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Argentine Province Challenging Reform Plan
May 6, 2002
Summary
For the first time, a provincial government in Argentina has challenged the country's national bank restrictions. Though the challenge is unlikely to succeed in opening any bank vaults, it will encourage the further deterioration of central power in Argentina and hasten the collapse of the banking system.
Last week, Argentina's new economy minister, Roberto Lavagna, vowed to keep the peso floating.
Image Credit: l'Agence France-Presse (AFP).
Analysis
The legislature of Argentina's San Luis province passed a law April 30 ordering banks to return to depositors funds that were frozen by the federal government in December, and obliging banks' home offices to provide the funds if local branches cannot, Bloomberg reported. Bankers in San Luis responded that they do not have the necessary funds to comply and would appeal the law.
In late March, some bank branches had queues of 2,000 by dawn.
Image Credit: The Associated Press.
San Luis is the first province to challenge Argentina's national banking restrictions. The challenge calls into real question the viability of the latest economic reform plan -- the "14-Point Document" -- that was hammered out April 25 by the provincial governors and which depends on voluntary provincial compliance for its execution. The San Luis law also sets a dangerous precedent of provinces seeking their own solutions to Argentina's increasingly desperate economic situation, thereby threatening the authority of the already weak central government.
Tuesday April 30: Pedestrians pass a branch of Banco Rio, controlled by Spanish Santander banking group, on Florida Street in Buenos Aires' financial district, April 30. Argentina's new economy minister heard words of encouragement from the IMF and U.S. Treasury, but new fears for the creaking financial system arose after Santander warned its Banco Rio unit is running out of money, with only enough cash to last three months.
Image Credit: Rickey Rogers -- Reuters.
The move by San Luis' government also adds to the legal worries of foreign banks, which are facing the prospect of lawsuits in their home countries to force fresh capital injections into their Argentine subsidiaries. Though the decision by the San Luis legislature will ultimately do nothing to help Argentines access their funds, it will provide further motivation to foreign banks to officially cut their ties with Argentina.
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Argentine Province Challenging Reform Plan . . .