Posted on 01/06/2002 6:08:30 PM PST by Oxylus
Argentina on Sunday devalued its currency by nearly 29 per cent as European governments appealed for their companies to be protected from the fallout.
The new "official" peso rate will be 1.40 to the US dollar - broadly in line with expectations - with the currency floating on unofficial markets from Monday. The government said its objective was to free the currency entirely in less than six months.
Jorge Remes Lenicov, economy minister conceded that the International Monetary Fund had objected to the dual exchange rate plan. "I spoke with the people from the Fund . . . who said that, philosophically, they consider that a float [of the peso] is preferable," he said. "I said we are in an emergency situation that we want to float and they should have consideration."
Mr Lenicov said the Argentine government would start talks with the US and multilateral lenders in two to three weeks, and would then decide what to do with its creditors.
Argentina defaulted on its obligations last month, which at last count totalled $166bn in federal and provincial debt. Argentine officials have said they will seek up to $20bn in international aid, including undrawn funds from existing credit lines.
As Argentina formally ended the decade-old peg to the US dollar, Spanish and French companies lobbied hard to avoid massive losses at their Argentine subsidiaries.
José María Aznar, the Spanish prime minister, called Eduardo Duhalde, Argentine president, to remind him of the $1bn contribution made by Spain to an international bailout package in December 2000.
The French government sent a letter through diplomatic channels to the Argentine foreign minister urging him to do "every thing in your power to look after our companies, who have invested much in Argentina".
Mr Duhalde's government said it would "not cede" to the pressures from Europe.
Several provisions of the law before congress will have a heavy impact on banks, utilities and oil companies, most of which are foreign-owned following Argentina's privatisation drive last decade.
To soften the blow of the devaluation for the middle classes, which have brought down the previous two governments, Mr Duhalde's administration has promised to convert dollar debts under $100,000 dollars into pesos.
As a result, many banks' assets will be converted into devaluing pesos, while their liabilities will remain in dollars. The government put the cost of that measure at $6bn, while banks claim they will suffer losses of $10bn-$20bn. "We are being asked to bear the full brunt of a devaluation," a Spanish banker said.
The government plans to pay for the banks' losses with a new tax on oil exports, raising the ire of the main oil company in Argentina, Spain's Repsol-YPF. It will also scrap the privatisation contracts for utility companies, banning billing in dollars and the indexation of rates to US inflation. Both measures were strongly opposed by foreign companies operating in Argentina.
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