Argentina's new economy minister said yesterday he will allow banks to reopen and a battered currency to float, emphasizing his free-market and pro-IMF credentials and appeasing a cash-hungry public unable to access ATMs or use credit cards for nearly a week.
"The economy has to be oxygenated," said Roberto Lavagna in an interview with leading newspaper
The move to reopen banks and foreign exchange markets will give some relief to Argentines, already hit by a currency devaluation and four years of recession. They were squeezed even more last week after the government tightened a deposit freeze, in place since December, to stop a drain on a collapsing financial system.
The decision to allow the peso to trade freely will also please the IMF and investors, worried after President Eduardo Duhalde hinted he could fix the peso after it slumped 70 percent against the dollar this year and sparked rising inflation.
"It's been like time stood still," said Jorge, a waiter serving coffee and croissants in an almost empty cafe in the capital. Many Argentines were forced to walk or cycle to work as cash became in increasingly short supply.
"We were all down to our last pesos. I'd forgotten what a tip looked like. I'm pleased banks will open again but everyone wonders what the next surprise will be," he said.
Argentines, who for years have viewed their young country of European immigrants and suburban homes as a notch above the poverty and slums of Latin America, saw their living standards plummet amid the country's worst ever economic crisis.
Five presidents and six economy ministers in a year have added to instability that has seen millions of Argentines now use barter to purchase household goods. Shanty-towns are spreading and street crimes are rising.
After bloody food riots forced out his two predecessors in quick succession, Duhalde came to power in January stuck between the need to appease the IMF on the one hand and help impoverished Argentines on the other.
In another attempt to please the IMF as the government negotiates for crucial financial aid, Lavagna said he wanted to change two controversial banking laws -- the bankruptcy law, which the IMF said protects debtors, and the "economic subversion" law, criticized for allowing legal witch hunts against bankers and investors.
While insisting in a need for an IMF accord, Lavagna told local television late on Sunday the IMF needed to stop making harsh declarations over Argentina, alluding to blunt comments calling for the country to make quick reforms. He said the IMF needed to look at its own errors as well as Argentina's in contributing to the crisis.
Speaking on exchange rate policy, the minister said that there would be a "level of intervention ... as in other countries." Since January the Central Bank has often sold dollars to help prop up the peso.
Pressure from some politicians on Duhalde to change course had been growing amid speculation he would be forced to call early elections after then-economy minister Jorge Remes Lenicov quit, failing to win support for a plan to help nearly broke banks by transforming deposits into bonds.
After pegging the peso to the dollar for a decade, the government hoped that a switch to a free-floating currency would boost competitiveness in Latin America's third largest economy by making it cheaper to do business and hire labor.
But so far it has only led to near chaos as Argentines purchased the safe-haven US dollar, weakening the peso by 70 percent and sparking inflation. With wages stagnant, Argentina's 36 million inhabitants took an effective wage cut as prices of basic goods from cooking oil to bread rose.
One in two Argentines live in poverty on a few dollars a day and the middle class -- once the strongest in Latin America -- has been impoverished, sparking street protests in December in which 27 people died amid supermarket looting.
One TV program over the weekend, titled "Returning to the epoch of our parents and grandparents," showed how Argentines could no longer afford disposable diapers. The middle class was now forced to use old-style cotton diapers, and some slum dwellers were using garbage bags tied around their babies.
Economists say the country's problems show no sign of abating. The economy is expected to contract up to 15 percent this year and analysts wonder if more social upheaval is ahead. Lavagna said on Sunday the unemployment rate was 24 percent.
Adding to the instability, the new economy minister must also decide what to do with banks, which have lost billions of dollars after devaluation. The deposit freeze has killed confidence in the financial system.
Deposits dropped 20 percent last year and have fallen at least 10 percent so far this year. Lavagna said he was still mulling forcibly transforming deposits to government bonds.
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