Argentine Cabinet Is Sworn In as Duhalde
Continues to Mull Devaluation of the Peso

By: Unknown 
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 Argentina's finances.

Economy Minister Jorge Remes Lenicov said he would announce the measures Friday.

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 reported.

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 fourth year.

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 years.

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.