MercoPress. South Atlantic News Agency

Dramatic hours

With Congress divided on the crucial issue of converting frozen bank deposits into Government bonds, and with the IMF still refusing to grant an aid package, Argentina's Minister of Economy Jorge Remes Lenicov resigned plunging the country into a political crisis of unpredictable consequences.

Tuesday evening President Eduardo Duhalde called an emergency cabinet meeting and has scheduled another with provincial governors most of whom have been reluctant to accept what they consider draconian and excessive austerity measures recommended by the IMF.
The bill to convert 60% of frozen bank assets into long term peso and dollar bonds is (was?) a desperate attempt to avoid the banking system from definitively collapsing, since it's facing a continuous erosion as a result of favorable judicial rulings for savers and depositors. To prevent the growing loss of funds Central Bank officials declared last Friday a banking and exchange rate holiday to give Congress time to discuss and approve the bill.

However the coalition of Peronists and Radicals that support government refused to address the bill after hundreds of angry protestors gathered and surrounded Congress. Many legislators rejected consideration of the bill "under unbearable pressure from foreign banks and ever growing IMF demands". Besides the proposal was limited to 60% of deposits which is roughly equivalent to the Argentine government debt with the banking system, meaning banks would have to work out a deal to recover the remaining 40% pending credits.

This last weekend Mr. Remes Lenicov returned from the IMF Washington spring meeting with empty hands and demands that reforms become effective before resumption of talks with the multilateral credit organization, possibly next May.

With this scenario Mr. Remes Lenicov a close friend and associate of President Duhalde, resigned unable to sort out the Argentine economy that has been suffering four running years of recession and political turmoil that last December ousted two presidents.
Last December Argentina also defaulted on 128 billion US dollars in foreign debt and the IMF is anxious the example does not spread to other heavily indebted countries.
Since taking office Mr. Remes Lenicov floated the Argentine currency after ten years of having the peso pegged to the US dollar and converted all bank assets into pesos. However his plan geared to boost exports has been unable to keep the greenback under control, the economy faces a standstill, unemployment has turned into constant social unrest, hyperinflation is in the threshold, foreign banks are planning to leave the country and the IMF has been ever demanding about structural reforms and long term economic policies.
Although Mr. Duhalde has strong support from the Congressional alliance that voted him in, provincial governors have, repeatedly refused to accept all of IMF demands to cut spending and reduce 60% the current deficit.

Energy Secretary Alieto Guadagni is expected to replace Mr. Remes Lenicov. He is another close ally of President Duhalde who favors continuing talks with the IMF and a more restricted assets for bonds, legislation.
However Mr. Duhalde team is divided between those like Mr. Remes Lenicov and possibly Mr. Guadagni who are more financially orthodox and insist in reestablishing relations with the international financial community, and the more political branch, --closer to his roots and heart--, who feel its time to stop pleading to the IMF and address the political and financial crisis with a nationalist, (populist?), approach.Is the US State Department listening?