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Argentina Sells Dollars to Aid Peso

January 16, 2002|From Bloomberg News

BUENOS AIRES — Argentina sought to stem the peso's slide Tuesday after the currency, officially unchained from the U.S. dollar last week, lost more than half of its value in three days.

The central bank exchanged about $8.8 million for pesos in transactions with private exchange houses and banks, officials said.

The sale of dollars from reserves suggests the government will fail in its efforts to maintain a fixed exchange rate for as long as five months and will be forced to let the currency float, investors said.

Argentina's international reserves total about $20 billion.

"The market knows the central bank doesn't have enough reserves to go around pretending to defend the currency," said Emilio Botto, a money manager at BNP Asset Management.

The peso, which had been fixed for a decade at one-to-one with the U.S. dollar before President Eduardo Duhalde devalued the currency Jan. 6, fell to below 2 per dollar Tuesday at exchange houses as Argentines lined up for hours to change money. The devaluation was official in foreign exchange transactions Friday.

Duhalde has said he wants to keep the peso's market rate in line with an official 1.4 per dollar exchange rate in a bid to restore confidence in the economy before letting the peso trade freely. But late Tuesday afternoon the central bank offered dollars at a rate of 1.7 pesos, and ended up selling about $3 million, traders said.

Argentina, in default on its massive debt load racked up from years of heavy government spending, devalued the peso in an attempt to make Argentine exports less expensive for foreign buyers. But the move has savaged average consumers' purchasing power.

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