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:
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".
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.
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