BUENOS AIRES, Argentina – Argentina's Congress on Sunday approved an emergency bill giving President Eduardo Duhalde special powers to end a decade-old system of pegging the peso to the U.S. dollar, which he blames for economic and social chaos in the country.
Both the lower house and Senate, dominated by Duhalde's Peronist Party, voted overwhelmingly in favor the bill, clearing the way for the government to announce a devaluation.
Economy Minister Jorge Remes Lenicov is due to talk to reporters at 8:30 p.m. local time.
Duhalde's economic team has signaled that the devaluation will be around 30 percent, taking the peso from one to the U.S. dollar to 1.30-1.40 to the greenback.
"A new economy begins," declared the front-page headline of Clarin newspaper, which published 20 pages explaining how the devaluation will change life for the 36 million people in Latin America's third largest economy.
Duhalde, a populist from the Peronist party, became Argentina's fifth president in two weeks on Wednesday and immediately blamed the peg policy that his party created for "destroying the middle class" by making it one of the most expensive places to do business.
Now he has to move quickly to defuse a ticking social time bomb. The economy, mired in a four-year recession, has been all but paralyzed since Dec. 21, when rioting and looting left 27 dead and toppled former President Fernando de la Rua.
PRICES RISE SHARPLY
Medicines, including antibiotics for transplant patients, are running short and prices have risen on everything from refrigerators to bread as businesses hedge against devaluation. A $1,000 monthly limit on cash withdrawals remains in place, reducing purchasing power to a trickle and infuriating many middle-class Argentines.
"We hope that these measures lift us out of the crisis because we really cannot get worse," said Blanca Viglione as she played with her grandchildren in the park. "What I don't like is that they always say this will save us and then we just end up falling further."
Any wrong step by the government could bring Argentines back out on the streets, banging pots and pans in the spontaneous protests that have come to symbolize their disgust with politicians.
The devaluation will undoubtedly wreak havoc on an economy built on 10 years of peso stability, in which 80 percent of loans are in dollars but wages are paid in pesos.
Duhalde plans to soften the blow by allowing Argentines to pay dollar debts up to $100,000 with pesos at one-to-one. There should also be dual exchange rates, one fixed and one floating, for a transitional period.
But to avoid a return to the exchange paranoia of the 1980s and an accumulation of dollars, he will keep liquidity tight by maintaining the drastic restrictions on withdrawals decreed by De la Rua in late November, newspapers said.
A weekend poll by Aresco consultancy showed 52 percent of Argentines "highly" in favor of Duhalde's plans while another 34 percent gave a "medium" approval.
The Peronists are hoping devaluation will make Argentine products more competitive at home and abroad, spurring new industrial investment and reducing an unemployment rate of nearly 20 percent. They expect results in six months.
While economists say a more fairly valued currency will be a good start to reviving the economy, they note that problems run much deeper.
"It is true that it will improve competitive edge of certain sectors, but I don't see that competitiveness as the determining factor in restoring confidence," wrote former Central Bank chief Pedro Pou in a column in La Nacion.
POVERTY MOUNTS DAILY
With more than 2,000 people falling into poverty each day, families celebrated an austere Three Kings Day Sunday, when parents traditionally leave presents in children's shoes.
"I have been working here for three years and have never seen such a horrible year," said Juan, a toy store salesman. "The people bought five or 10-peso toys, nothing more."
The crisis is sapping more than just purchasing power: a medical study published Sunday showed it is also taking its toll on the male population's sex drive.
"Today the lack of desire is rising in men and one of the causes is the social, political and economic situation we are living," said Dr. Carlos Nolazco, one of the study's authors.
Duhalde, 60, who openly disdains free market policies of his predecessors, has made clear the Argentine people take priority over banks and foreign investors.
Economists fear his plans, especially allowing dollar debts to be paid in pesos, will weaken the dollar balance sheets of lenders already crushed by a sharp drop in deposits as wary Argentines stash money in safes rather than banks.
Foreign investors, mostly U.S. and Spanish companies who bought into utilities and banking with the privatization of state companies in the 1990s, stand to lose from the measures, which include converting public tariffs from dollars to pesos.
Duhalde, who lost the presidential race to De la Rua in 1999, also has to renegotiate with foreign creditors the $141 billion public debt, under a moratorium since Dec. 23 and technically in default since Thursday when Argentina missed a bond payment in Europe.
His government reestablished links with the International Monetary Fund, which has given Argentina $22 billion over the past year but fell out with De la Rua's administration because of its overspending.