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04/19 19:44 Argentina Closes Banks Indefinitely to Block Deposits (Update4) By David Plumb Buenos Aires, April 19 (Bloomberg) -- Argentina closed banks indefinitely in an effort to block a rising outflow of deposits. Central Bank Vice President Aldo Pignanelli told the Argentine Banks Association that banks would remain shut until Congress approved legislation halting withdrawals, according to a copy of an internal association memo obtained by Bloomberg News. A central bank spokeswoman declined to comment beyond confirming that banks had been closed. Argentines have withdrawn as much as 350 million pesos ($111 million) a day this week, in part by obtaining court injunctions against the government's freeze on accounts, economists estimate. The withdrawals threaten to bring down the financial system, the government has said. ``Banks have melted down from lack of confidence among the population,'' said Andrew Cummins, chief investment officer of Explorador Capital Group, with $45 million under management in Latin America. ``President Eduardo Duhalde doesn't seem to be able to articulate a plan that can generate confidence.'' Argentina froze deposits in December in an effort to prevent a collapse of the banking system as savers rushed to pull funds, anticipating the government's $95 billion debt default and currency devaluation. Several banks have already run out of cash needed to repay deposits, including Scotiabank Quilmes SA, a unit of Canada's Bank of Nova Scotia. The central bank late last night closed Scotiabank Quilmes for 30 days a week after it shut down another bank. Total Deposits Total deposits have dropped 11 percent to 71 billion pesos this year even as the government imposed withdrawal restrictions, said Standard & Poor's analyst Gabriel Caracciolo. Financial institutions have obtained central bank loans to fund a portion of the withdrawals and overcome the cash shortfall. ``No rational person would entrust his money to the banking system at this point, just as no-one trusts the peso,'' said Scott Grannis, chief economist at Western Asset Management Co., with helps manage $1.5 billion in emerging market debt at Western Asset Management Co., with $1.1 billion in emerging market debt. The bank holiday follows two shut downs earlier this year to implement a currency devaluation. Congress expects to receive a bill from Duhalde on Monday that would convert blocked deposits into government bonds and halt further withdrawals, said Jorge Matzkin, president of the lower house's budget committee. Legislators may approve the proposal by as early as Wednesday, he said. Great Depression Franklin D. Roosevelt took a similar step in the U.S. to halt a banking panic during the Great Depression. On March 4, 1933, the day after taking the oath of office, he declared an indefinite banking ``holiday'' until Congress passed legislation giving him emergency powers over financial institutions. The bill was passed and the following week the healthiest banks were allowed to reopen while weaker banks were shuttered. The deposit drain has increased pressure on the peso as Argentines buy dollars with local currency. The peso weakened 3.9 percent to 3.12 per dollar and has lost over two-thirds of its value this year. Argentine officials have said they are concerned that printing more pesos to help banks meet withdrawal demands will lead to a deeper devaluation and inflation. Argentina has already issued 3.3 billion pesos this year, 94 percent of its yearly target. Economy Minister Jorge Remes Lenicov and Central Bank President Mario Blejer arrived in Washington D.C. today for the International Monetary Fund's spring meeting, where they hope to convince the fund and U.S. officials the country can meet conditions for new loans. Remes Lenicov has scheduled some 19 meetings over three days, including with U.S. Treasury Secretary Paul O'Neill and National Security Advisor Condoleeza Rice today. Remes declined to make comments to reporters after his meeting with O'Neill.
