Argentine President Forces Leading Banks to Lend


BUENOS AIRES, Argentina (AP) — Facing clear signs of a looming recession, Argentina’s president is ordering the country’s biggest banks to lend $3.3 billion of their clients’ savings at rates below what many believe to be the inflation rate.

The requirements taking effect Thursday limit interest on the loans to 15 percent a year. The government says inflation is below 10 percent, but many analysts estimate it at around 25 percent, one of the world’s highest rates.

President Cristina Fernandez says the government saved the private banks when they were in trouble, and now it’s the banks turn to do their part to fan Argentina’s decelerating economy by lending 5 percent of their deposits to small and medium-sized businesses.

Argentina, one of the world’s leading grains suppliers, saw its economy expand by almost 9 percent last year on the back of high commodity prices and industrial output led by car sales to Brazil. But blistering growth has been reined in by less demand from its neighbor and leading trade partner Europe’s economic woes and surging inflation.

Fernandez has said that Argentina’s top 20 banks will lend more at a maximum interest rate of about 12 percent for a minimum three-year period. Economic analysts say the move is a quasi-subsidy imposed on the leading bankers that does not get to the core of what discourages investors: one of the world’s highest inflation rates and one of the most volatile business environments.

“This is a negative development inasmuch as requiring banks to lend at negative real rates erodes the capital base of banks and by distorting the cost of capital will lead to a misallocation of credit,” senior Goldman Sachs economist Alberto Ramos wrote in a research note.

 

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