Pesification of bank deposits declared unconstitutional

1. The case

The case concerned a US$ 247 million deposit of the Province of San Luis in Banco de la Nación Argentina, a bank wholly owned by the Federal Government. It was a writ of “amparo” to obtain the return of the deposit in dollars or in pesos at the current exchange rate. The lawsuit was brought by the Province against Banco de la Nación Argentina, the Federal Government and the Central Bank.

2. The decision

The decision was rendered on March 5, 2002. It held the pesification of the Province’s deposit unconstitutional by a divided vote (five to three, as the ninth Justice abstained).

3. The majority opinion

The majority opinion declared section 2 of Decree No 214/02, which pesified dollar bank deposits (“the Pesification Rule”), unconstitutional. Of the five votes constituting this majority, three Justices voted according to their own vote.

This decision was based on four grounds:

a) The Pesification Rule was an invalid exercise of a delegated power, since Emergency Law No 25,561 that ended the convertibility system, only empowered the Executive to preserve the capital of the bank depositors and restructure the obligations in a manner compatible with the solvency of the financial system. This language does not include changing the currency of the deposits.

b) The Pesification Rule was not valid either as an Emergency Decree because the economic situation had not changed from the date when the Emergency Law was enacted (January 6, 2002) to the date when the Pesification rule was issued (February 3, 2002). The fact that Congress was in session and enacting laws during this time, and that no new emergency had taken place, deprived the Executive from its emergency legislative powers.

c) The Pesification Rule is a final and substantial (and thus unconstitutional) curtailment of the property rights of the depositors, as it deprives them of a substantial part of the value of their dollar deposits. This conclusion arises from the comparison between the rate of exchange of the dollar and the amount of pesos that would be payable according to the Pesification Rule. It therefore altered the essence of the property right of the depositors and thus exceeded the limits imposed by Supreme Court precedents on emergency legislation that restrict individual rights.

d) The earlier Law No 25,466 of October 2002 which declared bank deposits intangible, created vested rights in favor of depositors which the Emergency Law tried to respect but which the Pesification Rule violated.

The two first grounds but not the third and maybe not the last one, would disappear if a new Congressional statute were to ratify the Pesification Rule.

The majority decision grants 60 days to the parties to reach an agreement on the manner of repayment. Failing this, the Court will determine repayment at the request of either party at the end of said term. The majority decision also provides that the amounts withdrawn beforehand by the Province from the deposit shall be deducted from the amount to be repaid. Such amounts shall be converted from pesos into dollars at the free exchange rate of the date when they were withdrawn.

Although judicial decisions are binding only on the parties to the case, Supreme Court decisions should be adhered to by the other Argentine courts. In several places the majority opinions indicate that cases brought by other depositors are similar. Furthermore, the Supreme Court did not take into account the Province’s argument concerning the special nature of provincial funds as deserving special protection under the constitutional rules ordering the Federal Government to guarantee the federal system. Therefore, the majority decision will probably be followed in all cases brought by depositors.

Some dicta in the votes that formed the majority opinion may be relevant for the banks:

(i) the decision orders Banco de la Nación Argentina to pay, not the Government;

(ii) the Emergency Law ordered the pesification of obligations (up to US$ 100,000) vis à vis the banks, but not those of the banks themselves (i.e. deposits);

(iii) the Pesification Rule created an unfair discrimination against the depositors who thus suffered a greater prejudice than the banks (this, presumably, because depositors basically lost the difference between 1.40 pesos plus the inflation adjustment, and the exchange rate currently at 3.05 pesos, while the banks suffered no prejudice; as although banks could collect their dollar claims at 1 peso, they were to receive the difference with the 1.40 peso rate that they had to pay depositors in the form of a Government bond);

(iv) since the decision could be applicable to other lawsuits, judges should take into account the circumstances of each case before deciding the terms applicable to the banks which must comply with the sentences.

(v) Congress is invited by one of the votes to legislate within 60 days on the manner of repayment of deposits consistent with the Court’s decision;

(vi) depositors who accepted voluntarily and without express reservation alternatives offered by the different rules, would have lost their rights to further claims;

(vii) the decision applies only to bank deposits, other pesified legal transactions must be analyzed separately.

4. The dissenting opinion

A single dissenting opinion, signed by three Justices, held that the “amparo” procedure was not appropriate to try a case of such complexity, given the need to take into account all the norms sanctioned by Congress and the Executive and to compare the prejudice suffered by depositors with that of other sectors of society.

It also held, in unprecedented strong language, that the majority decision was void given that the majority was obtained with the inclusion of a Justice who had been recused and who voted also to form the majority that had rejected such recusation. This might thus open the way to a request that a different court try the issue of the voidness of the majority decision. Alternatively, given the mention by the minority of a violation of the Inter-American Convention of Human Rights to the extent that the guarantee of an impartial judge was not respected, Banco de la Nación Argentina might attempt to appeal before the Court of Human Rights in Costa Rica.

5. The reaction of the Government

Until today, the Government has not reacted to the decision of the Supreme Court. The Government announced that the decision is only applicable to the case of the Province of San Luis. No further actions have been announced by the Government.