Argentina tries to stop run on banks

Argentina's crisis-hit government desperately sought to prevent a run on its cash-strapped financial system yesterday, keeping banks closed for a third day in a row as it announced new measures to stop panicky customers withdrawing all their savings.

The Argentine central bank said it would extend a long-standing ban on official foreign exchange trade for a further day, putting off again the peso's trial by fire with markets after the government said last weekend that it would devalue the currency by 29%.

Under the measures all money in current accounts above $10,000 (£7,000) and savings accounts above $3,000 will become fixed-term deposits, untouchable for a year.

Yesterday's announcement sparked renewed anger among the increasingly desperate population, many of whom have been impoverished by the collapse of Latin America's second-largest economy.

President Eduardo Duhalde acknowledged last night that Argentina had come close to "a bloodbath" in late December when violent protests over austerity measures forced his predecessor from power.

The short honeymoon between the middle class and Mr Duhalde seemed to be turning sour yesterday as a wave of small protests began spreading throughout Argentina, mostly by public employees demanding the payment of back wages.

In Mar del Plata, Argentina's main beach resort some 500 kilometres south of Buenos Aires on the Atlantic coast, hundreds of public employees braved the scorching sun of the south American summer to demand their wages.

"This city is in crisis," said one public employee. "We want to be paid for our work."

Meanwhile economy minister Jorge Remes Lenicov continued to play for time, declaring yet another bank holiday yesterday, as he tried to reach an agreement with Argentina's main banks over restrictions on bank withdrawals.

"The banks don't have enough money to face a massive withdrawal of deposits," the minister said in a press conference. "If the banks crash, then nobody will get their money back."

The government also announced limits on the size of dollar loans that can be converted to peso loans, a move designed to cushion the effect of devaluation on the middle class. Dollar-denominated loans to small and medium-sized businesses which are worth up to $100,000 can be converted into pesos, and personal loans worth up to $10,000 can be converted.

The decree established a parity of 1.40 pesos to the dollar on the official market.