Cautious reaction to peso devaluation

Leaner times look inevitable for Argentina's people

The Argentine people have reacted cautiously to their new government's decision to devalue the peso and end 10 years of parity with the US dollar in a dramatic bid to save the collapsing economy.

The new rate - of 1.4 pesos to $1, a devaluation of nearly 30% - could take effect within days.

What we need is a massive change in direction

Jorge Remes Lenicov
Economy Minister

As the BBC's Buenos Aires correspondent Daniel Schweimler pointed out, an ultra-cautious reaction is hardly surprising, since a procession of five presidents in little more than two weeks on top of years of mismanagement has left little faith in politicians or their promises.

But, he says, everyone is aware of that drastic measures are required to pull the economy out of a four-year recession, and a weekend poll suggested that a majority of the population were in favour.

Struggling for normality

The announcement came hours after lawmakers granted President Eduardo Duhalde emergency economic powers.

Promising an austerity budget within weeks and fresh negotiations on the country's $140bn foreign debt in early February, Economy Minister Jorge Remes Lenicov said it was time to make Argentina "like any other country".

"What we need is a massive change in direction, we need to take the steps that should have been taken some years ago," he said.

Remes Lenicov: "We want to have an economy like other countries'"

A two-day bank holiday begins on Monday to prepare for the devaluation.

Mr Remes Lenicov sought to reassure savers that the state would not take money from them and promised support for the most vulnerable sectors of society.

Sunday's plan of action comes after three weeks during which unrest spread through Argentine society, bringing down two presidents and leaving 27 people dead and severe cash shortages.

Emergency measures

The upper house of Congress, the Senate, passed the bill on presidential powers after an eight-hour debate following its passage through the lower house, the Chamber of Deputies, early on Sunday morning.

Argentina in crisis

Early December, IMF refuses to disburse $1.3bn aid

20 December: President de la Rua resigns

23 December: Adolfo Rodriguez Saa sworn in

30 December: Mr Rodriguez Saa resigns

1 January: Eduardo Duhalde elected president

2 January: Argentina's debts reported at $141bn

3 January: Argentina officially defaults on its debt

President Duhalde - who took office last Wednesday - says his new powers will enable him to overhaul the country's exchange, financial and banking systems, and restore the confidence of the Argentine people and the wider world.

The BBC's Daniel Schweimler in Buenos Aries says the devaluation of the peso will bring enormous hardship for many people, but the government believes lower labour costs and improved exports will boost the economy in the long term.

Thousands of worried Argentines had lined up at banks on Friday to withdraw pesos before their value fell, while some companies stopped taking credit cards for fear the transactions would not be processed before the devaluation.

"I want to dump these pesos as fast as I can," said Francisco Rosas, a 32-year-old school teacher.

President Duhalde has warned business people not to raise prices to make up for earnings lost from the devaluation, amid reports that prices in some shops are already up by as much as 20%.

In keeping with the populist tradition of his Peronist party, he has insisted that the Argentine people must come first.

Concern abroad

Announcing the devaluation, the economy minister suggested the peso could be floated within "four or five months".

The International Monetary Fund, he said, had called for floating the peso immediately.

The new government still faces much popular discontent

The minister said negotiations with the IMF would start in early February, and confirmed that Argentina would seek between $15bn and $20bn dollars in aid from the fund.

Argentina officially defaulted on its foreign debt on Thursday.

Foreign investors, particularly Spanish companies, are said to be nervous about the devaluation, fearing a drop in profits and the prospect of a protectionist Argentine government.

The Argentine presidency has promised to begin a "serious dialogue" with foreign business representatives on Monday to reassure them of their support.