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All Eyes on Argentina’s Peso

April 29, 2002

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BUENOS AIRES, Argentina (AP) _ Argentina’s new economy minister faces his first test Monday, when the country’s financial system reopens after a weeklong shutdown ordered to avoid a banking collapse.

Roberto Lavagna took over the key ministry Saturday, following a dramatic week that saw his predecessor, Jorge Remes Lenicov, resign and efforts to secure international aid to prop up the fragile banking system evaporate.

Banks and foreign-exchange markets resume full operations Monday. The Central Bank ordered banks to shut down April 19, saying they would reopen only after Congress passed legislation to halt the daily withdrawal of $50 million from the banks.

On Thursday, lawmakers approved a bill that prevents savers who have won lawsuits against a four-month-old banking freeze from collecting their deposits until the government can appeal.

Observers say the law will sharply reduce the level of deposits being withdrawn in the coming weeks, preventing a possible financial collapse.

A banking freeze was imposed Dec. 1 by the government of former President Fernando De la Rua amid a deep economic crisis that later led Argentina to default on its $141 billion public debt and its currency to drop steeply in value.

Most Argentines were expected to be anxiously watching the currency market Monday for any further slide in the peso’s value.

President Eduardo Duhalde ended the peso’s 1:1 peg to the dollar in January and let it float on the market. Since then, its value has dropped to 3.10 pesos to the dollar.

On the black market last week, the peso was trading at 3.50 and above, leading some to call for Lavagna to fix the peso’s value.

However, in an interview with local newspaper Clarin published Sunday, Lavagna ruled out any such measure for now, arguing that the peso was unlikely to fall further.

``There will not be any type of fixed exchange rate but full freedom of the markets,″ Lavagna said.

Later Sunday, however, after a meeting with Central Bank President Mario Blejer, he said authorities would act to prop up the peso if necessary.

Lavagna, a foreign-trade specialist who previously served as Argentina’s ambassador to the European Union, also said the government must move swiftly to implement several measures that have been demanded by the International Monetary Fund as conditions for further financial aid.

Firmly rejecting talk that Argentina should cut ties with the IMF, Lavagna said he would speak Monday with IMF Managing Director Horst Kohler.

He said an agreement last week between the government and provincial governors sets out the deficit-reduction policies and economic reforms demanded by the IMF.

Lavagna also said he hopes to have a plan in place to lift the deeply unpopular banking freeze by June. He said the plan would involve the state and the private banks coming together to guarantee people’s savings and gradually return them as the economic climate improves.

Argentina is currently in a four-year recession that has seen unemployment reach 18.3 percent. This year, most estimates say gross domestic product will shrink between 10-15 percent.

On Saturday, Lavagna presented his ideas to a key meeting of Duhalde, provincial governors and senior figures from Argentina’s two main parties.

Local reports Sunday said the meeting ended with strong backing for the new minister’s plans and indicated that the new consensus should help Duhalde’s administration weather the political storm sparked by Remes Lenicov’s resignation and resist growing calls for early elections.

Duhalde has said elections would take place as scheduled in September 2003.

Duhalde was appointed interim president by Congress on Jan. 1, charged with completing the four-year term of De la Rua, who resigned Dec. 21.

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