supreme Court on Friday, which condemned the 1,500-peso limit on withdrawals as unconstitutional.

Argentine protester
The banking restrictions angered many people
More than 1,000 people in Argentina are believed to have filed lawsuits against the cash restrictions - introduced two months ago to avoid a run on the banks.

The government decree also bans lawsuits against the latest economic rescue measures, and makes it illegal for banks to sell dollars.

Bank deposits in dollars are to be converted into pesos, and the national currency is to be allowed to float on currency markets.

Banks are to remain closed on Monday and Tuesday, when the Argentine government is expected to announce a new budget.

The Supreme Court ruling in favour of an account holder who had contested the limit on withdrawals put it at odds with the government.

President Eduardo Duhalde - Argentina's fifth leader since the country hit crisis point in December - attacked the decision as tantamount to blackmail. Economy Minister Renes Lenicov dubbed it "irresponsible".

Run on banks

Jorge Remes Lenicov
Mr Remes Lenicov warned of 'no magic formulas'
It is feared that account holders may now flock to banks to withdraw their deposits.

Some people had been unable to withdraw enough cash to buy food and other basic provisions.

"The real test for this policy will be on Wednesday when the Bank Holiday ends," said Omar J Borla, a senior economist with Santander Investment in New York.

New measures

The decree also bans lawsuits against the latest economic rescue measures, which include floating the Argentine peso on currency markets and converting dollar bank deposits into pesos.

"Argentina is broke," the country's new economy minister, Jorge Remes Lenicov said in a nationwide address when he announced the new measures.

New measures
Peso to become fully convertible
Some bank restrictions lifted
Dollar loans switched to pesos at 1:1
Dollar borrowings switched to pesos as 1:1.4
Budget deficit three times less than the previous year
Argentina's mainly foreign-owned banks have most to lose from the reforms, as loans taken out in dollars will now be converted into pesos at a rate of one to one.

Bank deposits in dollars, however, will be converted into pesos at the rate of 1.4 pesos to the dollar.

This means Argentine borrowers will gain from the overhaul, but savers with deposits in dollars will lose money.

The 1.4 exchange rate replaced a 10-year-old one-to-one peg between the two currencies.

That system was criticised by the International Monetary Fund (IMF) and highlighted as a barrier to the resumption of economic assistance.

The government hopes the latest measures will help it win up to $20bn (14bn) in additional support from the IMF.

The move follows last month's partial float of the currency, when the first step away from the peg to the dollar was made.

Budget due

As part of the crisis package, Mr Lenicov said this year's budget would be presented to Congress on Tuesday.

The blueprint forecasts a dramatic reduction in its deficit to $1.5bn, almost three times lower than in 2001.

"We will be governed by the rules of severe austerity," he said.

See also:

04 Feb 02 | Business
Argentina unveils crisis package
02 Feb 02 | Americas
Argentina 'on brink of anarchy'
30 Jan 02 | Business
IMF tells Argentina to cut spending
02 Feb 02 | Media reports
Press attacks supreme court decision
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