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Argentina Braces for Peso Free-Float - 2002-02-11

Argentina is bracing for Monday's opening of currency markets when its already devalued peso will be allowed to float freely. The Argentine government says its Central Bank has enough reserves to support the peso's value.

Monday marks the end of a week-long ban on foreign exchange trading and the start of a free-float of the already devalued peso on currency markets.

The government of President Eduardo Duhalde, in office since the beginning of the year, devalued the peso last month. But at the time it set up a dual-exchange rate system to cushion the impact of the devaluation following a 10 year period in which the peso had been pegged one-to-one to the U.S. dollar.

However, the government decided to abandon the dual-exchange rate and to let the peso float freely to meet a key demand by the International Monetary Fund for providing additional aid to Argentina. Economy Minister Jorge Remes Lenicov travels to Washington Monday for talks with the IMF about the Argentine aid request.

The peso's value against the dollar could plummet when trading opens Monday. But Argentine officials said Sunday the Central Bank has enough reserves to support the peso's value. Presidential spokesman Eduardo Amadeo warned those who might bet against the peso that the government, as he put it, is dealing from a position of strength. The Central Bank said last week it has some $14 billion in international reserves.

President Duhalde made a similar warning on Saturday, saying speculators seeking quick profits at the expense of the peso will face the full might of the Central Bank. Speaking on his Saturday morning radio talk show, Mr. Duhalde went on to urge Argentines to have confidence in his government's economic policies.

Many analysts say the peso, which has already lost more than 40 percent of its value since January, could fall further sparking price hikes that could lead to hyperinflation. Argentina, which is mired in debt and recession, has been the scene of social unrest since December. Widespread protests forced two Presidents to resign in late December in a span of less than two weeks.

Demonstrations have continued under the Duhalde government, as people take to the streets of Buenos Aires and other cities banging pots and pans to demand a solution to the crisis. There are also growing calls by protestors for immediate new elections. President Duhalde, a former Senator and governor, was chosen by Congress to govern Argentina until December 2003.