On December 3, 2001, the government of Argentina banned its citizens from withdrawing their bank deposits. They amounted to US$70 billion, one-and-a-half times the national budget, more than half the country’s public debt.
This was not an isolated act, but a desperate measure taken by a government that, despite the belief that it followed free-market policies during the 1990s, would not curb its spending or its need for more and more resources. This inexhaustible greediness, and the lack of institutions capable of limiting it, led directly to the first great robbery of the century.
In the last two decades the Argentine government’s main accounts were always in deficit. Until 1989 the gap was financed by issuing money without legitimate backing. This ended in dramatic hyperinflation, reaching an incredible 5,000 percent that year.
In response, the 1991 Convertibility Law required a U.S. dollar in reserve for every peso, and the government covered its deficit by selling monopolized state companies for the highest possible price. When the biggest privatizations ended around 1995, the government resorted to foreign debt, which increased by US$91 billion, a strategy that was shut down in mid-2001 because of the prospect of default.
From that moment, the government started taking desperate measures to avoid that fate. This is how we got to the great crime: the stealing of bank deposits and the ban on withdrawals from the banks, which had converted their depositors’ dollars into worthless government bonds and private loans now denominated in pesos. It was a “perfect” crime, as French economist Frédéric Bastiat described it a century and a half ago: the government enacted a law that permitted it to plunder the people with absolute impunity.
At Christmas 2001, Argentina declared the biggest default in history, US$132 billion, by abolishing the Convertibility Law, thus generating an uncontrollable devaluation together with the transformation of debts in dollars to pesos (current exchange rate: 4 pesos = US$1). These regulations undermined the property and contracts of every existing enterprise in Argentina.
There is a notion abroad that most of the harm has been to foreigners. This does not take into account the magnitude of the robbery of Argentine citizens as depositors ($70 billion), as owners of an important percentage of government bonds ($132 billion), and as pensioners, since the government forced private pension funds to “invest” in government bonds it has ceased to honor.
As a result of the robbery, the Argentine financial system is dead. Citizens have no confidence in the banks. The country is devastated, with an 18 percent drop in GDP after a four-year depression, an unemployment rate over 25 percent, a price inflation estimated at 80 percent, a growing fiscal deficit, a pauperized population, a huge danger of social conflict, and a loss of all trust in the government and the political parties.
The authorities forgot Machiavelli’s warning in The Prince that to avoid being hated, a ruler “must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their patrimony.”
Guillermo Yeatts is president of the Fundación Atlas in Buenos Aires, Argentina; Junior Achievement Argentina and FEEL (Foundation of Energy Studies Latin America); and a member of FEE’s board of trustees.