Distraught Argentines Look for Solutions

Peso plunges by 44 pc against dollar

Argentina’s peso tumbled as much as 44 per cent against the dollar as exchange houses opened for the first time since the Government said it would devalue the cur­rency and default on its debts. The peso was quoted at 1.8 per dollar at money-changers in Buenos Aires, indicat­ing President, Mr Eduardo Duhalde, will fail to keep it fixed at the 1.4 rate set, trad­ers said. Mr Duhalde gave up the one-to-one peg to the dollar, in place for a decade, in a bid to revive growth and rebuild confi­dence in the economy.

Hundreds of depositors stood in lines at money-changers after rioters overnight smashed bank windows and looted stores to protest the Government’s decision to freeze more than $23 billion of savings. State-owned Banco de la Nation, Banco de Galicia ? Buenos Aires and others refused to sell dollars. “I just want to get rid of my pesos,” said Ms Vicente Lopez, 62, a retired engineer, as she waited to change money at ex­change house, Italtur SA. “At this stage it is better to cut my losses and change what­ever I can for whatever price, because whichever way I look at it, I’m going to lose.”

The peso’s decline was limited by the Government’s decision to reduce the amount of money in circulation through a freeze on deposits, withdrawal restric­tions and a central bank order blocking banks from selling the US currency via electronic transactions, analysts said.

Forecast

J.P. Morgan Chase & Co has forecast the peso may weaken to 2.7 per dollar by the end of this year. In neigh­boring Brazil, the real strengthened for the first day in four, as currency traders said the peso fell less than they had ex­pected. Most financial transactions had been halted since food riots toppled former President, Mr Fernando de la Rua’s Gov­ernment on December 20 and killed sever­al people. Argentina allowed banks to set their own rates and conduct business for the first time since then, though many opt­ed to wait for more direction from the cen­tral bank on how it will clear transactions. Argentina’s stock exchange was closed for a fifth day.

Some banks had asked the Government to extend a bank holiday through Monday so that they would have time to read new central bank rules, said Mr Jose Fernandez, General Manager of ABN Amro Ar­gentina. “Everything is still very confusing,” Mr Fernandez said. “My recommendation to our trading desk was not to do too much.” Mr Fernandez said his traders completed some transactions for exporters at the 1.4 peso rate.

Santander Central Hispano SA, Banco Bilbao Vizcaya Argentaria SA, and other foreign banks in Argentina stand to lose at least $6.2 billion as they write-off invest­ments in South America’s second-largest economy, Standard and Poor’s analysts said on a conference call,Vice-Economy Minister, Mr Jorge To-desca, said a new central bank rule pro­hibits companies from making payments on their dollar debts unless they first nego­tiate a three-year extension on maturities. Companies have a total $7.8 billion of for­eign debt due this year.

Mr Duhalde fixed the peso at 1.4 per dollar for banking and trade payments and said exchange houses would be al­lowed to set their own rates. Economy Ministry officials said then that they ex­pected the market rate would remain close to the official rate for several months. The International Monetary Fund advised Argentina to let its currency float and investors have doubted the Govern­ment would be able to maintain a fixed rate.

There is going to be massive corruption in importing and exporting,” said Mr Jim Barrineau, Vice-President at Alliance Cap­ital Management, with about $6 billion un­der management. ‘Eventually Argentina will have to capitulate to the IMF and ev­erything else.”

Demonstrators overnight smashed win­dows at banks such as BBV Banco Francos and Banco de Galicia, looted stores and clashed with police after the Government announced it would freeze certificate of deposit accounts, or more than a third of the nation’s $67 billion of savings. Thou­sands packed the Plaza de Mayo, adjacent to the Presidential palace before being cleared by police firing tear gas. The protest marked the biggest anti-Government rallies since Mr Duhalde took office January 1, the fifth President in the country in two weeks.

Many Argentines said they hurried to change money before the exchange rate fell further.

Source: The Hindu Business Line January 13, 2002.

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