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Monday, 3 December, 2001, 23:23 GMT
Argentina curbs cash withdrawals
Fears of a run on domestic banks after the introduction of tough new restrictions designed to stem capital flight from the country and avert economic collapse have largely gone unfulfilled.
Banks around the capital, Buenos Aires, seemed to be trading as normal, unlike the huge and angry queues which sprung up at the end of last week.
Along with cash withdrawals, transfers of funds abroad are also being limited to $1000 per month, with a few exceptions.
The emergency measures were announced after many savers, concerned their funds could be frozen as the government tries to avoid defaulting on its multi-billion dollar debt, dried up cash machines of both pesos and dollars on Friday.
On 28 and 29 November alone, foreign currency reserves fell 1.12% to $20.092bn, the Central Bank warned.
Evading the tax evaders
Credit and debit cards and cheques can still be used, however, not least because such transactions are easier for the authorities to trace for tax purposes.
The point was underlined by figures showing that tax collection in November dropped 11.6% from the same month last year, to $3.467bn. In October, it had dropped 11.3% from the year before.
Bitter memories remain of how deposits were frozen in the late 1980s and turned into bonds overnight to stop a bank run.
This time, though, the BBC's Tom Gibb in downtown Buenos Aires says that citizens seem on the whole to be accepting of the new measures.
Many earn less than $250 per week, while those on larger incomes say that while the measures are inconvenient, they are much more concerned about a capital flight and a subsequent devaluation of the currency.
But in the financial markets the effects were severe. Overnight lending between banks dried up in both dollars and pesos as traders struggled to digest the implications of the curbs.
The Argentine Government is struggling to find cash to service debt of $132bn and is pinning its hopes on completing a debt swap scheme and bringing forward an IMF loan.
Argentina's peso currently has one-to-one parity with the dollar and a run on savings now could result in the biggest default in the country's history.
Economy Minister Domingo Cavallo also said the restrictions were needed to help stave off "speculative attacks" from investors he said were trying to force a devaluation of the nation's currency.
"All year long they have wanted to destroy Argentina," he said.
"This time they are not going to walk away with our money. They are not going to defeat us."
While earlier reports said peso deposits would be converted into dollars, a government decree specified that the deposits "could be" converted into dollars on a voluntary basis.
But as the interest paid on the peso deposits can now no longer be higher than that paid on dollar deposits, there is little incentive to keep savings in pesos.
"These measures I think in the short run are likely to have a bad effect on confidence," David Lubin, emerging market economist at HSBC told the BBC's World Business Report.
He said that the effectiveness of the measures would "depend a lot on how credibly the Argentine Government can present itself to its international creditors when it presents a proposal for the restructuring of Argentina's external debt in the next few weeks."
Swap scheme success
A Central Bank official said that the limit on withdrawals would stay in place until the end of a massive debt swap the government is carrying out to cut the huge amount of interest it currently pays on its debt.
Mr Cavallo has announced that more than $50bn of the debt has already been swapped for bonds paying lower interest, by banks and pension funds, over the past fortnight.
He called the first stage of the scheme a "resounding success" but terms for the next stage in the scheme, which affects international investors, have yet to be set, amid grumbling by investors that the scheme amounts to a default.
An IMF delegation has been in the Argentine capital for the past week and the government is pushing for it to speed up delivery of $1.3bn, currently due at the end of December.
The government, which is still overspending, is under pressure to balance its books in the budget for the coming year.
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