Argentina’s peso plummets | Business| Economy and finance news from a German perspective | DW | 13.01.2002
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Argentina’s peso plummets

The peso crumbles after a restart in trading. And Argentina criticises the IMF, saying it should let them get on with their own methods to rescuing Argentina from the current economic crisis.


Demonstrators protest against the devaluation of the peso

Argentina’s interim government criticised the International Monetary Fund on Sunday, asking them to let them get on with their measures to rescue the country from economic ruin. On Friday, the International Monetary Fund , IMF, had announced Argentina would have to introduce a coherent economic recovery plan before offering the country any more assistance.

The comments came on the day trading in the Argentine peso restarted, following a three week break.

Argentina has dropped its 11-year-old one-to-one ratio with the dollar, a peg that ended the hyperinflation of the late 1980s and early 1990s but which ended up choking the economy, making Argentinian products uncompetitive abroad and causing soaring unemployment.

But trading in the free floating rate saw the peso weaken immediately. On the market for import-export and banking transactions, the peso now trades at 1.40 to the dollar. On the free market, for tourism and small transactions, the dollar traded at 1.80 pesos, disappointing government officials who had hoped that the free exchange rate would settle at around 1.50 pesos.

IMF First Deputy Managing Director Anne Krueger said the new dual exchange rate system was "unsustainable" in the medium term, and that the IMF would prefer a fully floating currency.

But she did say that if the government were to introduce the right polices, the Fund may be able to offer more help.

Vice Economy Minister Jorge Todesca said "we don’t need the IMF telling us every two minutes what course we should have taken".

The IMF is to travel to Buenos Aires on Monday for talks. Argentina needs the IMF to tackle the country’s major economic problems. At the same time, it has to placate an impatient and angry population, which might not accept the type of hard monetarist policies the IMF would probably recommend.

The Argentine government stopped foreign exchange trading shortly before Christmas, in order to give itself more time to work out an economic reform plan.

But only hours before trading restarted, rioters took to the streets once again in the country’s capital, Buenos Aires.

And despite trading, little business is actually being done.

The devaluation was expected to ease pressure on Argentina's exporters by making their products more competitive on the international markets. However, Foreign investors have expressed concern at Argentina’s dual currency, saying it is impossible to work with successfully.

Importers will be hurt by the 30% devaluation of the currency - although the controlled exchange rate is designed to prevent the price of imported goods from rising in an inflationary spiral.

And for ordinary Argentines, the near future looks bleak.