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URGENT Alfonsin Announces Sweeping Economic Reforms

June 15, 1985

BUENOS AIRES, Argentina (AP) _ President Raul Alfonsin on Friday announced a wage-price freeze, the creation of a new currency and other reforms to combat surging inflation and ″close a chapter of national decadence.″

Alfonsin said the changes were needed to end the country’s economic crisis and preserve its 11/2 -year-old democracy.

″Everyone should realize what is at stake here,″ he said in a nationwide television address. ″The reform plan is not to save the government. It is to save a political system.″

Economy Minister Juan Sourrouille said later in the broadcast that the freeze on wages, prices and fees for public services would take effect at midnight Sunday.

Alfonsin’s spokesman, Juan Lopez, said by telephone after the speech that the freeze is ″an emergency measure″ and would last indefinitely.

Inflation for the 12 months ending May 31 registered 1,010 percent.

Alfonsin said the country would eliminate its system of indexation under which wages and prices are automatically raised monthly to help compensate for inflation.

Sourrouille said prices for all goods would be rolled back to those of midnight Wednesday to nullify last-minute boosts by merchants who learned of the reform plan.

He said the government would create a new type of currency, called an ″austral,″ which would eventually replace the traditional peso. He said the austral’s value would initially be set at .80 australs to each dollar. An austral would be worth 1,000 pesos.

″The austral will be a strong currency, that will maintain itself without experiencing the constant deterioration that currency in the country has suffered until now,″ Sourrouille added.

He said the government would stop printing more money to cover its obligations - a practice cited as a main cause of inflation.

The peso will decline in value daily against the austral with the eventual goal of eliminating the old currency, according to the economy minister.

During the wage and price freeze, he said, bank interest rates would be set between four and six percent.

Organized labor, which is controlled by the opposition Peronist Party, refused to attend a meeting with Labor Minister Hugo Barrionuevo to be briefed on the program.

″This is crazy. The country has lost its mind,″ said Jorge Triaca, one of four co-leaders of the General Confederation of Labor, the country’s main union federation. ″The problem is not economic, but political.″

News leaks of the plan Thursday sent the value of the dollar skyrocketing, with the peso trading at 1,080 to the dollar compared with 855 on Wednesday. Long lines of patrons formed outside banks and exchange houses to withdraw peso deposits and convert them to dollars before the plan went into effect.

The run prompted the government to order that all financial institutions be closed Friday through Monday. The Central Bank said officials would decide during the weekend whether financial institutions would remain closed Tuesday.

Two newspapers - ″La Nacion″ and ″Ambito Financiero″ - said the U.S. Treasury might provide funds to cover any run on deposits when the banks reopened and thus give the plan a chance to work.

On Tuesday, the International Monetary Fund approved an austerity plan which calls for reducing inflation to eight percent monthly by April 1986. Inflation for May totaled 25.1 percent and predictions for June surpassed 30 percent.

The IMF pact called for sharp cuts in government spending, stiff limits on printing money, boosts of up to 50 percent after inflation in government goods and services including gasoline and limiting public wage increases to less than inflation.

In return, the fund is to lift its suspension of a $1.4 billion bridge loan needed to make payments on the country’s $48.4 billion foreign debt and creditor banks agreed to proceed with a refinancing plan that provides for $4.2 billion in fresh credits during 1985.

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