08/07 20:16 Argentines, Wary of Banks, Hide Cash in Safes, Yard (Update4) By Michael Smith

Buenos Aires, Aug. 7 (Bloomberg) -- Argentines, who are draining $233 million a day from their bank accounts, are hoarding money at home -- in safes, dirty laundry and under ground.

Argentina's biggest safe makers say sales are surging, with Cajas de Seguridad Trella expecting customers to buy 200 safes this month, double the average. Argentines unable to afford in-home safes, which sell for as much as $3,000, say they've buried cash in their backyard, hid it in ovens or stuffed it into hampers.

``People are taking precautions against a collapse,'' said Domingo Tremelite, co-founder of Cajas de Seguridad Trella.

Argentines have become skittish about keeping money in banks on concern the government may freeze accounts to stem the outflow of capital and avoid default on $130 billion of debt.

The country's cash and gold reserves dropped $690 million Friday, capping a 25 percent decline in less than six weeks, to $15.7 billion, the lowest level in five years. Economy Minister Domingo Cavallo reiterated in a speech to business executives tonight that the government can meet its obligations.

``Argentina won't default,'' Cavallo said. ``It won't devalue. We will not fail to meet all of our obligations.''

Earlier in the day, about 65 people lined up to withdraw dollars at state-owned Banco de la Nacion's main branch in Buenos Aires after another of the bank's branches said it had run out of the U.S. currency.

`Scared'

``I'm buying dollars because I'm scared, not only of a devaluation but of everything,'' said Hernan Quercini, 26, who works in the administration office of state-run radio station Radio Nacional.

At the same time, the International Monetary Fund's agreement to speed up a $1.2 billion loan payment eased concern the government would miss debt payments in the next two months.

Argentina's benchmark floating rate bond rose 2.125 to an offer price of 70.438 to yield 28.4 percent. The yield has climbed from about 17.5 percent at the start of last month on concern the government may default.

Analysts say they're focused on the rate of bank withdrawals as they try to determine if the government can keep the peso pegged at a one-to-one rate against the dollar and avoid default. In Argentina, the dollar is used as a second currency to the peso, accepted by stores and restaurants and available at any bank automated teller machine.

Deposits at non-government Argentine banks have dropped by about 8.4 percent, or $6.1 billion, from their three-month peak on July 4. Bank deposits fell $535 million on Friday.

Buying a safe is among the most expensive options for Argentines afraid to keep their money in banks.

A simple lock box can cost $100 in Buenos Aires, and high-end models can go for as much as $3,000. Not all Argentines can afford a safe, as a recession has pushed up the unemployment rate to 16.4 percent and the government trims spending by cutting pensions and wages.

Argentine companies fired about 14,890 people in July, the highest number of dismissals since last year, the Clarin newspaper reported.

`So Bad'

``The situation is so bad that a lot of people don't have the money to buy a safe, even though they're taking their savings out of the bank,'' said Gabriela Pinedo, a saleswoman at Vetere SA in Buenos Aires, a safe manufacturer. ``I suppose they're hiding it in their house somewhere.''

Home safe producers say customers are buying everything from lock boxes to fireproof safes with digital combinations.

Talleres Fenix in Buenos Aires said sales of safes have jumped 28 percent since April. Home safe makers haven't seen such a surge in sales since just before the country fixed the peso to the dollar to tame hyperinflation in 1991.

Instead of putting their paychecks in the bank, Argentines crammed dollars into safes as a hedge against soaring prices and a falling currency. After the new currency system started, Argentines started pulling cash from their safes, and putting it into banks, said Fermin Garcia, a partner at Talleres Fenix.

Now, the failure the government's struggle to keep the fixed exchange rate in place is drumming up new business for Argentina's safe dealers, he said.

``This isn't the first time this has happened, this total lack of confidence in the banks or the financial system,'' said Tremelite. ``It seems to be an illness here that keeps coming back.'

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=ad_right1_topfin&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AO3CE8RRVQXJnZW50

-- Martin Thompson (mthom1927@aol.com), August 07, 2001

Answers

This sounds to me like a border line bank run. If this turns into a full scale bank run, it will be the first for a major country since the 1930s....won't it?

-- R2D2 (r2d2@earthend.net), August 08, 2001.