Argentina’s government breathed a huge sigh of relief yesterday after the country’s Supreme Court ruled against depositors demanding compensation for loss of savings following the devaluation of the peso in 2002.
The decision frees the government to concentrate fully on its plans to restructure about $100 billion in defaulted debt and ends the threat of facing thousands of lawsuits from angry depositors who saw their savings fall following the forced conversion of billions of dollars in bank deposits into devalued pesos.
Before the devaluation of the peso, Argentina operated a system known as convertibility, which mean that every peso in circulation was backed by a US dollar. This system collapsed during the country’s financial crisis as the then government, led by President Eduardo Duhalde, passed a decree that turned each dollar deposited in bank accounts before the end of 2001 into about two pesos. The exchange rate deteriorated at one point to four pesos to the dollar. Today the peso trades at three to the dollar.