- The Washington Times - Monday, January 7, 2002

From combined dispatches
BUENOS AIRES Argentine lawmakers yesterday brushed aside fears of foreign investors by breaking the peso's parity with the dollar and by giving the new president power to rule the bankrupt nation by decree.
Legislation giving President Eduardo Duhalde the power to pass some laws without congressional approval for the next two years won overwhelming Senate approval last night, after sailing through the lower house of Congress a day earlier.
Hours later, outlining what many expect will be a tricky dual exchange rate, Economy Minister Jorge Remes Lenicov said 1.4 pesos would now buy $1 for import, export and other capital transactions, while individual Argentines would have to buy hard currency on the open market.
That free-market rate will be determined after a two-day banking holiday that starts today to allow for the transition from the old currency regime.
The bill's passage marked an early victory for Mr. Duhalde, who took office Wednesday as Argentina's fifth president in two weeks.
It also heralds a radical departure from the fixed-currency regime that had been a bedrock of South America's No. 2 economy over the past decade and attracted billions of dollars in foreign investment.
Armed with the special powers, Mr. Duhalde plans to ease the peso's 10-year one-to-one parity with the dollar, reform the banking system, control prices and protect local industry and jobs.
"A new economy begins," read the front-page headlines of the respected daily Clarin newspaper yesterday, adding that "new rules of the game after 11 years" would "bring profound changes for people and companies."
For ordinary Argentines, the coming devaluation will slash living standards to levels that threaten to wipe out much of the nation's middle class, analysts say.
With peso devaluation, prices at the supermarket, gas pump and video rental store would shoot up, as most business contracts are based on dollars.
Devaluation will also hit foreign investors, who fear a longer-term shift by the government move to protect local industry from outside competition. Historically, such policies have been a staple of the Peronist Party, to which Mr. Duhalde and a majority in Congress belong.
Clarin reported yesterday that Spanish Prime Minister Jose Maria Aznar called Mr. Duhalde the day before and, in a "tough and tense" conversation, urged him to protect Spanish investments totaling $30 billion over the past decade second only to American economic interests here.
Mr. Duhalde responded by telling Mr. Aznar that Argentina is "broke," Clarin reported.
Analysts say a 50 percent drop in the peso's value could trigger some $3 billion in losses for Spanish companies, including telecommunications giant Telefonica, oil company Repsol-YPF and two major banks, Santander Central Hispano and Banco Bilbao Vizcaya Argentaria.
France's Foreign Minister Hubert Vedrine, concerned for investments by companies like Carrefour supermarkets, France Telecom and automaker Renault, also urged his Argentine counterpart Carlos Ruckauf in a diplomatic note to "do everything in your power to protect our companies."
Argentine presidential spokesman Eduardo Amadeo said Mr. Duhalde and Mr. Remes Lenicov would start "a serious dialogue" with representatives of foreign companies today.
Mr. Duhalde says he needs special powers to rebuild the crumbling economic foundations of a country whose banks, currency and political institutions have been devastated by nearly four years of withering recession.
On Saturday, the government announced a 2001 budget deficit of $11 billion, nearly double the target agreed with the International Monetary Fund. Its accounts drained by the slump, Argentina defaulted on its staggering $141 billion public debt last week, missing a $28 million payment on a foreign bond for the first time.
The country now is preparing to renegotiate its public debt and is moving to mend fences with the IMF after it cut off funding in December.
President Bush has said a "sustainable plan" was a condition for renewed international support.
"We are presenting a sustainable plan," Mr. Remes Lenicov said. "And for that, we should receive help."
In Washington, the chief White House economic adviser said yesterday he was certain the United States would aid Argentina once "political reforms are made and Argentina is viable long-term."
Lawrence Lindsey, chairman of President Bush's National Economic Council, told the "Fox News Sunday" program that Argentina had caused its own problems by overspending and running up deficits.
Many Argentine families were worried a devaluation would leave them broke. Although they earn in pesos, about 80 percent of contracts, including bank debt and utility bills, are denominated in dollars.
Moving to protect the indebted, Mr. Duhalde wants loans up to $100,000 to be switched into pesos at the old rate of one peso to one dollar. He ordered power, water and gas bills also switched to pesos at the one-to-one rate.
The plan also called for a 180-day freeze on layoffs, and companies firing staff during that period will have to pay double compensation.
But what is good for the debtor is bad for banks, as bad debts could spiral and small loans converted to pesos could spell big dollar losses, analysts say.
Under the plan, banks are to be compensated with government bonds issued in hard currency and backed by a new oil-export tax.

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