MercoPress. South Atlantic News Agency

Argentina thrown into fresh chaos

Argentina was thrown into fresh chaos on Friday when its supreme court declared emergency financial controls to be unconstitutional, raising the prospect that the country's banks will collapse.

The central bank said it was declaring Monday and Tuesday bank holidays to stop Argentines withdrawing their deposits en masse and toppling the largely foreign-owned banking system.

Argentina's president, Eduardo Duhalde, said the ruling was very serious. "The bank controls are a time bomb that must be disarmed very carefully. If it blows up, not only are people not going to get their savings, but the entire productive machinery of Argentina will be affected," he said. "I don't care if a bank or two collapses. I only care about the savings of millions of Argentines who have entrusted their savings to the banks."

Foreign banks - including the UK's HSBC, and BBVA and BCH of Spain - were on Friday night trying to decide whether to pull out entirely from the country.

"This decision by the supreme court looks very much like the final shot to the heart for Argentine banks," said Alberto Bernal, Latin America economist at IdeaGlobal in New York.

The unexpected ruling threw the government into disarray, causing the postponement of an announcement of a new economic plan to restart the economy, which is at a standstill after the imposition of bank the controls, the government's default on $141bn in debt and currency devaluation last month.

An International Monetary Fund mission was in Argentina this week to pave the way for negotiations for fresh aid to help rebuild the country's shattered banking system.

Government lawyers were on Friday night struggling to interpret the court ruling, which could trigger a new constitutional crisis in Argentina.

Some legal experts said the ruling applied to a single case and it was not clear whether the presidential decree imposing bank controls had itself been nullified.

"Argentina has been living through an economic crisis, with the longest recession in its history; a social crisis, with the highest unemployment in its history; and a deep political crisis," said Rosendo Fraga, a political analyst in Buenos Aires. "The court ruling has added an institutional crisis to the picture."

Jorge Remes Lenicov, Argentina's economy minister, cancelled his planned visit to the World Economic Forum in New York on Saturday.

"Next week we will have either a new constitu