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Argentina Raises Cash Withdrawal Limit - 2002-01-10

Argentina's Central Bank extended for a fourth straight day the bank holiday limiting foreign exchange operations of the country's financial institutions. However late Wednesday, the government did have some good news for Argentine depositors. The new administration eased the December 1 government imposed cash withdrawal restrictions imposed to prevent a run on banks.

Economy Minister Jorge Remes Lenicov gave frustrated Argentines a little bit of good news at a press conference. He said the government had raised the cash withdrawal limit from 1,000 to 1,500 pesos a month from those accounts where salaries are direct-deposited.

All other bank accounts now have a 1,200 peso per month limit.

Mr. Remes reaffirmed the government's commitment to eventually return all desposits and said that until then interest rates paid on savings accounts would continue to accrue.

The harsh bank limits were the last straw for many middle class Argentines who had sat by rather passively as the country sunk further and further into recession. Fears that the government would completely freeze all bank accounts as it did in 1989 triggered widespread protests that toppled the governments of former President Fernando de la Rua and Interim President Adolfo Rodriguez Saa.

President Eduardo Duhalde has made it clear to his cabinet and advisors that he does not want to fall victim to the same social unrest. Argentina sharply devalued its peso currency Sunday ditching an 11-year-old currency board that pegged the peso at one with the U.S. dollar. The government set an official peso for foreign trade and capital transfers at 1.40 to the dollar. Pesos for everyday use will float against the dollar on the free market.

The Economy Minister clarified that while all dollar mortgages under $100,000 would be converted to pesos at the old one-to-one rate, that would not be the case for all loans. For instance, only those car loans less than $15,000 would be converted to pesos while the balance would still have to be paid in U.S. dollars.

Banks have been lobbying hard for the government to clarify the dollar loan situation as they stand to lose billions. Although the government plans to compensate banks for their losses with hard currency government bonds, financed through a new tax on oil exports, banks said they would still post nearly $6 billion in losses.

But while Mr. Remes gave recession-weary Argentines some good news, the Central Bank declared Thursday would be another bank holiday. Local banks again will only offer services for peso-denominated transactions.

The Central Bank didn't give any reasons for the decision although government officials have said the central bank is still fine tuning Argentina's new monetary policy.

But with foreign exchange transactions paralyzed, much of Argentina has ground to a halt. Both the stock market and the grain market remain closed and the supply chain in various commercial sectors has become rather tricky.