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Analysts Say Argentine Peso Should Stabilize Soon - 2002-02-11

In Argentina, the value of the peso closed stronger than expected Monday the first day it was allowed to float freely on currency exchange markets. At first, the peso traded as low as 2.30 to the U.S. dollar, but then ended the day at just over two pesos.

The peso slowly gained value against the dollar throughout the day Monday as Argentines crowded foreign exchange houses in Buenos Aires to buy and sell dollars. While prices varied, the Argentine currency closed the day at slightly over two pesos to the dollar, much stronger than the 2.3 it was trading at earlier in the day.

Monday marked the end of a week-long ban on foreign exchange trading, and the start of the government's new policy to let the peso float freely on currency markets. President Eduardo Duhalde, in office since the beginning of the year, first devalued the peso last month.

But he imposed a dual exchange rate system to cushion the impact of the devaluation following more than 10 years of pegging the peso one-to-one to the dollar. He set an official rate of 1.4 pesos to the dollar for certain operations, while letting the peso float for domestic transactions.

However, the Argentine leader early this month decided to abandon the dual exchange system and let the peso float freely to meet a key demand by the International Monetary Fund for providing Argentina with additional aid. He also announced all the money in dollar-denominated bank accounts would be returned in devalued pesos, not dollars, while dollar debts also would be converted into cheaper pesos.

This so-called "pesification" of the Argentine economy is another condition for obtaining IMF help. Mr. Duhalde's government is seeking more than 15 billiion dollars in emergency loans to help Argentina emerge from its financial crisis.

The South American nation, which for much of the 1990's experienced strong growth, is now mired in a nearly four-year recession. It has defaulted on its massive $141 billion debt and about 22 percent of the work-force, or more than three million people, are jobless.

Monday's strong showing of the peso followed weekend government warnings that the Central Bank would intervene, if necessary, to prop up the currency. Some analysts warned that a sharp decline in the peso's value could spark price hikes, which in turn could trigger hyperinflation.

But government officials has dismissed these warnings as alarmists. Presidential spokesman Eduardo Amadeo said Monday the government expects the peso's value to go up and down these first days, but then stabilize at a reasonable rate in a few weeks.