MercoPress. South Atlantic News Agency

Long live the peso!

After several long weeks of international contacts and private deliberations with banks and multilateral organizations, the current Argentine administration believes the crucial moment to thrust forward an economic program that should get the stagnant economy rolling again, has come.

This weekend Finance Minister Jorge Remes Lenicov announced the complete "pesification" of all deposits and credits in the financial system, the free flotation of the US dollar, the sending to Congress of a very austere budget and two days of bank and exchange market holiday.

After giving a dramatic description of the "busted" Argentina, a 16% GDP drop in 2001, a 43% collapse in investment, a loss of 20 billion US dollars in international reserves in eight months and a budget deficit of 10 billion US dollars, Mr. Remes Lenicov however pointed out that reserves currently stand at 14 billion US dollars and a trade surplus of 12 billion US dollars is expected for 2002.

This should be sufficient to hold back any run on the US dollar, currently selling at between 1,80 and 2,20 pesos, in spite of an estimated budget deficit of 3 billion pesos and an estimated emission of another 3 billion pesos with only one billion earmarked for the Treasury.

But who picks the bill in this new program, since deposits will be turned into pesos at a 1,40 rate and credits at the original 1 to 1 exchange rate with a free market flotation expected to stabilize in the range of 2 pesos?

Above all the average Argentine who will see their living standards drop even more dramatically, followed by depositors, financial institutions, foreign investors who had revenues planned at 1 peso to 1 dollar, and even borrowers since debts will be adjusted in pesos to free market rate interests.

However contrary to the first populist speeches, the Duhalde administration said it will begin talks with foreign investors, recover the financial system, and retain the ban on cash deposit withdrawals, expect for major transactions such as purchasing homes, shares, cars. No further restrictions apply for salaries and pensions.

On the bright side, Argentine production has suddenly become most competitive, costs have been slashed, and with a US dollar at almost two pesos there's no need to promote exports of agricultural commodities, oil and other produce.

Overall the Argentine GDP is expected to drop an additional 5% in 2002, with a particularly negative first half, but should begin growing positively towards the end of the year.

The big qu