Argentina's Congress is meeting Saturday to debate President Eduardo Duhalde's emergency economic plan that would give the executive branch emergency powers to deal with the country's faltering economy. The first step Mr. Duhalde is expected to take is a 40 percent devaluation of the peso.
A draft bill that gives Mr. Duhalde special powers to boost Argentina's struggling economy was sent to Congress Friday, but members decided to delay debate until the fine print is put in to avoid any messy loopholes.
The draft bill declares Argentina to be in a state of public emergency and allows the executive branch to take on extraordinary powers to deal with the social, economic, monetary and financial crises. The bill gives the president the power to devalue the peso, which has been pegged at one-to-one to the U.S. dollar for 11 years, and convert dollar debts into pesos.
But the draft measure didn't set a limit on the amount of dollar loans small debtors would be allowed to convert to pesos. The lower house wants that limit set at $100,000 before taking up debate on the final draft. According to local media reports, loan losses stemming from the so-called "pesification" - switching dollar assets into pesos - would be covered with extra revenues from a new tax on fuel exports.
Another sticking point for Congress is that the bill includes a plan to roll back limits on cash withdrawals that have been in place since December 1. Under the restrictions, depositors can withdraw from their accounts up to 1,000 pesos per month. The bank limits have triggered street protests by middle class Argentines, and Congress wants to avoid further violence from adding to the government's political problems.
Mr. Duhalde's plan also moves all utility bills to pesos despite agreements with foreign operators that put contracts in U.S. dollars. Congress wants to assure this part of the bill is foolproof, given that foreign corporations that now run public utilities are putting up a fight.
All public utilities were sold off in the early 1990s as part of former president Carlos Menem's free-market reforms. Spanish companies alone stand to lose $3 billion under devaluation, and Spain is lobbying hard to protect its business interests in Argentina.
The bill also moves rent contracts to pesos at a one-to-one rate where they must remain for the next six months during which time landlords and tenants can renegotiate.
The new peso will trade at 1/40 to the U.S. dollar and already there are signs of inflation in downtown Buenos Aires despite Mr. Duhalde's appeal for retailers not to raise prices. Appliance and electronic stores with imported stock have marked up prices between 20 and 40 percent. Supermarket prices haven't changed much as owners, already dealing with declining sales after nearly three and half years of recession, want to keep prices low to attract customers.
Devaluation fears are hitting the nation's pharmacies and hospitals the hardest. Distributors blame the laboratories while labs blame distributors but what is clear is that urgent medicine and basic supplies aren't reaching pharmacy shelves.
The situation is so grave that some public hospitals are close to shutting their doors. On Friday, Brazil's President Fernando Henrique Cardoso said his country would supply Argentina with urgent medicines for diabetes, AIDS and cancer treatments. Cabinet Chief Jorge Capitanich was meeting with pharmacy owners Saturday to come up with some solution.
To prevent a speculative attack on the Argentine peso before the bill is enacted and devaluation becomes official, the Central Bank extended the partial banking holiday through Tuesday, limiting all bank transactions to pesos.