BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific Arabic Spanish Russian Chinese Welsh

 You are in:  Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Commonwealth Games 2002

BBC Sport

BBC Weather

Monday, 22 April, 2002, 06:15 GMT 07:15 UK
Argentina 'risks financial collapse'
Customers at Buenos Aires bank on Friday
The government wants to stop the withdrawal rush
Argentina's entire financial system could collapse if the run on its banks continues, President Eduardo Duhalde has warned.

People have to be prepared to overcome the crisis that is affecting the whole country

President Duhalde
His comments come a day after all foreign exchange and banking transactions in Argentina were halted indefinitely.

Banks have come under renewed pressure because of increasing cash withdrawals after courts overturned restrictions on access to savings.

The government now hopes to convert all bank savings into bonds - effectively forcing savers to give loans to their government.

Limits on bank withdrawals were first imposed last year as Argentina sought to tackle an economic crisis which began in earnest after it defaulted on part of its massive foreign debt.

Demonstrators outside a bank in Buenos Aires seeking their money
A plan to turn all deposits into government bonds is proving unpopular.

Serious concern about the situation has been expressed by leading industrialised nations meeting in Washington.

But no new agreement was reached in talks between the IMF and Argentina's finance minister, Jorge Remes Lenicov, although the IMF is sending out a new mission to negotiate the terms of financial aid.

Spiral of withdrawals

In his weekly national radio address on Saturday, Mr Duhalde said a solution to the problem of capital outflows was urgently needed and that his advisers were working on alternatives.

"We run the risk that the system will explode if the judges continue to authorise people to withdraw their money," he said.

On Friday alone, account holders withdrew $200m dollars from banks in Argentina, one newspaper estimated.

Argentine Finance Minister Jorge Remes Lenicov, left, greeted by US Treasury Secretary Paul O'Neill
No deals in Washington for Finance Minister Remes Lenicov, left

Huge crowds gathered outside banks as people tried to cash their salary cheques and get money from automated teller machines.

The Argentine authorities had limited withdrawals to $500 a month in December, but individual account holders gained access to their savings after mounting legal challenges.

The government has estimated that about $70m was withdrawn by individual savers armed with court orders in the first 10 days of April.

The government is hoping to pass a bill that would convert most depositors' savings into 10-year bonds, making it harder to legally overturn limits on withdrawals.

Key reforms

In Washington, IMF chief Horst Koehler said on Saturday he expected a team to go to Buenos Aires "as soon as possible, the middle of May".

But he maintained that the Argentine government still needed to adopt key reforms to qualify for a resumption of aid .

BBC economic correspondent Andrew Walker says there are still differences between the two sides over how much Argentina should reduce the deficit in the government finances, and that Mr Koehler sought credible reassurances about the control of spending by provincial governments.

The BBC's Andrew Walker
"After a debt default and a currency devaluation Argentina is now trying to save its banking system"
See also:

20 Apr 02 | Business
Argentina closes all banks
18 Apr 02 | Business
Argentina pleads for financial aid
05 Apr 02 | Business
IMF 'to ignore' Argentina cash plea
28 Mar 02 | Business
Aid returns to Argentina
25 Mar 02 | Business
Argentina imposes new forex controls
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories