Argentina's economy minister said Saturday the government would restrict the amount of cash depositors are allowed to withdraw from checking or savings accounts to $250 per week in an attempt to stem the steady drop in the country's reserves. The government expects to keep the measures in effect for 90 days.
Economy Minister Domingo Cavallo said the government took the drastic decision to limit cash withdrawals by depositors in order to stop what he called a speculative attack on the Argentine banking sector by foreign investors.
"These are extraordinary measures that will be in effect for the next 90 days," Mr. Cavallo said. He added that the "tumultuous time" called for drastic measures.
Among the measures is one designed to prevent the "unjustified capital flight" from Argentina. The central bank will only authorize foreign transfers for those companies with legitimate business needs while customs will only allow people to carry out $1,000 in cash at a time. Argentines traveling abroad will be expected to use their credit cards and debit cards.
In order to prevent a run on banks, depositors will only be able to withdraw $250 in cash per week. Larger purchases will have to be paid in the form of checks, debit cards, or credit cards. In a country where most people pay rent, utilities, and everyday expenses in cash, the move has generated a lot of concern and criticism.
But Mr. Cavallo downplayed any inconveniences and said the measures were designed to protect ordinary Argentine savings.
Argentina's reserves have fallen steadily since July when the country's long-simmering economic crisis reached a boiling point and the government decided to implement severe spending cuts in an effort to balance its books.
Argentines, fearful of a repeat of the past when the government froze accounts or seized deposits, began to pull their money from banks opting for safety deposit boxes or accounts in other countries. In the latest data available from Argentina's central bank, bank deposits fell $75 million on Wednesday.
The Saturday announcement came on the heels of the first stage of Argentina's massive debt swap.
Argentina has been stuck in recession since mid-1998 and without economic growth the government is finding the country's $132 billion debt load nearly unbearable. A fifth of Argentina's annual budget goes to debt payments.
Now the economic team is gearing up for the swap geared toward foreign bondholders that the government hopes to pull off in February.