After completing the first of two rounds of a massive debt swap, that Argentine government officials described as a resounding success, Argentina restricted money withdrawals to impede a continuing loss of bank deposits and in preparation for discussions with grumbling international investors.
The first round involving 50 billion US dollars of a total foreign debt of almost 130 billion US dollars, was agreed with local Argentine banks and pension funds that accepted lower interest paying bonds, that should represent a considerable reduction in interest payments next year. However international investors in Argentine bonds are not so willing, and are protesting that the swap amounts to a forced manipulated default. This has caused the risk country factor to shoot beyond 3000 points and bank deposits to flee the country. The Argentine banking system has lost over 14 billion US dollars since the confrontation begun and was made worse by the continuing political uncertainty and insistent rumours of a possible end to the one dollar-one peso parity system standing since 1991. Faced with this situation, over the weekend authorities converted all deposits into dollars and restricted cash withdrawals to 250 US dollars per week during 90 days. All transactions will have to be made through the banking system and credit and debit cards. The government believes this will help convince Argentines that there will be no currency devaluation and that with the dollarisation, bank deposits are guaranteed. All this happens when an International Monetary Fund mission is in Buenos Aires checking the books and 2002 prospects, after Finance Minister Domingo Cavallo admitted the zero-deficit could not be achieved. Argentina desperately needs the delivery of a 1,3 billion US dollars the IMF had promised for the beginning of December, but which could be delayed until the end of the month.