Argentina Will Drop Dollar Peg, Float Peso

Argentina on Sunday unveiled its strategy to pull the crisis-wracked economy from recession, saying it would ditch the U.S. dollar, fully float the devalued peso and partially lift a savings freeze that sparked public outrage and riots.

Economy Minister Jorge Remes Lenicov said the government would run the economy just on pesos, turn all dollar bank loans into pesos at the pre-devaluation one-to-one rate and give people full access to wages paid into the bank.

But he did not say when the peso would be fully floated. It already has been partially floated on the foreign exchange market, having fallen to about two to the dollar since devaluation.

“We are going to need international help, because it will help us speed up our exit from this crisis,” Remes Lenicov said, adding that he planned to send an “austere” 2002 budget to Congress on Tuesday.

International lenders such as the International Monetary Fund are demanding deep spending cuts as conditions for financial aid that the bankrupt economy needs to help it climb from a deep recession that is in its fourth year.

Argentines with dollar bank loans come off best under the plan, with the loans turned into pesos at parity to the dollar. But savers stand to lose, with dollar savings turned into pesos at the official 1.40-to-the-dollar rate.

There will be a banking and foreign exchange market holiday today and Tuesday, Remes Lenicov said, because a Supreme Court ruling Friday completely overturned a savings freeze, throwing experts and officials into confusion.

Economists said it could send Argentines rushing to withdraw their deposits, which were limited to 1,500 pesos a month in December to avoid a run on the banks. The nation’s banks lost a record 20% to 25% of deposits last year.

Lifting the freeze could destroy many banks, already on their knees after a debt default and peso devaluation, and possibly spark another massive depreciation of the peso.