In the Argentine capital, Buenos Aires, account holders queued late into the day yesterday to withdraw what they could from banks, after their deposits were partially frozen to stop the economy from descending into chaos.
In what was described as a "crazy day" on Friday, depositors emptied the city's cash machines in a rush to withdraw money after the restrictions were imposed.
Fears of full-blown financial crisis in Argentina, Latin America's third largest economy, reverberated throughout the Americas yesterday, sending down share values on Wall Street and on the Toronto and Mexico exchanges.
The cash-machine rush was precipitated when Economy Minister Mr Domingo Cavallo restricted cash withdrawals to $250 (€281) a week to stop a run on banks that had threatened to cripple the banking system and spread to other Latin American economies.
Argentinians can still access accounts by using cheques and credit or direct debt cards. The government also limited international fund transfers to $1,000.
The causes of the prolonged crisis in Argentina run deep. In the fourth year of recession, Argentina has $132 billion in debt, one seventh of all debt held by developing countries.
Once the world's 10th richest country, it now ranks 36th and has been bailed out or had loans extended by the International Monetary Fund nine times since 1983. Currently it is behind on repayments of a $22 billion IMF loan.
Its economic collapse has been aggravated by foot-and-mouth disease which hit its important beef trade and by high spending on welfare programmes and government wages. Many analysts say Argentina may have to break its one-to-one peg of the Argentine peso to the US dollar and effectively become part of the dollar economy. The government is resisting this and trying to maintain the peg.
Already major transactions like mortgages and bank loans are done in US dollars. New rules ban banks from offering peso loans, and require that interest rates on peso deposits be no higher than those on dollar deposits.
They also allow account holders to convert peso accounts to dollars. All this is designed to maintain the same number of pesos in circulation as dollars in reserve. President Fernando de la Rua said on Sunday: "It's clear that there is no devaluation here, that convertibility, parity with the dollar, is still in place. The speculators have been defeated, deposits are totally respected as property." Argentina's country risk rating - the premium it must pay to entice investors away from safe-haven US Treasuries - soared to near record highs at 34.42 per cent. Banks have seen deposits fall 17 per cent this year and welcomed the measures, which will stay in place for 90 days while public debt is restructured but businesses warned that they could deepen the recession.
The Republic exports $44 million worth of goods to Argentina per year and imports $14 million, on 1999 figures.
