Argentina's deep, empty pockets

Pity Argentina, a poor little rich country!

"We're broke," exclaimed President Eduardo Duhalde, when asked about lifting the freeze on every bank account in the country, decreed in December following Argentina's default on its $141 billion foreign debt.

Rarely in its long history of political and economic disarray have things been so grave. The pillars of government are trembling. Half the population is below the poverty line, and the other half is heading in that direction. In a land full of opinionated people, nobody knows what to do, not the government, not the man on the street. No figure has yet appeared on the horizon whom people have faith in, so impoverished of genuine leadership is this country.

It's harder to get around Buenos Aires these days, especially downtown. There's always a cacerolazo to avoid – an assembly of agitated people at the presidential palace, or outside a bank making a big, joyless noise.

A cacerola is a stew pot. The cacerolazo is a gathering of people who put the pot to uses other than those of cookery: They bang on it, or otherwise make a racket to call attention to what Johns Hopkins University economist Steve Hanke described as the "greatest robbery in history."

Mr. Hanke was an adviser to the Argentine government. "Robbery" is his word for the freeze, or as it is popularly known, the corralito. It was imposed by the former president, Fernando de la Rua, to prevent a run on the banks after the International Monetary Fund put Argentina beyond the pale for failing to make its debt payments.

About $40 billion and 30 billion pesos were on deposit at the time. Dollars were fleeing the country even before the corralito was declared, so Mr. de la Rua's draconic action was understandable.

From the start, the corralito was not absolute. Account holders could withdraw about a thousand dollars worth of pesos per month, but no actual dollars. De la Rua resigned after signing it, departing amid lethal street protests. Congress chose a new president, Adolfo Rodriquez Saa. Unable to calm the furies loosed by the corralito, he vanished in a week. Congress then selected a former governor of Buenos Aires Province to finish de la Rua's term. Eduardo Duhalde has struggled ineffectually ever since.

Mr. Duhalde relaxed the corralito: Funds can now be transferred out of accounts to pay taxes, settle utility bills, to buy property. But no dollars can be withdrawn. Duhalde promised to eventually release the dollars, then reversed himself. Now depositors expect their dollar accounts to be transformed into pesos. But the peso is losing value fast. For a decade, it was pegged at par with the dollar. Near the end of March, the peso was worth one US quarter.

No wonder people are angry. They regard all politicians as corrupt. They are furious at the banks and mad at the Supreme Court, even though it declared the corralito unconstitutional. And they don't hide their anger. Politicians are chased from restaurants, threatened on the streets.

The corralito is all anybody talks about. The word is bitterly ironic. It refers to a small yard, or corral. But the preferred, acerbic, definition is of a child's playpen.

The withdrawal of so much currency from the economy has worsened the recession. Shops and small factories are closing; companies can't meet payrolls. Unemployment is up, and so is inflation. The pathetic trueques – bartering sessions where people swap everything from used socks to old neckties – are everywhere.

There are two strategies to escape the corralito, neither of which work. The first is public protest. It happens every day in every city, and in towns big enough to have a bank to besiege. The second is to sue the banks. About a month ago, more than 90,000 suits had been filed, with more coming. Decisions favoring individual depositors have been handed down, and the banks ordered to return the funds. But they have refused, and nothing is being done about this defiance.

President Duhalde reacted to the Supreme Court's ruling on the constitutionality of the corralito by fostering impeachment legislation in the Congress, thus pitting two branches of government against the third. Duhalde dismissed the court's decision as political because some of the judges were appointed by his nemesis, former president Carlos Saul Menem, the man who pegged the peso, one to one, to the dollar in 1991. Many believe that policy, called "convertibility," contributed to the current crisis. It made Argentines think they were rich, that the equivalence was real, not artificial; it encouraged people to contract debts in dollars for cars and houses they can't pay for now.

Argentina, rich in land, cattle, and resources, with a small population (36 million) and a high literacy rate, was once a comer among the world's nations. Its conceit was to regard itself as not of the third world, but as closer to the first. And though the stylish glamour of its capital city might encourage that fantasy, in reality Argentina's politics have been third worldish – corrupt and primitive (especially its tolerance of militarism) – and its fiscal procedures have been less than straight for half a century.

Many Argentines admit their country's failure is of their own making. They seem eager to do so, as if spreading the blame shields the individual from responsibility. The question that needs answering, and never gets answered, is: What to do about it?

Currently, all Duhalde has been able to come up with is to ask for more loans from the IMF, which in turn demands realistic budgets and more efficient tax collection (about 40 percent of Argentines evade taxes). Duhalde has not responded effectively to these demands, even though, as one Buenos Aires paper put it, "time is being lost, and the country is falling apart."

• Richard O'Mara is a former editor at The Baltimore Sun.