- The Washington Times - Thursday, January 3, 2002

Argentina's new president, Eduardo Duhalde, yesterday moved to abandon the country's currency link to the U.S. dollar and pledged to roll back free-market reforms from open trade to smaller government.
The move marks a wholesale retreat from the American-style economic system adopted during the 1990s.
The Peronist leader was elected Tuesday by the Argentine Congress to become its fifth president in less than two weeks. Mr. Duhalde blamed the reforms pushed by the United States and the International Monetary Fund for the country's state of bankruptcy and recession. Those reforms initially were credited with wiping out Argentina's hyperinflation and creating robust economic growth.
"We have been left today without a peso," Mr. Duhalde said in his first address to the Congress in Buenos Aires. "My commitment, starting from today, is to do away with an exhausted economic model and to lay the foundations of a new model that can help our market recover and ensure a better distribution of wealth."
Most analysts expect a return to the old-style Peronism that reigned in Argentina a half-century ago, when the state in close consultation with labor unions controlled the economy and intervened to achieve social goals.
As the governor of Argentina's largest province for the last eight years, Mr. Duhalde ran up huge debts to create jobs, build housing for the poor, distribute free food and pay for other social programs. To pay for the debts when he ran out of pesos, he took the audacious step of issuing a new provincial currency.
"He's the governor who broke the back of the province Buenos Aires," said Aldo Abram, an economist at Exante, an Argentine consulting firm. "The closer he got to election, the more he spent."
Martin Redrado, chief economist of Fundacion Capital, a Buenos Aires think tank, said Mr. Duhalde is taking "a leap into the unknown" by ending the decade-old economic regime. Thousands of Argentine citizens registered their misgivings about Mr. Duhalde by protesting in the streets even as Congress installed him.
"I think he will move Argentina toward a more protectionist economy away from the free-market policies we have seen in the last 10 years," said Mr. Redrado.
For the United States, the reversal in Argentina poses an embarrassment as the country had become a showcase for free-market reforms in the mid-1990s. It also poses an immediate challenge for the Bush administration, which has sought to distance itself from Argentina's rapid fall into political and economic chaos in recent weeks.
Mr. Duhalde already has announced he will seek another $16 billion in loans from the IMF, even though the country has become a pariah among international lenders by reneging on its $132 billion of existing debt obligations just before Christmas. Any additional loans from the IMF, which gave Argentina a $22 billion line of credit, would require President Bush's assent.
Mr. Duhalde is promising to create 1 million new government-sponsored jobs and indefinitely suspend debt payments a popular program in Argentina. But his move to abandon the one-to-one link between the Argentine peso and the U.S. dollar could be highly unpopular and cause widespread hardship.
The 30 percent to 40 percent devaluation that Mr. Duhalde's economic advisers are discussing would seriously erode the savings of Argentine retirees and other citizens. And it would likely throw into default many consumers and corporations that have taken out loans in dollars.
About 70 percent of the country's debt, including most home loans and business contracts, are denominated in dollars and would become difficult to pay after devaluation.
The move also risks a return to the hyperinflation that drove up prices in Argentina by 5,000 percent in 1989. The inflation scourge is the reason Argentina adopted the strict currency regime.
The peg to the dollar, which has risen steadily against most world currencies since 1995, eventually caused Argentina to lose competitiveness in world trade and led to a deep recession that has pushed the unemployment rate over 18 percent.
This story is based in part on wire service reports.


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