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Argentines fear devaluation
( 2001-12-27 09:41 ) (7 )

Argentina's interim government gave the first sign on Wednesday that it was preparing to abandon a decade-old policy of keeping the peso valued at one U.S. dollar, and shopkeepers started raising prices to hedge against an almost certain devaluation.

Three days after Adolfo Rodriguez Saa was installed as president for three months after looting and riots forced out President Fernando de la Rua, the new finance chief said he was preparing an ``orderly exit'' from the practice of pegging the peso at one U.S. dollar -- which analysts doubt he'll manage.

Finance Secretary Rodolfo Frigeri said he was printing a third currency, to be used to pay state salaries, that would be allowed to depreciate against the dollar, perhaps eventually replacing the peso.

But as worry grew that the government could be overtaken by events, store owners fearing devaluation raised prices or canceled the huge discounts with which they had tried to drum up business in a recession that has dragged on for four years and that was the backdrop to violence last week prompted by government belt-tightening measures.

Banks and foreign exchange houses were shut for most business for the fifth day running and ATMs ran dry after a month of drastic curbs on cash withdrawals.

The Central Bank lifted the banking holiday for Thursday, but foreign exchange trade is to remain suspended. It also cut its minimum reserve requirement by 6 percentage points to help inject liquidity into the creaking banking system.

It was not clear whether the stock exchange, which suspended business amid the extended bank holiday, would resume trade on Thursday.

Rodriguez Saa, who suspended foreign debt payments after taking office on Sunday, wants to print cash and divert debt payments to pay for job and social welfare programs.

One in five people in the work force is unemployed in Argentina, a South American nation of 36 million people. The average wage is $600 a month, but many prices are at European levels.

Despite a drop in Christmas shopping, with many people having no access to cash and savings stashed away in dollars, the local retailers' association CAME said many shops had ''hiked prices in pesos up to 20 percent in the last 72 hours given the uncertainty surrounding the exchange rate parity.''

``I bought my two sons a pair of T-shirts on Thursday last week but then I found the price had been marked up to eight pesos from six pesos,'' said housewife Silvia Herrera.

The debt suspension has hit even Japanese brokerage houses worried about a loss of revenues, although many economists say Argentina's widely expected default is not likely to cause the kind of emerging market crisis feared a few months ago.

``The aim is for there to be two Argentine currencies and the dollar,'' said Frigeri. He is due to announce details of economic plans on Wednesday or Thursday.

``This will allow us ... to begin an orderly exit from convertibility and give us a tool to boost economic recovery. We cannot rule out that the (new currency) depreciates over time,'' he told Clarin newspaper.