Argentina seizes local pension funds as International Monetary Fund blocks loan

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The Independent Online

Argentina's cash-starved government seized local pension fund money yesterday in a desperate effort to keep the country's economy afloat after the International Monetary Fund held back a $1.3bn (£911m) loan that the government was hoping to use to service its $132bn debt mountain.

Protesters threw eggs and stones at the Central Bank building amid growing public anger at President Fernando de la Rua's government and there were signs that a de facto devaluation of the peso had already begun, with many foreign exchange houses offering to sell dollars for up to 1.07 pesos apiece, after 10 years of one-to-one parity.

Economists warned that without international help, there was little hope of Argentina avoiding default on its $132bn debt. Analysts also said that an official devaluation of the peso or adoption of the US dollar as the local currency to install confidence was looking increasingly likely.

The economy minister, Domingo Cavallo, said he would fly to Washington overnight for urgent consultations today with the IMF, which has held back a $1.3bn loan in frustration at the government's failure to rein in spending. However, Tom Dawson, an IMF spokesman, last night offered a glimmer of hope, saying that Buenos Aires could help the situation through elaboration of its fiscal plans and explanation as to how they intend to comply with the "zero-deficit" budget plan.

"What could move the process forward is indeed further collaboration of the measures, fiscal measures, that are being considered for the programme," Mr Dawson said. The Argentine Congress is to debate next year's budget in the coming weeks. Previous budget targets have not been met.

The state-run Banco de la Nacion is set to take over Argentina's private pension fund accounts held in banks to pay public service wages and pensions, Mr Cavallo said. "The funds will go into the Treasury's account at Banco de la Nacion so the bank can make regular payments and so other banks can make all pension and salary payments," he added.

Private pension funds hold $3.5bn in bank accounts, but it was not clear how much cash the government was taking.

Customers lined up outside banks in the capital to withdraw as much cash as allowed under capital restrictions imposed last weekend. "Once I get all my money, I'm going to take it to Uruguay or put it in an account in the Cayman Islands or New York. I have no trust at all in the financial system or the government," one said.

Meanwhile, the World Bank and Inter American Development Bank said they had frozen $1.1bn in loans to Argentina.