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Thursday, 25 April, 2002, 16:22 GMT 17:22 UK
Argentina tightens banking freeze
Angry Argentines hammer the shutters at a bank
Angry Argentines hammer the shutters at a bank
Argentina's Congress has passed a law aimed at rescuing the country's banks by making it more difficult for savers to withdraw their cash.

Under the measure, savers who mount successful legal challenges against existing restrictions on withdrawals will be prevented from claiming their money until the government has had a chance to appeal.

The move gives the beleaguered Argentine government some breathing space as it battles to contain a run on the banks which could trigger a total financial meltdown.

The Argentine central bank closed all banks for an indefinite period late last week in an effort to halt a flood of panic withdrawals.

Under pressure

Banks were expected to reopen on Friday, but may now remain closed until next week, according to sources at the Argentine central bank.

After four years of recession, Argentina is burdened by a $141bn debt mountain, a banking and financial system in disarray, and a poverty-stricken people hit by soaring unemployment.

Argentine President Eduardo Duhalde
President Duhalde may alienate the IMF

The Argentine government is attempting to convince the International Monetary Fund to resume lending, cut off in December when the country defaulted on its debt repayments.

But the IMF has said it will only agree to further loans if the Argentine government pushes through an austerity package that is likely to prove highly unpopular with voters.

The country's most recent pleas last weekend were met with further demands from the international lender, exacerbating tensions between the two sides.

"The relationship with the IMF will see changes," Anibal Fernandez, chief of staff to Argentine President Eduardo Duhalde, said in a radio interview.

Partial success

Mr Duhalde's government has gone some way towards meeting IMF demands.

On Wednesday, he clinched a landmark agreement with the country's powerful provincial governors to undertake belt-tightening reforms demanded by the IMF.

The deal, which is expected to reduce public spending, won plaudits from US Treasury Secretary Paul O'Neill.

"This is a welcome expression of a spirit of national cooperation," Mr O'Neill said.

But a push to rescue the country's banking system by converting 60% of bank deposits into government bonds - in effect forcing savers to lend to the government - failed earlier this week, leading to the resignation of economy minister Jorge Remes Lenicov.

A successor to Mr Lemicov is expected to be appointed over the weekend.

Professor Steve Hanke, John Hopkins University
"The only thing they can do is get rid of the central bank completely and only use the US dollar"
See also:

25 Apr 02 | Business
Argentine stories: Patricia Otero
25 Apr 02 | Americas
Argentina takes steps to end crisis
24 Apr 02 | Americas
Argentina president in crisis talks
22 Apr 02 | Business
Argentina treads the tightrope
22 Apr 02 | Business
Argentina 'risks financial collapse'
20 Apr 02 | Business
Argentina closes all banks
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