Plunging Currency Provokes New Pain

Argentina’s economic crisis took a new, potentially calamitous turn Monday as the value of the national currency plummeted despite desperate measures by the government over the weekend to prevent its slide.

The devaluation comes as President Eduardo Duhalde faces new questions at home and abroad about his government’s ability to lead the country out of its economic and social crisis.

Valued at one to the dollar in December and at 2.4 just a week ago, the peso closed Monday at an average rate of 3.8 to the dollar. Lines hundreds of yards long had formed outside Buenos Aires banks and exchange houses.

After a sharp drop in the value of the peso Friday, the government announced a series of emergency measures over the weekend to defend the currency, including a fixed rate on the value of dollars sold by the nation’s central bank. But the peso continued to drop Monday.

The situation raises the specter of hyperinflation in a society already racked by an official unemployment rate of 22% and by daily protests that shut down roads and businesses.

Analysts warned that the devaluation and Argentina’s failure to reach an agreement with the International Monetary Fund on terms for a new round of emergency loans could bring down Duhalde’s government. The former senator and governor of Buenos Aires province came to power in early January after rioting and street protests forced President Fernando de la Rua and three other presidents to quit in quick succession.

“The free fall of the peso and a likely surge in inflation threaten the near-term viability of the Duhalde government,” Credit Suisse First Boston said in a report.

With several local commentators also suggesting that public confidence in Duhalde had evaporated and that his government was in danger, the president said Saturday that he would remain in power “even if the dollar reaches nine pesos.”

“We’re going to live through moments more difficult than these,” Duhalde said.

After a decade free from the high rates of inflation that were once the bane of the Argentine economy, prices rose 8% last month. At the same time, economic activity is contracting dramatically--construction starts in February were down 43% compared with the same period last year, according to figures released Monday.

Recent days have seen no letup in protests and social disorder.

In the resort city of Mar del Plata, a group of angry depositors took over a bank branch Monday for several hours. Television footage from Rosario, a city northwest of Buenos Aires, showed more than 100 slum dwellers descending on an overturned cattle truck Saturday and slaughtering the animals with sticks and knives so they could carry off chunks of meat.

A growing chorus of conservative voices is calling for a crackdown on the protests--including a televised street-corner assault on Roberto Alemann, a former economy minister--which in recent weeks have taken on a more personal and vindictive tone. Many middle-class residents have directed their ire at the banking sector, where millions of dollars in deposits remain frozen.

“A society cannot exist for much time in a state of chaos,” wrote Mariano Grondona, an influential columnist for the daily La Nacion. “Someone will have to respond to the general clamor for order.”

Rumors of some sort of military intervention have been circulating through the Argentine media since February, forcing the head of the army, Gen. Ricardo Brinzoni, to issue repeated denials.

“The army does not have the desire or the training to replace the police in the face of the social disorder,” Brinzoni said recently on a radio program here. “We are subordinate to the constitution and the law. Only an act of Congress could change that.”

The sense of uncertainty is being fueled by Duhalde’s negotiations with the IMF. The president has balked at IMF demands that Argentina carry out drastic financial reforms, especially in its heavily indebted provincial governments. Several provinces--including Buenos Aires province, the country’s most populous--continue to issue their own currencies to pay salaries and other obligations.

Fears that the IMF might abandon Argentina altogether have helped push down the value of the peso.

After Friday’s steep decline, several men and women arrived in the predawn hours Monday to offer their services as place holders in lines that were already forming in the downtown banking district.

The government announced late Sunday that exchange houses would be open for only limited hours beginning at 11:30 a.m. But the official declaration didn’t reach many exchanges houses, which opened as usual at 9.

By midday, an atmosphere of barely controlled chaos reigned, with the crowds of people who were waiting to buy dollars spilling onto the streets and blocking traffic.

“This is unbelievable. It just doesn’t stop,” muttered one businessman, shaking his head outside an exchange house where the rate posted on an electronic bulletin board had risen from 3.4 pesos to the dollar to 3.7 during the hour he waited in line.