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Argentina devalues the Peso

Argentina has devalued the peso, bringing an end to a decade-old system of pegging the peso to the US dollar.

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Will the latest measures only lead to more protests?

Argentina announced the long-awaited devaluation of the peso on Sunday night, bringing to an end a decade of parity with the US Dollar. Prior to the decision, Argentina's Senate gave full approval to an emergency bill empowering President Eduardo Duhalde to reform the foreign exchange and banking systems and to carry out a currency devaluation.

Seeking to calm protests that brought down two previous presidents, left 27 people dead and led to severe cash shortages in three weeks, Duhalde's emergency plan includes measures that safeguard savings and debts in dollars from the effects of devaluation.

Promising an austerity budget within weeks and fresh negotiations on the country's $140bn foreign debt in early February, Argentina’s Economy minister Jorge Remes Lenicov said that in order to make Argentina like other countries, "a massive change in direction" was needed. "We need to take the steps that should have been taken some years ago," he said.

In Argentina, the devaluation of the peso is feared to only lead to greater hardship for the population, but the government believes lower labour costs and improved exports will boost the economy in the long term.

In an attempt to reassure Argentina’s population, Lenicov said that the state would not take money from them and promised support for the most vulnerable sectors of society.

Meanwhile, medicine is running short and prices have as businesses hedge against devaluation. And a $1,000 monthly limit on cash withdrawals has reduced purchasing power to next to nothing, infuriating many middle-class Argentines.

Duhalde plans to soften the blow by allowing Argentines to pay dollar debts up to $100,000 with pesos at one-to-one. There should also be dual exchange rates, one fixed and one floating, for a transitional period.

A weekend poll Aresco consultancy showed 52 percent of Argentines "highly" in favor of Duhalde's plans while another 34 per cent gave a "medium" approval.

The Peronists are hoping devaluation will make Argentine products more competitive at home and abroad, spurring new industrial investment and reducing an unemployment rate of nearly 20 percent.

But 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.

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