Which are the highlights of the new currency and banking reform plan launched by President Duhalde on January 7, 2002?
- Argentina
- 01/07/2002
- Hourbeigt Ruiz Martinez & Padilla
President Eduardo Duhalde won special powers from Congress to devalue the one-to-one peg of the peso to the US dollar.
Economy Minister Jorge Remes Lenicov announced that Argentina will officially fix the rate of exchange at 1.4 peso to the dollar, a devaluation of about 28.5 percent, bringing an end to almost 11 years of convertibility, a policy introduced by former Peronist President Carlos Menem and former Ministry of Economy Domingo Cavallo in March 1991.
The new official rate in the dual exchange system will come into effect on Wednesday, January 9, 2002, as the government has decreed an exchange holiday for January 7 and January 8, 2002.
The government hopes the non-official peso that will float freely on markets will stand at “very similar levels” to the official peso. The dual rate of exchange will only last for a few months, possibly five or six months, before the peso begins to float in a basket of currencies.
The government is working on a mechanism to “introduce gradual flexibility” to unpopular banking restrictions ordered by De la Rúa’s Economy Minister Domingo Cavallo on December 1 to halt a run on the banks. The first accounts to be made more flexible are those used to deposit workers’s wages. The monthly withdrawal limit, which now stands at 1,000 pesos, will most likely be pushed up to 1,500 pesos.
The currency in which the money was deposited (US dollars or pesos) is going to be kept.
On January 6, 2002, the Senate gave final approval, unchanged, to an omnibus bill that gives permission to the executive branch to bypass Congress and reform the banking system, control prices and take steps to protect local industry and jobs.
In early February Argentina will resume talks to renegotiate its 132-billion-dollar public debt.
Although argentine workers earn in pesos, about 80 percent of contracts, including bank debt and utility bills, are denominated in dollars. Moving to protect the indebted, the bill aproved orders that most loans up to 100,000 dollars be switched into pesos at the old rate of one peso to one dollar. Power, water, gas and telephone bills will also be switched to pesos at the one-to-one rate.
