Argentina bank deposits fall 7.4 pct in July Friday July 27, 6:18 PM EDT

BUENOS AIRES, Argentina, July 27 (Reuters) - Argentina's bank deposits fell 7.4 percent between July 1-24, according to the latest Central Bank data, as worried Argentines sought to protect their savings amid fears of default and devaluation.

Bank deposits stood at $76 billion on July 24, the Central bank said on Friday.

Uncertainty over whether the unpopular government of President Fernando de la Rua could avoid default on its $128 billion public debt also saw international reserves fall 20.7 percent during the same period in July, to $23.583 billion.

"Credibility is lacking and apart from the economic problems, we are suffering from a serious political crisis," said Carlos Arbia, chief economist at Exante consultancy.

"At this point it doesn't matter if the country risk is at 1,400 or 1,600 points -- they're all levels that reflect (fears of) a debt default," he added.

"Country risk" is the premium that Argentina must pay investors to entice them away from safe-haven U.S. Treasury bills and a barometer of the country's financial health.

Country risk, as measured by J.P. Morgan Securities' EMBI Plus index, indicates how much more interest in terms of basis points the government and Argentine companies must pay to secure financing. One hundred basis points is equivalent to one percentage point.

Government officials said there was so far no signs of a massive flight of capital from deposits and say that over recent days there has been a deceleration.

Traders said that the current reserves are sufficient to keep the local peso's one-to-one peg to the dollar in which every peso in Argentina is backed by a dollar is reserves.

But they added that fears of a break in the decade-old "convertibility" system could surface if reserves fell to between $10 billion and $13 billion.

Signs the De la Rua was having trouble winning cross party support for his austerity plans -- with a bill to end deficit spending for the rest of the year having stalled in Congress -- have furthered worried traders.

"Of course we are scared that politics could prompt more capital flight," said a spokesman for the Central Bank.

Argentina has been through similar situations before, such as in 1995 during the Mexican regional "Tequila" financial crisis. Then, deposits fell some 21 percent.

"The truth is that with Tequila there were more deposits than ever (leaving) ... but the difference is that then the political leadership (of former President Carlos Menem) was trusted and now the capacity of De la Rua is doubted,' said Jose Ansa, a financial broker.

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-- Martin Thompson (mthom1927@aol.com), July 27, 2001

Answers

Hard as they try, they can't sugar coat this thing. A 7.4% drop in any country's bank deposits in such a short period of time--only 3 1/2 weeks--is a giant kick in the gut. This is about as close to a "bank run" as you can get and still disguise it.

-- JackW (jpayne@webtv.net), July 28, 2001.

What happens if there's another 7.4% drop next week? Or the week after...Could get very ugly, wheels could kind-of fall off.

-- number six (!@!.com), July 28, 2001.