| Corralito |
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Corralito was the informal name for the economic measures taken in Argentina during 2001 by Minister of Economy Domingo Cavallo in order to stop a Bank Run . The Spanish word ''corralito'' is the Diminutive form of ''corral'', which means "corral, animal pen, enclosure"; the diminutive is used in the sense of "small enclosure" and also "a child's playpen". This expressive name alludes to the restrictions imposed by the measure. In 2001, Argentina was in the midst of a , with an economy in complete stagnation (an almost three-year-long Recession ), and the Exchange Rate was fixed at one U. S. Dollar per Argentine Peso by law (which made Export s uncompetitive). Many Argentines but most especially companies, fearing an economic crash and possibly a Devaluation , were transforming pesos to dollars and withdrawing them from the banks in large amounts, usually transferring them to foreign accounts ( Capital Flight ). In order to stop this draining from destroying the Banking system, the government froze all bank accounts, initially for 90 days. Only a small amount of cash was allowed for withdrawal on a weekly basis (AR$250 initially then AR$300), and only from accounts issued pesos. Accounts opened under US dollar denominations couldn't be touched at all, except to convert the funds back to Argentine Pesos. Operations using Credit Card s, Cheque s and other means of payment could be conducted normally, but the lack of cash availability caused numerous problems for the general public and for businesses. The ''corralito'' caused an immediate backfire on the government. Because of fear now even more people started trying to get their money away from the banks and many of them ended up in court fighting for their right to have their funds, and being granted that right. Moreover, debit cards weren't popular and many businesses didn't have the equipment to accept them. This situation, coupled with the fact that Argentines dealt only with cash for most of their daily lives meant that the cash restrictions only exacerbated the recession. President Fernando De La Rúa was forced to resign on 21 December 2001 after Violent Riots , but the restrictions of the ''corralito'' weren't lifted at the time. Argentina's situation worsened for several months. The ''corralito'' was hardened during the interim rule of President Eduardo Duhalde , turned into a ''corralón'' ("big corral"). The ''corralón'' differed from the ''corralito'' in that most deposits (including all deposits nominated in US dollars and most of the large ones in pesos) were exchanged for a series of compulsory bonds nominated in pesos at a predetermined rate. The real necessity of such decision was questioned by several observers at the time, and some suggested this move benefited some large companies who were almost broke but whose well-off owners had sent their dollars abroad before the ''corralito''; these owners were thus able to repay their companies' now devalued debts by a fraction of its original value. Argentina's economy then gradually began a recovery from its abysmal state, spurred by exports that benefited from the now highly devalued peso. Also, Argentina's default on its foreign debt during this period helped in this recovery. THE BANKS AND THEIR ROLE IN THE CRISIS The banks had a share of the blame for this situation. It is believed that in mid-2001, it became clear to most of the bank owners and high-ranking officials that Argentina's banking system was going to crash, and some in fact spurred this outcome by letting their highest deposit holders know this news. These, mostly large companies, quickly moved their deposits abroad. Meanwhile, they continued to recommend their middle-class customers to enter deposits. It is believed that in the end the ''corralito'' ended up being good business for some international banks since they negotiated with the Argentine government to receive compensation bonds for the "missing" money, which in a large proportion had never really left their banks, only moved from one branch to another. Most banks stayed in the country during the crisis, withstanding a severe damage to their reputation as well as (in certain cases) physical attacks. Others fled as soon as problems arose (for example, Scotiabank 's Argentine branch, Scotiabank Quilmes). SEE ALSO |
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