BUENOS AIRES, Argentina – Argentina's economy minister announced a sharp devaluation of the peso Sunday, overriding foreign investors' concerns and ending a decade-long policy pegging the currency one-to-one with the U.S. dollar.
Outlining what many expect will be a tricky dual exchange rate, Jorge Remes Lenicov said 1.4 pesos would now buy $1 for import, export and other capital transactions, while individual Argentines would have to buy hard currency on the open market.
That free-market rate will be determined after a two-day banking holiday that starts Monday to allow for the transition from the old currency regime.
The announcement came hours after lawmakers granted President Eduardo Duhalde emergency powers to rebuild Argentina's economy, ravaged by nearly four years of recession.
Once seen as an inflation-slaying panacea for emerging markets, the dollar peg, in place since 1991, has recently been blamed for dragging Argentina deeper into the slump by making its goods too expensive to compete abroad or to fend off imports at home.
"This is a change of course," Remes Lenicov told a news conference. "The old way wasn't going anywhere."
He denied that Argentina was headed back down the road to protectionism and the profligate practices of the past, such as the uncontrolled printing of money that sent South America's No. 2 economy into a spiral of hyperinflation in the 1980s.
"We don't want to implement any strange policies," he said. "We are not going to close the economy. We must continue to open it and make it more competitive."
By presenting a 2002 budget of "austerity and fiscal balance" later January, Remes Lenicov said he hoped the economy would stabilize enough to allow the peso to float freely on foreign exchange markets within six months.
Argentina is preparing to renegotiate its massive $141 billion public debt which it defaulted on last week and is moving to mend fences with the International Monetary Fund after it cut off funding in December, he said.
President Bush has said a "sustainable plan" was a condition for renewed international support.
"We are presenting a sustainable plan," Remes Lenicov said. "And for that, we should receive help."
The bill passed Sunday gives the government power to pass some laws without congressional approval for the next two years. It sailed through the lower house of Congress late Saturday night and won Senate approval Sunday.
The passage marked an early victory for Duhalde, who took office Wednesday as Argentina's fifth president in two weeks following days of rioting and looting that forced President Fernando de la Rua from office and brought on a series of interim leaders.
Changing the value of the peso heralded a radical departure from the fixed currency regime and free market economics that were a bedrock of Argentina's economy and a magnet for foreign investment for a decade.
Duhalde's nationalist rhetoric and devaluation plans have scared foreign investors, who fear a slump in profits and government support of local industry with old-style protectionist policies.
Analysts say a steep drop in the peso's value could trigger billions of dollars in losses for Spanish companies, including telecommunications giant Telefonica, oil company Repsol-YPF and two major banks, Santander Central Hispano and Banco Bilbao Vizcaya Argentaria.
France's Foreign Minister Hubert Vedrine, concerned about investments by companies like Carrefour supermarkets, France Telecom and the automaker Renault, also urged his Argentine counterpart, Carlos Ruckauf, in a diplomatic note to "do everything in your power to protect our companies."
Presidential spokesman Eduardo Amadeo said the government would start "a serious dialogue" with representatives of foreign companies starting Monday.
"We can't slap in the face people who have invested in Argentina," Amadeo said. "We want foreign investment because it means jobs.
Argentina certainly needs those.
The jobless rate has spiraled to over 18 percent and nearly a third of Argentina's 36 million people in what had long been Latin America's richest country are now living below the poverty line.
Its accounts drained by the slump, Argentina missed a $28 million payment on a foreign bond for the first time. Then, on Saturday, it announced a 2001 budget deficit of $11 billion, nearly double the target agreed upon with the International Monetary Fund.
While foreign companies were concerned about profits, many ordinary Argentine families were worried a devaluation would leave them broke. Although they earn in pesos, about 80 percent of contracts, including bank debt and utility bills, are denominated in dollars.
The plan extends an unpopular partial freeze on Argentines' bank accounts, introduced by de la Rua on Dec. 1 to prop up the financial system after depositors yanked $2 billion in one day in a run on banks.