Argentine president says devaluation of peso inevitable

Associated Press WriterBUENOS AIRES, Argentina (AP) -- President Eduardo Duhalde signaled on Friday that his government would devalue the peso, saying it was "a given" that the currency will be cut free from its one-to-one peg to the U.S. dollar.

The new economy minister, Jorge Remes Lenicov, was expected to announce a new economic plan later Friday for getting Argentina out of its worst economic crisis in decades.

Duhalde's comments in a speech to business leaders was the clearest sign yet that the plan would include a devaluation, something economists and media have been saying is inevitable.

Duhalde -- sworn in Wednesday as the fifth president in less than a month amid the economic turmoil -- did not comment on how large a devaluation would be, but said: "The devaluation is a given."

Analysts have predicted the government will decrease the worth of the peso by up to 40 percent, ending a decade-long peg with the dollar that many Argentines saw as key to economic stability.

Bracing for the decision, thousands of Argentines lined up at banks Friday to withdraw as much money as they could to spend the currency before its value fell. Some rushed to trade their pesos. Media reports said the new government would fix the exchange rate between 1.3 and 1.4 pesos to the dollar for 90 days.

When it was enacted in 1991, the peg setting the peso equivalent to the dollar vanquished triple-digit inflation almost overnight and attracted foreign investment, ushering in an era of financial stability to a country rocked by economic crisis in the late 1980s.

But now many economists have come to see it as a straitjacket, suffocating repeated attempts to drag South America's second-largest economy out of a slump now nearly four years old.

In recent years, Argentine exports have grown less competitive while neighboring Brazil, whose currency floats at a rate more than 2 times weaker than the peso, has attracted factories and given the country a major export advantage.

Cabinet Chief Jorge Capitanich has the government was preparing a package of sweeping economic reforms to send to Congress.

Today, Argentina is virtually bankrupt. It officially entered default on its $132 billion debt Thursday, missing a $28 million payment on an Italian bond. Argentina is now shut off from international credit markets.

Duhalde was chosen by Congress to serve until December 2003, completing the unfinished term of Fernando de la Rua, ousted from the presidency by violent street protests Dec. 20. The first man Congress chose as interim president resigned after a week in office, and two others served briefly as acting president before Duhalde was voted in.

As Duhalde's economic team worked on a rescue plan that will likely mean the success or failure of his presidency, many Argentines braced for a devaluation.

"I want to dump these pesos as fast as I can," said Francisco Rosas, a 32-year-old school teacher seeking out black market traders in downtown Buenos Aires. "Who knows how much these will be worth over the next few days."

Others invested their money by buying costly imported goods such as household appliances, fearing the prices could climb quickly after a devaluation.

Some businesses did not wait for a devaluation. At the Mikladel toy store, which sells mostly imports, store manager Laura Lage said many items were being priced 20 percent higher already.

"Importing our toys is now going to be more expensive," she said, adding that she was worried about the effects of a devaluation. "Sales are already down 30 percent and we fear they'll keep dropping."

Some pharmacies stopped taking payments from government health plans and accepting credit card payments, worried they would not be processed before devaluation.

While most Argentines earn their salaries in pesos, the economy is largely dollar-based and more than 80 percent of contracts and debts are listed in dollars. Many fear a devaluation could push thousands of businesses and households into bankruptcy.

If the new exchange rate were set at 1.4 pesos to the dollar, for example, a salary now worth $500 a month would drop to about $360.