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Argentina Implements Dual Peso Exchange Rate System - 2002-01-07

For the first time in 11 years, Argentines woke up Monday to a new exchange rate after both houses of Congress approved an emergency economic bill over the weekend. The government said that for now there will be two exchange rates: an official one set at 1.4 pesos to the dollar and a parallel one for everyday use that will trade on the free market.

President Eduardo Duhalde met with a representative of small and medium sized businesses and the leaders of a leftist unemployed workers group Monday on the first day after his government put an official end to 11 years of the peso to dollar currency peg.

Argentina's Central Bank declared Monday and Tuesday banking holidays so with no foreign exchange operations and the local stock market closed, it is hard to judge the financial sector's reaction to the series of new measures.

By putting an end to convertibility, the government reclaimed monetary policy as an economic tool and officials hope this will allow Argentina to slowly emerge from three-and-a-half years of a grinding recession.

In a move that pleased citizens and local businessmen alike, the government moved all debts under $100,000 to pesos at the old one-to-one rate. The government also decided to switch all utility contracts to pesos much to the dismay of the privatized utilities who wanted to keep the contracts in U.S. dollars.

Osvaldo Cornide, president of a small business chamber of commerce, met with President Eduardo Duhalde Monday and later told the press he had called off tonight's scheduled protest.

Angry middle-class Argentines banging pots and pans have brought down two presidents in the past three weeks and Mr. Cornide said he warned Mr. Duhalde that Argentines would be sleeping with their pots under their pillows just in case.

While 1.8 pesos will still buy a pack of cigarettes and 70 centavos a liter of milk, Mr. Cornide said suppliers have begun raising prices on some basic goods and that inflation might be close behind.

Mr. Cornide said shop owners wouldn't willingly raise prices, not out of a sense of kindness but because it is a difficult market to sell anything. He called on the government and consumer groups to be on the alert for outrageous markups.

Mr. Duhalde also met with leaders of the Class Combat Movement, which groups unemployed workers. Juan Carlos Alderete, head of the group, called on Mr. Duhalde to keep former interim president Adolfo Rodriguez Saa's promise to create one million jobs.

Mr. Alderete also accused wholesalers of marking up prices on basic staples like sugar and flour, which he said hurts the poor.

"We've called on all consumer rights groups to denounce stores that mark up prices because, if we don't, our salaries will be stolen just like the banks stole the savings of small depositors. We want to see these bankers who destroyed our country and who stole from depositors behind bars and our brothers who fought for another Argentina freed," Mr. Alderete told reporters.

All Argentines are extremely worried about a return to the days of hyperinflation that saw their currency converted into nothing more than useless paper. The four-digit inflation was the reason the 1991 Convertibility Law was passed.

Mr. Duhalde said he hoped Argentines would follow the example of their Brazilian neighbors who kept their faith in their currency, the real, after a January 1999 devaluation.