Cabinet Is Sworn In as Duhalde
Continues to Mull Devaluation of the Peso
The Wall Street Journal, January 3, 2002
Buenos Aires, Argentina -- President Eduardo Duhalde's cabinet was
sworn in Thursday as his economy minister promised new measures to rescue
Economy Minister Jorge Remes Lenicov said he would announce the
Mr. Duhalde, 60 years old and a veteran of the Peronist Party's
left-leaning, populist wing, took office Wednesday as Argentina's fifth
president in two weeks. He hinted he would veer away from the free-market
economic policies he blames for his country's ruin.
Mr. Remes Lenicov served as the economy minister of Buenos Aires
province from 1989 to 1997. In the past, he has shied away from the
development plan recommended by the International Monetary Fund --
austerity policies, unbridled markets and international free trade.
The new cabinet was drawn heavily from the Peronist party and the
business sector, with a few posts going to the opposition.
Buenos Aires Gov. Carlos Ruckauf, a Peronist heavyweight, was appointed
foreign minister. Industrialist Jose de Mendiguren was named minister for
production, while Jorge Capitanich, a young economist who last week served
for 48 hours as economy minister, was appointed chief of cabinet.
One of the first moves expected from the new government was an
emergency law to allow the devaluation of the peso, anchored at
one-to-one to the dollar by legislation passed in 1991.
Reports in Argentine newspapers said the new government would initially
fix a new exchange rate of between 1.30 and 1.40 pesos to the dollar for
the next 90 days. During that period, the government will try to
negotiate a $15 billion aid package with the IMF, the newspaper Clarin
From Anchor to Albatross
The dollar peg was hailed as Argentina's salvation from decades of
inflationary chaos when it was introduced a decade ago. But the policy has
gone from anchor to albatross, as it has contributed to crimping
Argentina's exports and miring the country in a recession now in its
Upon being voted into office in an emergency congressional assembly
held on Tuesday, the 60-year-old Mr. Duhalde delivered a fiery attack on
free-market policies that the government has pursued over the past decade.
His comments on the future of dollar-peso convertibility itself were
ambiguous. Some found it significant, however, that he seemed to speak of
convertibility in the past tense, while launching a tirade on the economic
policies of previous governments. "The very essence of this perverse
[economic] model ended convertibility, threw two million of our countrymen
into poverty, destroyed the Argentine middle class, bankrupted our
industries and pulverized the jobs of Argentines," Mr. Duhalde said.
Hernan Fardi, an economic analyst at the Maxinver consultancy in Buenos
Aires, said the government may opt for some type of peso float, coupled
with an extension of the control on withdrawals of bank deposits that was
instituted by President Fernando de la Rua last month. The banking control
would limit the capacity of people to sell their pesos and buy dollars
after a devaluation, protecting the peso.
At the same time it devalues, the government would likely take a number
of measures to avoid a massive collapse of Argentine companies and banks,
since the vast majority of both deposits and loans are in dollars. It is
expected that the government would convert dollar-denominated deposits and
loans into pesos.
The dogged defense of the peg by former Economy Minister Domingo
Cavallo cost Argentina the support of the IMF, which cut a $1.3 billion
aid lifeline on Dec. 5. With its national accounts in chaos in late
December, Argentina suspended payments on the share of its massive $132
billion public debt held by foreign investors.
On Wednesday, groups of drum-banging, flag-waving Duhalde supporters
took to the streets to celebrate. But some Argentines were skeptical,
noting that Mr. Duhalde was known for big spending during his two terms as
Buenos Aires governor from 1991 to 1999.
Although it is Argentina's richest and most populous province -- home
to a third of the country's 36 million people and producing a third of the
economy's output, the province ran a deficit for all but two of those
Provincial debt rocketed from about $2 billion to $4.6 billion at the
end of 2000, at the peso's current one-to-one rate. Mr. Duhalde has
defended public outlays, saying the needs of the poor come first.