Argentina granted depositors the option to convert frozen savings into government bonds and promised to give banks US$9.5 billion to compensate some of the costs of the country's devaluation.
In a decree published yesterday, the government aims to end withdrawal restrictions that have sparked daily protests and crippled an economy already in recession. The decree is President Eduardo Duhalde's latest attempt to rebuild the banking system after backtracking on two previous proposals in the past six weeks and appointing a new economy minister.
"The big foreign banks aren't in agreement, but we think this is the best we can achieve," Duhalde said in a radio address.
Argentina has struggled to find a way to free up funds while preventing banks from collapsing after the country defaulted on US$95 billion of bonds and let the peso slide by more than 70 percent. Some foreign banks, including Canada's Bank of Nova Scotia, said they plan to abandon the country. Other banks, such as FleetBoston Financial Corp, have cut off funding.
Economy Minister Roberto Lavagna said a compulsory conversion of bank deposits into bonds, as suggested by International Monetary Fund officials and several banks, was not politically acceptable. IMF officials are divided on their support for Argentina's plan, Lavagna said.
The decree also orders banks to create new checking and savings accounts where clients can deposit funds without withdrawal limits. The idea is to create a parallel banking system that rebuilds the chain of payments in the economy. Clients with business related to foreign commerce will be able to open accounts in dollars and other foreign currency.
Argentina first limited account withdrawals in December in a bid to slow a run on banks. The debt default and devaluation weeks later made banks insolvent, analysts said. In February, the government converted all US dollar deposits and loans into pesos.
Depositors will be offered a 10-year dollar bond, with semi-annual interest based on the London interbank offered rate, in exchange for savings originally in dollars. Depositors that choose to keep their frozen term deposits will be repaid in pesos under a schedule that starts in January and ends as late as 2005.
For deposits originally in pesos, the government is offering a five-year peso bond. Accounts with less than 10,000 pesos (US$2,800), clients over 75 years old and other special cases will be offered a three-year dollar bond.
The new bonds and the old term deposits will trade on local exchanges. The decree permits savers to use term deposits to buy new offerings of stocks and bonds. The mechanism is designed to permit companies to reduce their bank debt by issuing securities.
The government will also create incentives so that the new bonds can be used to buy automobiles, new homes and real estate, pre-finance exports, purchase state properties or pay back taxes, among other uses.
"There's nothing to celebrate here," said Lavagna. "This is the result of trying to distribute as equitably as possible the impact of the collapse."
Finance Secretary Guillermo Nielsen said banks would receive about US$9.5 billion of government bonds to compensate the cost of converting dollar deposits and loans into pesos at different rates.
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