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Argentina Currency Plunges, Economy in Turmoil

April 26, 1989

BUENOS AIRES, Argentina (AP) _ The Argentine currency plunged against the dollar Tuesday, continuing an 11-week slide that has cut its value by 82 percent, thrown business into disarray and threatened to spark social unrest.

The government blamed speculators and uncertainty over who will win national elections set for May 14. Peronist candidate Carlos Menem leads the candidate of the governing Radical Civic Union, Eduardo Angeloz, by about seven points in public opinion polls.

Prices for food, clothes, gas, public utilities and consumer and business products of every type - whether imported or not - have soared with the dollar’s value against the austral.

Wages have not kept pace. Saul Ubaldini, general-secretary of the 4 million-member General Labor Confederation, calls it an ″unprecedented emergency″ and wants massive wage increases.

The president of the Federation of Businesses in the Federal Capital (Buenos Aires), Osvaldo Cornide, said member stores may close down Thursday to protest the economic chaos.

Veronica Arbos, owner of a small leather shop, said Tuesday, ″What’s happening to Argentina? The exchange rate is going crazy and there’s no obvious reason for it. We’re helpless. It’s not possible to do business in this climate.″

Argentines paid 102 australs per dollar on Tuesday, up 20 australs from the close of business Monday. Tuesday’s currency devaluation of just under 20 percent followed a devaluation of almost 12 percent from Friday to Monday.

The austral recovered slightly to 93 or 94 per dollar by the close of business, but was expected to open Wednesday at about 100-1.

Third-party candidate Alvaro Alsogaray of the rightist Democratic Center Union blames the government, which ″let the gangrene advance and now there’s no other way but to cut.″ The former economy minister was referring to the huge budget deficit, triple-digit inflation and non-payment of nearly $59 billion in foreign debt.

The national currency has slid since the Central Bank announced on Feb. 5 it no longer would sell dollars on the open market to prop up the austral’s value and dampen inflation.

At the close of business on Feb. 3, Argentines could buy a dollar for 17.59 australs.

Price increases touched off riots eight weeks ago that left more than 270 people dead in Venezuela, on South America’s northwest coast.

The consumer group Adelco said the price of flour increased by 53 percent last week, coffee by 80 percent, noodles by 52 percent, cooking oil by 43 percent.

A survey by retail trade associations indicated that eggs, spaghetti, cheese, sugar and other products increased by at least 150 percent over the past nine weeks.

The minimum wage is 3,500 australs a month - about $35 at Tuesday’s exchange rate.

The dollar is a benchmark for prices and investments, given the triple- digit inflation Argentina has suffered for four decades. In June 1985, the austral was worth $1.25. Today, it is worth about one cent.

Wealthier Argentines bought dollars with their savings to hedge against inflation.

Interest rates hit 80 percent a month on Tuesday as banks tried desperately to keep investors from removing deposits to buy dollars.

No anti-government demonstrations or looting were reported, but police and private security guards were posted outside some supermarkets and foreign exchange houses on Tuesday as a precaution.

Suppliers are delivering less goods, demanding payment sooner, and increasing financing charges. Retailers suspended credit card service and in many cases demand payment in cash. Both worry that sales of existing stock won’t cover the cost of new merchandise.

The Economy Ministry said Monday it will set maximum prices on about 80 essential products, but minister Juan Carlos Pugliese conceded, ″I cannot come up with policies which will calm peoples’ fears ... it is useless to insist that May 15 will follow May 14 and nothing (bad) will happen. No one will believe me.″

President Raul Alfonsin, elected in October 1983 to replace a military regime, has had little success curbing budget deficits, spurring economic growth, and making payments on Argentina’s foreign debt.