By Gilbert Le Gras
BUENOS AIRES, Argentina, June 3 (Reuters) - Argentines and their bankers do not like an optional plan to lift a freeze on deposits but agree the loss-limiting government offer is a step back from mutually assured destruction, bankers and savers said on Monday.
Six months after billions of dollars of Argentines' life savings were frozen to stop a massive run on banks that threatened a systemwide collapse, the government earmarked up to 30 billion pesos ($8.3 billion) in savings for conversion into government bonds or deposits certificates or to be left in accounts at banks.
"The extent to which depositors choose to convert their savings will determine whether or not the financial system is rescued and, if so, how many banks survive the crisis," one official at a foreign-controlled bank said.
The options the government is offering depositors are:
* A three-year dollar-denominated bond bearing interest set at six-month Libor (London InterBank Offered Rate) for anyone over 75; anyone laid off with severance pay in the bank; anyone disabled; or anyone with no more than 10,000 pesos in the bank. Those pesos would be converted into dollars at 1.4 pesos to the dollar.
* A five-year peso-denominated bond bearing interest of two percent on top of an inflation index for term deposits either in pesos or converted to pesos from dollars.
* A 10-year dollar-denominated bond paying six-month Libor for anyone with more than 10,000 pesos in the bank. Those pesos would be converted into dollars at 1.4 pesos to the dollar.
* Each bond can be sold ahead of maturity at market rates to buy newly built homes or new vehicles.
* Savings can also be converted into deposit certificates to buy new shares or corporate debt.
One banking analyst said this meant that a depositor with $10,000 on Jan. 1 who saw it converted to 14,000 pesos the same month may now opt to turn it back into $10,000 if they are willing to accept a 10-year dollar bond from a government currently bankrupt or leave it in a bank that could go bust.
COMPLAINING DEPOSITORS
Depositors complain their life savings, most of which had originally been made in dollars but were forcibly turned into pesos after January's devaluation, would be returned in dollar bonds at a devalued rate or in deposit certificates.
"I don't want a bond or a certificate. I want my money in dollars and I want it now," said one woman banging pots and pans in front of the local head office of a U.S.-based bank.
Bankers do not like the plan because they cannot anticipate how many of their clients will swap their deposits -- making it difficult to predict their business' future viability.
One banker said he expected daily protests against financial institutions to abate now that savers can choose from a range of realistic options rather than face their savings being forcibly turned into bonds as the government had once planned.
"The plan was one of the few ways out of the mess. There is always a calculation between politics and the economics of the banking system, but it is a step in the right direction," said Robert Lacoursiere, a banking analyst for Lehman Brothers.
If few depositors choose to swap their savings and insist on withdrawing cash that banks do not have in their vaults, then banks and savers are assured bankruptcy, one banker said.
But if enough savers convert their deposits, then that may shift part of the onus of refunding to the bankrupt government in three, five and 10 years through bonds and another part by exchanging deposits certificates for shares and investments.
"My idea is to get my money out of the bank the quickest way possible. If you leave your money there, they might change their mind and you might not see it for another 20 years. I'll use it to invest in an apartment or whatever," said Monica, a woman in her 50s.
Depositors' alternative is to leave their life savings in banks, in pesos that currently trade at 3.64/3.66 (buy/sell) to the dollar for large-scale transactions , and run the risk of further government policy changes or a bank failure.
"What's a peso going to be worth in 5 years anyway? By the time 2007 comes, who knows where Argentina will be. I'll take the security of the dollar. It's better to make sure I get my money back," said Carlos, another saver in his 50s.
At least a third and perhaps as much as half of eligible funds could be swapped into bonds or certificates, enough to alleviate liquidity pressures on the top banks in Argentina, said Rafael Ber, analyst at Argentine Research consultancy.
Then, with at least 10 billion pesos ($2.76 billion) in funds changing hands either as government bonds or deposit certificates, those funds will serve as a new indicator of investor confidence in government economic policy, Ber added. (Additional reporting by Alistair Scrutton and Brian Winter)