Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education



Front Page

World

UK

UK Politics

Business

Sci/Tech

Health

Education

Sport

Entertainment

Talking Point
On Air
Feedback
Low Graphics
Help

Friday, January 22, 1999 Published at 08:56 GMT


Business: The Economy

Argentina plans monetary union

Argentina's stock market has been buffeted by Brazil's crisis

The Argentinian Government is considering plans to swap its currency, the peso, for US dollars in a bid to insulate the country against the economic crisis in Brazil.

The blue-print for the 'dollarisation' of the economy was prepared by the President of the central bank, Pedro Pou, at the request of President Carlos Menem.

Brazil is one of Argentina's biggest trading partners and its decision to devalue the real has hit the Argentinian economy hard.

To ensure monetary stability, Argentina wants to:

  • Negotiate a treaty of "monetary association" with the United States, adopting the US dollar as its national currency.
  • Offer other countries across the Americas to join the treaty, effectively creating a pan-American monetary union.
  • Adhere to strict fiscal discipline, similar to the Maastricht criteria that form the basis of Europe's Economic and Monetary Union.
  • Get a share of the income received by the US Federal Reserve for printing dollars
  • Open its markets to imports from the dollar-zone and negotiate better access for its products to the US market.


[ image: Argentina's President Carlos Menem and Economics Minister Roque Fernandez want to swap their peso for the Gringo dollar]
Argentina's President Carlos Menem and Economics Minister Roque Fernandez want to swap their peso for the Gringo dollar
This ambitious plan, however, has had a cool reception so far.

Outlining its proposals, the Argentinian central bank said it had formed a working group, supervised by the International Monetary Fund (IMF) and including US Deputy Treasury Secretary Lawrence Summers.

This has been denied by both the IMF and the US Government. "There is no formal working group or treaty process under way", a Treasury spokeswoman said, adding that "we are aware of Argentina's interest".

The IMF meanwhile called the plan to create a monetary association "interesting", but insisted that the "IMF has no direct involvement in it".

Dollar peg

Argentina's former economy minister Domingo Cavallo, who decreed the peso's peg to the US dollar, said the proposals were "logical" and would help the country's economy.

The peg to the dollar put an end to Argentina's history of hyperinflation and the government is determined to continue this policy.

Brazil had steered a similar path, but profligate government spending and huge capital flight forced it to give up the defence of its currency. As a result the real lost nearly 30% in value within one week.

Guillermo Estebanez, international economist at Bank of America, said the proposals were "all about damage control and the efforts to limit the extent of the Brazilian real crisis".

Other analysts say that the plans are Argentina's way of proving to the financial markets that it is determined to defend the peso's peg to the dollar.





Advanced options | Search tips




Back to top | BBC News Home | BBC Homepage |


The Economy Contents

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree