Argentina Devalues Currency, Hikes Prices

Banks and foreign exchange houses were closed Monday to give them time to digest a government-ordered 34.5% currency devaluation, along with the postponement of payments on the nation’s massive internal debt.

Initial reaction was mixed over the plan, announced late Sunday, which was the second severe economic adjustment in five months. Spokesmen for organized labor criticized it while many businessmen said the changes were necessary to stabilize the economy.

Both sides expected rates to be increased for electricity, transportation and other public services, which along with the devaluation was expected to accelerate inflation.

Economy Minister Nestor Rapanelli said Monday night in a speech broadcast nationwide that an increase in inflation would be “transitory” and that the government’s program of deregulation and privatization would continue.

Rapanelli blamed the need for the new measures on “speculative maneuvers” that put pressure on the exchange rate.

The government news agency Telam reported late Monday that the prices of many consumer items that had been regulated--including stereos, washing machines, clothing, shoes, fresh chicken, coffee--would be freed.

However, about a dozen basic commodities--including cooking oil, rice, pasta, bread and tea--would be subject to controls that set maximum prices.

Shortly before midnight Sunday, the government devalued the austral to 1,000 per U.S. dollar from the previous rate of 655-to-1, bringing the austral in line with its black market value.

State-controlled gasoline prices were boosted by about 60%, bringing the price of a gallon of regular gas to the equivalent of $1.44.

To help Argentines cope with the measures, the government authorized monthly pay increases for December of $30 to public employees and $24 for private sector employees.

Unions, which already had been staging pay strikes, said the raises were not enough. Commuter train lines were halted by stoppages Monday, and court clerks pledged to renew their boycott that disrupted the judicial system nationwide last week.

“This adjustment plan does not help the interests of workers,” said Ruben Pereyra of the General Labor Confederation, the 3-million-member coalition that includes most every Argentine union.

Livio Kuhl, a spokesmen for business leaders who met with President Carlos Menem just before the measures were announced, said they supported the changes and Menem’s plans to privatize and deregulate Argentina’s economy.

The measures--particularly the pay increases and the devaluation--probably will stoke inflation, which has grown at triple-digit rates in 14 of the past 15 years.