- The Washington Times - Saturday, February 2, 2002

From combined dispatches
BUENOS AIRES Argentina's Supreme Court ruled yesterday that a widely unpopular banking freeze was unconstitutional, striking a blow to a government measure that was aimed at shoring up the nation's teetering financial system.
The decision raised fears of a massive run that could ruin banks already on the brink of collapse after four years of recession.
The court, ruling in favor of plaintiffs demanding access to their savings, voted 6-3 that Argentina's banking restrictions violated the constitution. It said the executive decree authorizing the limits ran roughshod over citizens' rights to their savings, was "irrational" and virtually "annihilated" the rights of the plaintiffs to private property.
It was not clear whether the ruling would oblige the government to permit the full withdrawal of deposits as demanded by critics and protesters on the streets.
The government of President Eduardo Duhalde had no immediate comment, with officials saying they were studying the ruling.
"This could prompt a disaster," said Ana Gavuzzo, a bank analyst for Fitch ratings agency in Buenos Aires. "People are going to take their money out of the banks. And if everyone wants to take money out at the same time, the money will not be there. There could be massive bank bankruptcies."
A central bank source said a banking and foreign exchange holiday could be declared for next week.
The current banking restrictions allow most Argentines to withdraw no more than $800 from their accounts each month. It was imposed Dec. 1, after anxious depositors yanked about $20 billion from the banking system over an entire year. More than $1 billion left the system in just one day in late November.
The banking freeze sparked widespread protests, occasionally triggering violent attacks on bank branches around the country.
Anger against the freeze and other economic crisis measures fueled the ouster of the last elected president, Fernando de la Rua, on Dec. 20.
Argentina's latest crisis was triggered that month when the International Monetary Fund (IMF) refused to extend a new $1.2 billion loan the country had been counting on to meet interest payments on its foreign debt.
As a preliminary measure, Mr. Duhalde last month scrapped the peso's fixed link to the dollar and devalued the national currency by nearly 30 percent.
The United States, Spain and other countries have insisted that Argentina adopt a credible reform program before receiving international loans.
Constitutional experts said the ruling on one specific case sets precedent for what could be a wave of lower court cases by savers wanting access to their cash.
"If this ruling applies to all accounts, then all you have to do is go to court and tell the judge you want your deposits to be returned. And the banks would have to do it," said Aldo Abram, an economist for Exante consultancy.
The decision came as the Supreme Court judges face mounting pressure from protesters, who have demonstrated outside their homes, demanding they resign over allegations of cronyism.
The ruling also threw a wrench into the government's plans to announce today a raft of highly awaited economic measures said to be aimed at easing the bank curbs, which have enraged many Argentines fed up with a four-year recession.
The lifting of the curbs could also spark a massive depreciation of the recently devalued peso as people use the freed money to buy safe-haven U.S. dollars.
The decision marked a new challenge for Mr. Duhalde, Argentina's fifth president since mid-December, who has had to dodge street protests while trying to secure support from skeptical international lenders.
The peso sold at 2.05 to the dollar yesterday, traders said, despite the Central Bank's efforts to prop it up.
Economists said the peso could tumble further after Mr. Duhalde eventually ditches a parallel exchange rate pegging the peso at 1.4 to the dollar for foreign trade and preferred transactions as designated by the government.
Local media reports, denied by the government, that the peso could be completely floated in less than two weeks rather than several months as previously believed sparked another rash of long lines at banks yesterday.
Many believe the total float of the peso could spark a wave of rampant inflation that would further ravage an economy so damaged that tax revenues in the first 30 days of January fell nearly 20 percent compared with the previous year, according to an economy ministry source.


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