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Wednesday, August 07, 2002
This piece on the financial devastation in Argentina mentions several of the factors believed to be responsible for the meltdown: huge external debt, corruption, harsh IMF policies, and too much government spending. All of this, along with the 1-to-1 peg of the peso to the US dollar, has been common knowledge for some time. This passage, however, was news to me: Most banks here are subsidiaries of major U.S. and European financial giants that arrived with promises of providing stability and safety to the local banking system. But many Argentines who did not get their money out in time -- more than 7 million, mostly middle-class depositors, did not -- faced a bitter reality: Their life savings in those institutions, despite names such as Citibank and BankBoston, were practically wiped out. Virtually all had kept their savings in U.S. dollar-denominated accounts. But when the government devalued the peso, it gave troubled banks the right to convert those dollar deposits into pesos. So the Gonzalez family's $42,000 nest egg, now converted into pesos, is worth less than $11,600. It's nothing new for banks to use their political leverage to avoid paying the piper when times are tough, but this is outrageous. Presumably eager for more loans to bail the country out of the situation, it's pretty certain the government would have done anything the banks asked. The banks (the foreign ones, at any rate) were not failing; they could have paid the depositors back their money fairly easily. Perhaps if they had shown a firm committment to doing so, there wouldn't have been a run on deposits. They were willing enough to take people's deposits, and would have screamed bloody murder if the government attempted to expropriate their profits. But they've got a bottom line to protect, and if it means people have to starve, sicken and die, well, to hell with 'em. |