Argentina reportedly to devalue peso

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Posted 10:20AM on Thursday, January 3, 2002

BUENOS AIRES, ARGENTINA - New President Eduardo Duhalde was putting together his Cabinet on Thursday, as reports said one of the government's first decisions would be to devalue the peso by as much as 40 percent. Duhalde, 60 and a veteran of the Peronist Party's left-leaning, populist wing, took office Wednesday as Argentina's fifth president in two weeks, hinting he would veer away from the free-market economic policies he blames for his country's ruin. The new leader - who promised a ``program of national salvation'' - was to name his Cabinet on Thursday, and it appeared he was drawing heavily from the Peronist party and the business sector, with a few posts going to the opposition. Buenos Aires Gov. Carlos Ruckauf, a Peronist heavyweight, said he had been chosen as foreign minister and economist Jorge Remes Lenicov would be economy minister. Remes Lenicov, a Peronist, was economy minister of Buenos Aires province from 1989 to 1997. In the past, he has shied away from the International Monetary Fund-recommended recipe for development - austerity policies, unbridled markets and international free trade. Industrialist Jose de Mendiguren was to be minister for production, while Jorge Capitanich, a young economist who last week served for 48 hours as economy minister, would be chief of Cabinet, the Clarin and La Nacion newspapers reported, citing unnamed sources. One of the first moves expected from the new government was an emergency law to allow the devaluation of the peso, anchored at one-to-one to the dollar by legislation passed in 1991. Media reports said the new government would initially fix a new exchange rate of between 1.30 and 1.40 to the dollar for the next 90 days. During that period, Clarin reported the government would try to negotiate a $15 billion aid package with the IMF. For financial and commercial transactions, the peso would then be floated against a basket of currencies including the dollar, the euro and the real of neighboring Brazil, Argentina's biggest export market, the business newspaper BAE reported. The dollar peg at first brought price stability and a boom in foreign investment, but it has been blamed more recently for making industry less competitive and deepening a four-year slump. The dogged defense of the peg by former Economy Minister Domingo Cavallo cost Argentina the support of the IMF, which cut a $1.3 billion lifeline on Dec. 5. With its national accounts in chaos in late December, Argentina suspended payments on the share of its massive $132 billion public debt held by foreign investors. To assuage Argentines enraged by a partial bank freeze that limits cash withdrawals from their accounts to $1,000 a month, the government was expected to announce a 180-day timetable for deposits to be returned, Clarin reported. Duhalde promised Tuesday that deposits would be returned in whatever currency - dollars or pesos - they had been made in. There would be a special plan to allow Argentines to pay off their dollar-denominated debts in pesos, according to BAE. Clarin said electricity, gas, water and telephone bills, currently written in dollars, would also be transferred to pesos. On Wednesday, groups of drum-banging, flag-waving Duhalde supporters took to the streets to celebrate. But some Argentines were skeptical, noting that Duhalde was known for big spending during his two terms as Buenos Aires governor from 1991 to 1999. Although it is Argentina's richest and most populous province - home to a third of the country's 36 million people and producing a third of the economy's output, the province ran a deficit for all but two of those years. Provincial debt rocketed from about $2 billion to $4.6 billion at the end of 2000, at the peso's current one-to-one rate. Duhalde has defended public outlays, saying the needs of the poor come first.