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Argentina Abandons Dual Exchange Rate - 2002-02-04

Argentina's Economy Minister Jorge Remes Lenicov said Sunday his government would abandon the dual exchange rate implemented January 6 for the country's peso, and instead, let the peso float freely. He also confirmed media reports that all dollar deposits would be converted to pesos at a rate of 1.4 to one, while all dollar loans, no matter how large, would be switched to pesos at a one-to-one rate.

Mr. Remes said the government intends to "pesify" the Argentine economy and abandon the peso's link to the U.S. dollar. Like other countries, Argentina will set its own monetary and foreign exchange policy.

From 1991 to 2001, the peso was pegged at one-to-one to the U.S. dollar, giving Argentina little control over its own monetary policy. By weaning Argentina off the greenback and adopting one foreign exchange rate, the government hopes to boost exports, help tourism and local industry and create much-needed jobs.

Mr. Remes said Argentina has enough foreign currency reserves to defend the peso if it sank too low. With a prudent monetary policy, including strict controls on how many bills the Central Bank can print each year, he said, the government will maintain the value of the peso.

He said the past four years of recession were the result of a decline unseen in Argentina's history. Manufacturing sector plunged 16 percent and foreign investment dropped 43 percent, while the numbers of jobless and poor soared. Four out of 10 Argentineans live in poverty, he said.

Mr. Remes said Argentina has lived on borrowed money for so many years that today, federal, provincial and private debt equals the country's annual gross domestic product, or close to $276 billion.

He said the main goal of the economic plan is to jump-start production and foreign trade, balances the budget, create jobs and reduce poverty. The government's austerity program, he said, will start with the budget to be submitted to Congress on Tuesday. The overhaul of the tax system and government reforms will have to wait until next year, he said.

The economic plan was due out Saturday, but a surprise ruling by the nation's highest court Friday, that declared the government limits on bank withdrawals unconstitutional, forced the government to make revisions and declare a banking and foreign exchange holiday for Monday and Tuesday.

The withdrawal restrictions that froze around $47 billion in dollar-denominated accounts sparked violent protests that helped topple two presidents since December.