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Conversion of Deposits into Bonds Raises Doubts  Among Argentine Account Holders - 2002-06-19

Argentina's unpopular banking freeze was lifted Tuesday under a government's plan to convert peoples' deposits into bonds. The plan has met with widespread public skepticism.

Argentine President Eduardo Duhalde's cabinet chief called Tuesday "D-Day" for the country's banking freeze, which began six months ago in an effort to restore order to the country's banking system.

The plan is a slow and unpopular process by which most Argentines will have to wait five or 10 years to get their money.

But the government insists this plan, which calls for converting people's savings into bonds, is the only way to re-open banks without risking the collapse of Argentina's banking system.

"There are so many lies," says a woman outside a bank in downtown Buenos Aires. "This is another one. It raises doubts."

Very few people went to their banks Tuesday to claim bonds.

"We know a lot of people are not in agreement," Mr. Duhalde's spokesman Eduardo Amadeo says. "But for better or worse, the government has an obligation to solve Argentina's economic crisis."

The bond plans vary from bank to bank and details are so uncertain that La Nacion, one of Argentina's leading newspapers, advised account holders not to make any quick decisions.

The government's bond plan gives account holders two basic options: If they are willing to accept devalued pesos, even though their deposits are in U.S. dollars, they can withdraw their money over a period of five years. If they want dollars, it will take 10 years to recoup their savings. Depositors also have the option of doing nothing in the hope that one-day all restrictions on bank withdrawals will be lifted. Either way, analysts predict, most people will not get all their money back.

There is an estimated $22.5 billion frozen in Argentina's banks. For many depositors, it is their life savings.

When the country's economy began to collapse last year, then-President Fernando de la Rua imposed the banking freeze. The move sparked bloody riots that claimed 30 lives and toppled de la Rua's government.

The International Monetary Fund imposed the lifting of the banking freeze as a condition to obtaining an emergency loan. So far, the IMF has not said publicly whether this bond plan is the medicine Argentina needs to treat the worst economic crisis in its history.