The Financial Times states the obvious: After another weekend of protests, political upheaval, and constitutional crises, Argentina is “close to anarchy.” Last Friday, the nation’s Supreme Court ruled that the unpopular restrictions on bank withdrawals imposed in December were unconstitutional. Anticipating collapse of the banking sector without these protections, President Eduardo Duhalde’s government ignored the court’s decision and prohibited further lawsuits against the bank controls for six months. On Sunday, the government announced yet another economic plan, which scrapped the official dollar exchange rate, converted all dollar savings into pesos, and loosened some withdrawal restrictions, for example, allowing workers to withdraw their entire monthly salaries in one transaction. (For more details—and commentary—on the plan, see this Weblog entry.) To prevent Argentines from dumping pesos and buying U.S. dollars, banks were forced to turn in their U.S. currency. On Wednesday morning the government reopened the banks after a two-day emergency closure, but many of the withdrawal and exchange restrictions will be in force until next Monday.
On Tuesday, La Nación of Argentina quoted Duhalde’s observation that “people will tolerate more adversity; what they won’t tolerate is anarchy, and unfortunately in the process of Argentina’s decline, the next stop is anarchy, which means chaos.” Spain’s El Mundo said the risk of a banking collapse is still “enormous,” and “citizens will have to resign themselves to not recovering the dollars they had deposited.” Both customers, whose deposits will be worth less after “pesification,” and banks, who must convert dollars to pesos at twice the street rate, will lose out.
A Financial Times editorial described Duhalde’s challenge as “unquestionably daunting. It is to devise a set of policies to share out the losses of default and devaluation and secure recovery. These it must sell to a disillusioned public and a sceptical world.” Beyond its financial problems, the nation also faces social breakdown—middle-class Argentines, deprived of access to their savings, have lost faith in politicians and public servants—and the government will almost certainly face legal challenges over the constitutionality of its bank withdrawal restrictions.
El País of Madrid declared, “The biggest obstacle the Argentine authorities face is credibility. Although the plan announced Sunday seems adequate, the other recent plans that didn’t work out weigh heavily on the minds of investors, businesses, and international institutions.” A heartbreaking letter to La Nación from a reader who had lost his savings expressed this loss of trust. Eliseo Subiela said he would never understand how he could have committed the tragic error of believing in his country.
Or to be fair, in the political class rejected by the majority of the people, which continues to lie with impunity, as Dr. Duhalde lied when he said that deposits were going to be returned in the currency in which they were paid, then a little later … said that no, he was going to be the accomplice of the big financial interests, once again cheating the Argentine people.