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Peso Down Steeply

This article was originally found on 

March 26, 2002

Peso Down Steeply, Argentines Strengthen Currency Curbs


BUENOS AIRES, March 25 — With pressure on the already wobbly Argentine peso growing and an agreement with the International Monetary Fund still elusive, the government here today imposed strict new controls on the foreign exchange market. But it was unable to halt a panicky flight to the dollar by savers and investors.

The measures came in response to heavy and jittery trading on Friday, when the peso fell nearly 18 percent against the dollar. Since President Eduardo Duhalde's decision in January to jettison a decade-old policy of fixing the value of the peso at $1, it has lost more than two-thirds of its value, and briefly traded late today for as little as 25 cents. The peso settled in New York late today at 3.30 to the dollar, or 30.3 cents.

Under the new regulations, individuals can purchase no more than $1,000 in American money each day; registered companies are limited to $10,000 a day. Currency exchanges may operate for only three and a half hours a day instead of seven. The government also put new limits on the amounts of dollars that banks and businesses can hold, and restricted the ability of investors and brokerage houses to shift money abroad through stock purchases in the United States.

Thousands of people stood in line for hours outside banks and exchange houses in hopes of dumping pesos for dollars today. The increasing nervousness seems linked to fears that international support for Mr. Duhalde's government, the fifth here since mid-December, is ebbing, and that he is at a loss for how to stabilize the economy.

"I have not taken, and I will not take, any measure to bring down the dollar," Mr. Duhalde said in an interview published in leading Sunday newspapers. "Let the dollar go to nine pesos — what does that have to do with my government?" he asked in evident frustration.

In the last month, the Argentine central bank has spent about $1.2 billion in a futile effort to prop up the peso's value. By late last week, its reserves were falling by $100 million a day.

A further $50 million a day has been leaking out of the banking system because of court decisions overturning a four-month-old freeze on withdrawals from certain deposit accounts. Last month, Mr. Duhalde decreed a six-month moratorium on court challenges to the freeze, but judges have defied him and ordered the police to arrest bank managers who do not comply with their rulings.

"If the judicial branch continues defining the conditions under which deposits can be taken out of the banking system, the economic plan has no viability," the deputy minister of the economy, Jorge Todesca, said in a radio interview.

Led by Mr. Duhalde, government officials have been predicting for weeks that an accord with the I.M.F., which cut off credit to Argentina in December, is imminent. They hope the fund will inject as much as $20 billion into an economy that has ground to a virtual halt after four years of recession.

But at a United Nations conference in Monterrey, Mexico, last week, the fund's managing director, Hörst Kohler, said there was "no quick fix for a very, very complicated situation." His deputy, Anne Krueger, was more discouraging, saying, "We are not going to be able to lend into a situation where they continue having the same difficulties."

Despite a plea for "the understanding and collaboration of the international community," Mr. Duhalde got the cold shoulder from President Bush and other United States officials in Monterrey. Mr. Bush declined to meet with Mr. Duhalde, and said that Argentina is "going to have to make some tough calls." In testimony to Congress last week, Treasury Secretary Paul H. O'Neill said, "We should not be the endless source of funds."

The peso's slide is feeding fears of renewed inflation, which reached 5,000 percent a year before the fixed exchange rate was adopted in 1991. Though the Argentine budget estimates price rises of 15 percent in 2002, the secretary for consumer defense, Pablo Challu, now expects inflation "above 42 percent."

Fearing price increases, Argentines crowded supermarkets over the weekend to stock up on staples. Mr. Duhalde said in the newspaper interview that although he knows "something has to be done," he does not intend to impose price ceilings because "there is no way to control them."

As the country grows ever more skittish, there is also talk of trying to link the peso to the dollar again, but this time at a rate of 3 to 1 or 4 to 1. Some economists and politicians have revived discussion of scrapping the peso altogether and using dollars, or of trying again to use multiple exchange rates for different purposes, a policy that was abandoned as unworkable last month.

"I don't want to rule out any possibility or close any doors, because this is a moment of crisis," Mr. Duhalde told reporters in Monterrey. "One of the characteristics of this situation is the need to take measures, and sometimes it is necessary to take a step backward."