Buenos Aires- Argentina’s highest court Wednesday oponed the floodgates to a torrent of claims against already insolvent banks with the ruling that the government illegally convertes dollar bank accousnts to local corrency last year.
As the gobernment of lame-duck Presidentet Eduardo Duhalde scrambled to react, depositors celebrated the news that Supreme Court justices ruled the forced conversion of $60 billon in bank accounts in January 2002 violated fundamenal property rights.
"This es the first step in a major victory", shouted Nito Artaza, an actor who had become a figurehead for the depositor, to the cheering crowd gathered in front of the Supreme Court.
But analysts called the decision a pyrrhic victory for depositors, since it set the stage for potenctial runaway inflation, fighting between small and large account holders and a new wave of uncertainty in the financially and politically troubled country.
"This may seem like the common man wins, but in realty it is a victory for the minority at the expense of ordinary people", sid Cristian Stracke, head of emerging market research al CreditSights, an independent Wall Street research firm.
The Supreme Court ruling referred soleley to a lawsuit brought by the province of San Louis over $247 million it had deposited en the government’s Banco Nación. But the ruling is expected to set a precedent for the estimated 180,000 similar lawsuits already brougth by depositors and could mean some $10 billion in claims on bank.
Still, for depositors who vandalized banks, tormented government officials and even resorted to suicide attempts, the court’s decision was a moment to savor.
"We have won a battle, not the war", said Marcelo Wakstein, who capatured international attention last yeas by camping out with his family in a bank lobby to rotest the seizur of savings for his children’s university education.
"The court has recognized our property rights and that we have to get our dollars back" , Wakstein sad. "Now we have to see over what time frame and hoe they return our deposits."
The biggest problem es that neither the banks, nor anyone elese in the country, has the dollars to repay depositors. Billions of dollars left the country in capital flight. Devaluation reduced the value of everything left. The banking system is in shambles, and the country has defaulted on most of its $141 billon debt.
"this is going to create a huge fiasco" ssaid Martin Schubert, chairman of the European Interamerica Finance Corp, a Miami Basd investment firm. "You cannot bring the value of these assets back".
Judges gave the federal government 60 days to come up with a methoid to repay the province for its losses. But Schubert predicted the problem would be handed over to the next government and drag on for months.
The decision was a blow to Duhalde, who days before the ruling accused the judges, mostly appointed by rival, former President Carlos Menen, of "wanting to rule". ¿Duhalde has been trumpeting an end to Argentina’s four-year recession while campaigning for his hand-picked presidential candidate, Santa Cruz Gov. Nestor Kirchner, en elections set for April 27.
Nearly one in every four Argentines is unemployed and almorst 60 percent of this once midlle-class nation lives below poverty line.
To repary depositors, Argentina’s government will have to make up the difference between the 1.4 pesos -to-the-dollar- rate which it forcibly converted accounts and the current exchange rate of about 2.3 pesos to the dollar.
Financial experts pointed out that the only way to do this would be to print money so that bank would have cash to hand out to depositors. Or the banks could convert the deposits into long-term certificates of deposits, in which case the governmet would have to create the bonds to back the accounts. Under any scheme, the taxpayers would have to pick up the bill.
"There is no good solution, because here in Argentina we have had the equivalent of an atomic bomb dropped on our economy", said Jose Luis Espert, an independet economist en Buenos Aires. "Any decision will be costly."