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Argentina devalues peso after Congress approves emergency economic measures

By Tony Smith, Associated Press, 1/6/2002 19:52

BUENOS AIRES, Argentina (AP) Argentina's economy minister announced the devaluation of the peso Sunday, overriding foreign investors' concerns and ending a decade-long policy pegging the currency one-to-one with the U.S. dollar.

Jorge Remes Lenicov said 1.4 pesos would now buy $1, with the country embarking on a two-day banking holiday starting Monday to allow for the transition from the old currency regime.

The announcement came hours after lawmakers granted President Eduardo Duhalde emergency powers to reform Argentina's crisis-stricken economy, mired in nearly four years of recession.

''We want our country to be like any other,'' Lenicov told a news conference. ''We must decide what kind of economic policy is most appropriate for our reality.''

He also said the government would present a 2002 budget the third week of January that would include ''austerity and fiscal balance.''

The bill passed Sunday gives Duhalde the power to pass some laws without congressional approval for the next two years. It sailed through the lower house of Congress late Saturday night and won Senate approval Sunday.

The easy passage marked an early victory for Duhalde, who took office Wednesday as Argentina's fifth president in two weeks following days of rioting and looting that forced President Fernando de la Rua from office and brought on a series of interim leaders.

Duhalde signaled Friday that a devaluation was ''a given'' in order to overcome the deep economic crisis.

Changing the value of the peso heralds a radical departure from the fixed currency regime and free market economics that were a bedrock of South America's No. 2 economy over the past decade. Duhalde also plans to reform the banking system, control prices and protect local industry and jobs.

The reforms and devaluation have made foreign investors nervous. They fear a devaluation will slash their profits and the government will protect local industry with old-fashioned, less market-friendly policies.

Analysts say a steep drop in the peso's value could trigger billions of dollars in losses for Spanish companies, including telecommunications giant Telefonica, oil company Repsol-YPF and two major banks, Santander Central Hispano and Banco Bilbao Vizcaya Argentaria.

France's Foreign Minister Hubert Vedrine, concerned for investments by companies like Carrefour supermarkets, France Telecom and the automaker Renault, also urged his Argentine counterpart Carlos Ruckauf in a diplomatic note to ''do everything in your power to protect our companies.''

Presidential spokesman Eduardo Amadeo said Duhalde and Lenicov would start ''a serious dialogue'' with representatives of foreign companies starting Monday.

''We can't slap in the face people who have invested in Argentina,'' Amadeo said. ''We want foreign investment because it means jobs.

Duhalde says he needs special powers to rebuild the crumbling economic foundations of a country whose banks, currency and political institutions have been devastated by nearly four years of withering recession.

Its accounts drained by the slump, Argentina defaulted on its staggering $141 billion public debt last week, missing a $28 million payment on a foreign bond for the first time.

Then, on Saturday, the government announced a 2001 budget deficit of $11 billion, nearly double the target agreed between Argentina and the International Monetary Fund.

While foreign companies were concerned about profits, many ordinary Argentine families were worried a devaluation would leave them broke. Although they earn in pesos, about 80 percent of contracts, including bank debt and utility bills, are denominated in dollars.

Moving to protect the indebted, Duhalde wants loans up to $100,000 to be switched into pesos at the old rate of one peso to one dollar. He ordered power, water and gas bills also switched to pesos at the one-to-one rate.

The plan also called for a 180-day freeze on layoffs, and companies firing staff during that period will have to pay double compensation.

But it would also extend an unpopular partial freeze on Argentines' bank accounts, introduced by former President Fernando de la Rua on Dec. 1 to prop up the financial system after depositors yanked $2 billion in one day in a run on banks.

-- Anonymous, January 07, 2002