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Argentina Braces for Floating Currency - 2002-02-09

Argentine President Eduardo Duhalde has denounced what he called a "campaign by speculators" to create uncertainty just as Argentina prepares to let its devalued currency float freely on currency markets.

resident Duhalde says there is a campaign by speculators to generate what he called a "climate of insecurity" in Argentina. But the Argentine President said Saturday any doubts over his economic policies will be cleared up in a short time and urged Argentines to have confidence in his government.

Mr. Duhalde spoke Saturday on state-run radio during his program, "Talking with the President." His comments came as his government prepares Monday to start letting Argentina's currency float freely on the markets.

Mr. Duhalde, who became President on January 1, devalued the peso last month. But he imposed a two-tiered exchange rate system aimed at preventing the currency from losing too much of its value too quickly.

Until then, the peso had been pegged one-to-one to the U.S. dollar since 1991 - an exchange rate regime that at first brought stability but became unsustainable over the past few years as Argentina became mired in debt and recession.

The government's decision to abolish its dual exchange rate system and let the peso float has been welcomed by the International Monetary Fund. But the move has raised fears in Argentina that the peso could lose more than 50 percent of its value starting next week.

It is now trading on the black market at around two pesos to the dollar, and speculators say it could go higher when the new exchange rate regime begins Monday. The government imposed a currency exchange holiday during the week that is just ending.

Newspaper columnist James Neilson says uncertainty over the peso's future is being driven by widespread distrust of Argentina's political leaders.

"As nobody trusts the politicians, nobody trusts the ability of the politicians to maintain a solid currency. Argentines have bought in dollars, the dollar for them is the only real money around and this [mindset] has been so for about 50 years," he said. Meanwhile, the head of Argentina's Central Bank says he expects some difficult days ahead starting Monday, but expects the currency to stabilize in coming weeks. In comments published by Argentina's two leading newspapers Saturday, Bank chief Mario Blejer predicted the currency will eventually stabilize at around 1.6 to the dollar.

Mr. Blejer added the Central Bank has plenty of foreign currency reserves some $14 billion to handle any situation that might arise. In addition to letting the peso float freely Monday, the government also is lifting certain restrictions on bank withdrawals that were imposed in December by a previous government to prevent a collapse of the financial system. However, other restrictions will remain in place.

These restrictions and the peso devaluation continue to spark protests. More than 5,000 people filled the central Plaza de Mayo in downtown Buenos Aires late Friday to denounce the country's political leaders for Argentina's dire situation accusing them of corruption and mismanagement.

Similar protests in December brought about the resignation of two Presidents in less than 10 days. Mr. Duhalde, a former Senator and governor, was chosen by Congress to govern Argentina until December 2003.