On March 5 2003 the Supreme Court declared Section 2 of Decree 214/02, which 'pesifies' dollar bank deposits, to be unconstitutional. The case concerned a $247 million deposit made by the province of San Luis in Banco de la Nación, a bank wholly owned by the federal government. The lawsuit was brought by the province against Banco de la Nación, the federal government and the Central Bank.

This decision was based on the following grounds:

  • The pesification rule is an invalid exercise of a delegated power, since the Emergency Law (25,561) that ended the convertibility system only empowered the executive to preserve the capital of bank depositors and restructure obligations in a manner compatible with the solvency of the financial system. This language does not include changing the currency of the deposits.

  • The pesification rule is invalid 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 no new emergency had taken place, deprived the executive of its emergency legislative powers.

  • The pesification rule is a final and substantial (and thus unconstitutional) curtailment of the property rights of the depositors, as it deprived 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 under the pesification rule. The rule therefore altered the essence of the property right of the depositors and thus exceeded the limits imposed by Supreme Court precedent on emergency legislation restricting individual rights.

  • Law 25,466 dated October 2002, which declared bank deposits intangible, created vested rights in favour of depositors which the Emergency Law tried to respect, but which the pesification rule violated.

The Supreme Court granted the parties 60 days to reach an agreement on the manner of repayment. Otherwise, the court will make a determination at the request of either party.

For further information on this topic please contact Gabriel G Matarasso at Marval, O'Farrell & Mairal by telephone (+54 11 4310 0100) or by fax (+ 54 11 4310 0200) or by email ([email protected]). The Marval, O'Farrell & Mairal website can be accessed at www.marval.com.ar.