Archive for Monday, January 7, 2002

Argentina cuts ties to dollar

January 7, 2002

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— Argentina's economy minister announced a sharp devaluation of the peso Sunday, overriding foreign investors' concerns and ending a decadelong policy pegging the currency one-to-one with the U.S. dollar.

Outlining what many expect will be a tricky dual exchange rate, Jorge Remes Lenicov said 1.4 pesos would now buy $1 for import, export and other capital transactions, while individual Argentines would have to buy hard currency on the open market.

That free-market rate will be determined after a two-day banking holiday that starts today to allow for the transition from the old currency regime.

The announcement came hours after lawmakers granted President Eduardo Duhalde emergency powers to rebuild Argentina's economy, ravaged by nearly four years of recession.

Once seen as an inflation-slaying panacea for emerging markets, the dollar peg, in place since 1991, has recently been blamed for dragging Argentina deeper into the slump by making its goods too expensive to compete abroad or to fend off imports at home.

"This is a change of course," Remes Lenicov told a news conference. "The old way wasn't going anywhere."

He denied that Argentina was headed back down the road to protectionism and the profligate practices of the past, such as the uncontrolled printing of money that sent South America's No. 2 economy into a spiral of hyperinflation in the 1980s.

By presenting a 2002 budget of "austerity and fiscal balance" later January, Remes Lenicov said he hoped the economy would stabilize enough to allow the peso to float freely on foreign exchange markets within six months.

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