Argentina’s economy minister announced a sharp devaluation of the peso, overriding foreign investors’ concerns and ending a decade-long policy pegging the currency one-to-one with the US dollar.
Announcing what many expect to be a tricky-to-manage dual exchange rate, economy minister Jorge Remes Lenicov said yesterday that 1.4 pesos would now buy 1 dollar 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.
Yesterday's announcement came hours after President Eduardo Duhalde was granted 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 Argentina was heading back down the road to protectionism and profligate practices of the past such as the uncontrolled printing of money that sent South America’s No. 2 economy into a frenzied spiral of hyperinflation in the 1980s.
‘‘We don’t want to implement any strange policies,’’ he said. ‘‘We are not going to close the economy. We must continue to open it and make it more competitive.’’
Remes Lenicov said he would present a 2002 budget of ‘‘austerity and fiscal balance’’ later this month, and he hoped the economy would stabilize enough to allow the peso to float freely on foreign exchange markets within six months.
Argentina is preparing to renegotiate its massive 141 billion dollar public debt that it defaulted on last week and is moving to mend fences with the International Monetary Fund after it cut off funding in December, he said.
‘‘We are presenting a sustainable plan,’’ he said. ‘‘And for that, we should receive help.’’
US President George W. Bush has said a ‘‘sustainable plan’’ was a condition for renewed international support.
The bill gives the government 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 yesterday.
The passage marked an early victory for Duhalde, who took office on 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.
Changing the value of the peso heralds a radical departure from the fixed currency regime and free market economics that were a bedrock of Argentina’s economy and a magnet for foreign investment over the past decade.
Duhalde’s nationalist rhetoric and devaluation plans have spooked foreign investors, who fear a slump in profits and government support of local industry with old-style protectionist 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 the government would start ‘‘a serious dialogue’’ with representatives of foreign companies starting today.
‘‘We can’t slap in the face people who have invested in Argentina,’’ Amadeo said. ‘‘We want foreign investment because it means jobs.