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Friday, 4 January, 2002, 05:47 GMT
Argentina braced for crisis measures
Queue outside bank
Limits on bank withdrawals led to a cash shortage
Argentines expect to find out on Friday how the new government will tackle the country's economic crisis, amid widespread talk it is planning a major devaluation of the currency.

Newly-appointed interim President Eduardo Duhalde is expected to announce a package of emergency economic measures to try to end the country's four-year recession, blamed for causing the social unrest which has seen Argentina go through five presidents in two weeks.

A member of Mr Duhalde's economic team told the BBC that Argentina was on the edge of a precipice, but that the crisis was also a chance to rebuild.

Eduardo Duhalde
Mr Duhalde is struggling to garner support
But for millions of ordinary Argentines, the emergency measures are likely to mean the economic situation gets worse before it gets better.

"Argentina will suffer major changes that are necessary in this time of crisis," said Cordoba provincial Governor Jose de la Sota.

Many observers are fearful of the reaction to the measures expected to be announced on Friday.

Mr Duhalde's newly-appointed economy minister, Jorge Remes Lenicov, is reported to be preparing to end Argentina's policy of pegging its national currency, the peso, at one-to-one to the US dollar.

The peso would then be allowed to fall in value to a target range of 1.30 to 1.40 to the dollar, a devaluation of about 30%. It would then be pegged to a basket of currencies including the Brazilian real, the Japanese yen and the euro.

Debt default

Devaluation would help Argentina's exporters and, in time, the economy.

Argentina in crisis
Early December, IMF refuses to disburse $1.3bn aid
20 December: President de la Rua resigns after riots
23 December: Adolfo Rodriguez Saa sworn in
30 December: Mr Rodriguez Saa resigns
1 January: Eduardo Duhalde elected president
2 January: News that Argentina's debts have risen to $141bn emerge
Argentina officially defaults on its debt

But people with mortgages and debts - most of which are denominated in dollars - will have to find more pesos to keep up the payments.

"It's very simply, I'm screwed," Oswaldo Hernandez told Reuters news agency. Mr Hernandez, who owns a small metal shop, explained that his sales were in pesos but his debts in dollars.

Bigger businesses were preparing for the new measures, too, amid reports that shops selling imported goods had already hiked prices in anticipation of a more expensive dollar.

Some medicines were also reported to be running low as wholesalers held back their stocks, preferring to sell them at higher prices after devaluation.

Details of the new economic measures "may arrive" in Congress on Friday, said incoming treasury secretary Oscar Lamberto.

Protester in Buenos Aires
Some protesters want elections now
"The idea would be to work [on Friday] and Saturday, so that the law can be approved before markets open on Monday," he said.

The new measures were being finalised as Argentina officially defaulted on its $141bn public debt after missing a $28m payment on a bond on Thursday.

"We are now in default. The bond payment was not made," a government source told Reuters.

The official default, which followed last month's suspension of payments, will cut Argentina off from fresh international loans.

"The real issue is going to become how private lenders are treated vis a vis multilaterals and the Paris Club," Hans Hume, spokesman of the Argentine bondholders committee told the BBC's World Business Report.

Shares soar

Ahead of the official default and the anticipated devaluation, Argentine citizens continued to invest their cash in shares to protect themselves against a fall in their currency's purchasing power.

My commitment is to do away with an exhausted economic model

President Eduardo Duhalde

The benchmark ValMer index rose 5% on Thursday, building further on the 9% rise on Wednesday.

Demand for other assets, such as property and jewellery, has also risen sharply due to the devaluation speculation

Among Mr Duhalde's promises is to protect billions of dollars locked in bank accounts since strict limits were put on cash withdrawals in the run-up to and during Christmas.

But many people were this week still lining up outside the banks to withdraw their cash.

Leap in the dark

Martin Redrado, chief economist at the Buenos Aires think-tank Fundacion Capital, said Mr Duhalde's economic plan was "a leap into the unknown".

It was likely to entail a more protectionist approach than his predecessors, Mr Redrado added.

The president has already commented that the free-market policies have left Argentina "without a peso".

Mr Duhalde is the second president elected by Congress since Fernando de la Rua resigned on 20 December, forced from office by rioting and looting which left 27 people dead.

Roger Nightingale, Saracens' Bank
"The option is devaluation and I am sure that is the one we are going to see"
Hans Hume, Argentine bondholders committee
"The real issue is going to become how private lenders are treated"
The BBC's Daniel Schweimler
"Those who have money are spending wildly"
See also:

02 Jan 02 | Americas
Argentina seeks world help
02 Jan 02 | Americas
New man takes helm in Argentina
01 Jan 02 | Media reports
Press lambasts Peronist 'infighting'
01 Jan 02 | Business
Argentina faces grim economic future
31 Dec 01 | Americas
Argentina's toughest job
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