Headline: Argentines urged to return deposits

Source: BBC News, 15 August 2001

URL: http://news.bbc.co.uk/hi/english/business/newsid_1492000/1492540.stm

Argentines should put the $10bn they have withdrawn in recent months back into their bank accounts to prevent the country defaulting on its debts, the finance minister has warned.

"If in the next week the almost $10bn that left the financial system, but is still in Argentina, returns and comes back day after day, you will see once again credit rates drop and that will reactivate the economy," Domingo Cavallo told a conference in Argentina.

Savers stepped up withdrawals during the last six weeks because of fears the government might freeze bank accounts to prevent a default on national debts.

The call comes as Argentina's talks with the International Monetary Fund (IMF) in Washington for fresh loans enter their sixth day.

On Tuesday there was a fresh wave of protests against the government's austerity measures designed to attract IMF aid, the third of its kind in three weeks.

Foreign debt fears

Argentina's financial markets have been hit hard by worries that three years of economic stagnation and recession might leave the government with not enough money to service its $128bn debt.

Mr Cavallo repeated his commitment to meet the repayments on the foreign loans because a default or devaluation "would end up destroying the institutions that take care of savings".

Argentine deputy finance minister Daniel Marx said on Tuesday that talks with the IMF officials had made progress but gave no clues as to when additional funds would become available.

Even if Argentina secured a reported $6bn to $10bn package from the IMF, it is seen by analysts as buying more time, but not a solution to the problem.

No devaluation

The finance minister also rejected calls for a devaluation of the peso which is currently pegged to the US dollar.

"Argentina will not be a guinea pig for experiments such as devaluation or restructuring of public debt," he said.

"Past experience shows countries that followed this path had terrible consequences, as was the case in Ecuador, Indonesia and Russia."

Deposits down

The latest official figures released on 9 August indicate that bank deposits amounted to $65.8bn in July, down by 9.5% since the beginning of the month.

Although the speed of withdrawals has slowed in August compared with July, the decline in deposits has averaged a hefty $319m a day to 9 August.

But unofficial data show that the Central Bank's foreign exchange reserves were up by $298m on 10 August.

-- Andre Weltman (aweltman@state.pa.us), August 15, 2001