MercoPress. South Atlantic News Agency

Argentine high court upholds “pesification”

Argentina's Supreme Court ruled this Tuesday that the forced conversion of dollar-denominated deposits to devalued pesos two years ago was constitutional angering account holders who anticipated they would appeal before an international court.

By a 5-1 margin, the Supreme Court justices issued the long-overdue decision at a time when Argentina is attempting to reach an agreement with private creditors and holders of sovereign bonds, to restructure some $100 billion in defaulted debt.

The decision to declare the conversion of dollar-denominated deposits to pesos in January 2002 - amid the worst financial crisis in the nation's history - to be constitutional puts an end to numerous lawsuits filed against the banks by account holders affected by the measure.

After learning of the court's decision, some 200 bank account holders, who since Monday night had been protesting outside the courthouse in Buenos Aires, vandalized property and clashed with police guarding the entrance to the building. After struggling with security guards, some demonstrators broke windows and set fires, while others managed to approach the office where the justices were meeting.

Amid the disturbances, Argentine Savers' Association chief Carlos Baez Silva said his organization would appeal to the Inter-American Court of Human Rights "to demand the justice that the country does not deliver." The court based its decision on a report by Attorney General Esteban Righi, who last Friday recommended that the conversion of funds to pesos be validated considering the economic crisis prostrating Argentina at the time the measure was adopted, judicial sources said.

Justice Minister Horacio Rosatti said the high court must still "specifically divulge the implications of the decision" because "all the cases that must be resolved are different". The justices ruled on an appeal filed by four savings account holders seeking to recover deposits worth 1.3 million US dollars.

The conversion of the deposits to pesos was part of a desperate effort to prevent capital flight amid an unprecedented political, economic and social crisis in Argentina. In December 2001, the government drastically limited access to savings and then in January 2002 converted dollar-denominated deposits to pesos.

To date, court rulings in favour of account holders affected by the measure have forced banks to pay out close to 8.8 billion pesos (some $2.9 billion), according to the Central Bank. The freezing of deposits was decreed in early December 2001 by then-Argentine President Fernando De la Rua, who resigned a few days later amid the social upheaval that left some 30 people dead.

Eduardo Duhalde, who took office in January 2002, decided to float the peso - which had been pegged to the dollar -, and ordered the conversion of dollar-denominated deposits into pesos at a rate lower than that of the prevailing exchange rate.

Before the decision was announced, Duhalde said he favoured the court's approval of the conversion system, maintaining that "courts cannot measure these difficult moments in the lives of nations with the normal yardsticks." The judicial ruling should improve the situation in the financial sector at a time when the country is preparing an offer to restructure its $81.2 billion plus interest in foreign debt, on which it has been in default since 2001.

President Nestor Kirchner who took office in May 2003, has overhauled a Supreme Court that had been accused of making politically motivated decisions. So far three of the nine justices resigned after being impeached and another was removed by the court. Three vacancies have been filled thus far.