BUENOS AIRES, Argentina – Banks overflowed with thousands of angry Argentines on Monday after the government partially froze bank accounts to stem a nationwide run on banks and avert financial collapse.
Economy Minister Domingo Cavallo announced restrictions over the weekend, saying it was his only option to defend the Argentine peso's one-to-one peg to the dollar and escape a possible devaluation.
The measure bars people from withdrawing more than $250 in cash per week from their accounts and restricts transfers abroad to $1,000 a month. Beyond that, Argentines will have to make payments using bank debit cards, credit cards, or checks to pay goods.
Banks filled for hours with disgruntled and confused clients. Some rushed in at closing time, like Juan Manuel Dedionigis, 26, who pounded noisily on the plate glass windows of a bank branch trying to get some attention.
"These new restrictions don't make any sense at all," he complained angrily. "With the little cash they'll let us have, I guess I can get by for 10, maybe 15 days."
Bank managers and clerks worked extended hours, as they also tried to make sense of the new measures, which the government said would remain in place for 90 days.
Hoping to soothe an uneasy populace, President Fernando De la Rua appealed for "good faith and understanding" from Argentines, saying the measures "were taken to protect us all from uncertainty."
"Your savings and deposits are safe," he said.
But the decision to restrict cash brought criticism from many economists, political and union leaders who argued the restrictions on cash would likely deepen Argentina's protracted recession, now in its 42nd month.Argentina is also grappling with a $132 billion debt crisis.
"This will cause tremendous uncertainty and raises the risk that the economy could come to a virtual standstill," said Carlos Perez, an economist with the Capital Foundation in Buenos Aires.
The Argentine peso has been pegged one-to-one with the dollar since 1991. The system is based on having the same number of pesos in circulation as dollars in reserve. But heavy dollar withdraws over the last week threatened the peg.
On Friday, Argentines pulled some $700 million dollars from the banks, worried that months of economic crisis were pushing their country to the brink of a chaotic devaluation.
Some analysts say a devaluation of the peso would wreak havoc in a country where more than 80 percent of all debts and contracts are in dollars.
Small merchants said they feared people would hoard cash or not patronize shops that didn't accept credit cards or checks.
Gonzalez Noguera, 44, who runs a small diner, said most of his patrons spend less than $5 for a meal and he worried business would now dwindle.
"I do know one thing: no one is going to come sit on the stool, drink a beer and then write out a check. That's ridiculous," said Noguera.
The governments response to halt the banks runs also drew criticism from the international credit agency Moody's, which has downgraded Argentina's creditworthiness five times this year.
In a statement, Moody's blamed Argentina's economic problems on its currency peg and said the government's latest measures would do little to insulate the economy from further turmoil. Many economists say the peso is overvalued and has hurt Argentina's ability to regain competitiveness in world markets.
Despite the government's valiant efforts to restore confidence to financial markets and regain political control, the recent measures will do little to avert the problems that adverse internal and external shocks could have on Argentina's frail financial equilibrium.
Marcela Smurra went to her bank trying to figure out if the cash restrictions would ruin her holiday. "I was thinking of taking a vacation for the holidays and now I can't even do that. I just won't have any cash to spend," said the 24-year-old office worker.