Argentina halts currency trading

Argentines have grown increasingly impatient

The Argentine Government has extended the closure of banks and foreign exchange centres until 11 February, giving the market more time to prepare for a full flotation of the peso.

Foreign exchange trading has been suspended since Sunday, when the government announced plans to scrap all remaining exchange rate controls as part of a wider package of reforms aimed at restoring economic stability after months of crisis.

The government ordered the closure of retail banks at the same time in order to prevent a run on bank deposits by savers.

The government hopes its budget will win much-needed aid

Argentine economy ministers Jorge Remes Lenicov attempted to talk up the peso on Wednesday, predicting a "good opening" for the currency when markets reopen on Monday.

Jobless numbers up

But most observers expect the peso to fall steeply due to llingering doubts over Argentina's shaky economy.

Official figures showing that unemployment rose to a record 22% in January, up from 18.3% in December, underlined the severity of the country's problems on Wednesday.

Before markets closed last week the peso traded at 2.10 to the dollar on the free market, compared to an official government exchange rate of 1.40 to the dollar.

Argentina's mainly foreign-owned banks have most to lose from the latest reforms, as loans taken out in dollars will now be converted into pesos at a rate of one to one.

New measures

Peso to become fully convertible

Some bank restrictions lifted

Dollar loans switched to pesos at 1:1

Dollar borrowings switched to pesos as 1:1.4

Budget deficit three times less than the previous year

Bank deposits in dollars, however, will be converted into pesos at the rate of 1.4 pesos to the dollar.

This means Argentine borrowers will gain from the overhaul, but savers with deposits in dollars will lose money.

Wooing the IMF

The 1.4 exchange rate, used for international transactions, replaced a 10-year-old one-to-one peg between the two currencies last month.

That system was criticised by the International Monetary Fund (IMF) and highlighted as a barrier to the resumption of economic assistance.

Duhalde said he will serve out his term

Earlier this week, the government unveiled an austere budget aimed at winning the release of $20bn in additional aid frozen by the IMF in December.

Under the plan, public spending will be slashed by $3.5bn to try to narrow a budget deficit of more than $10bn last year.

Argentine President Eduardo Duhalde, meanwhile, has announced that elections will be held on 14 September next year.

The president, who took over amid a political crisis following the resignation of President Fernando de la Rua in December, said he will serve out the remainder of his term.