Argentina Currency

In his first public address since taking office two days earlier, Argentine President Eduardo Duhalde acknowledged Friday that the nation will have to devalue its currency, abandoning the peso's 10-year parity with the U.S. dollar. But he declined to say how much value the peso might lose or disclose details of a sweeping economic "salvation" plan he has sent to Congress for debate and approval over the weekend.

Ending agonizing days of uncertainty, Argentina finally embarked on a new economic path Sunday night, ending its 10-year experiment with a dollar-based currency by declaring an immediate devaluation of nearly 30%. As expected, the nation is also stopping payment on $135 billion in public debt, the biggest default ever by a country.

Showing little confidence in their country's economic future, Argentines drove down the value of their national currency, the peso, as it floated on the open market for the first time Friday after a decade when it was worth a dollar. The peso traded at about 1.7 to the dollar at Buenos Aires exchange houses and banks, which reopened to currency trading following a three-week "partial banking holiday" imposed by a government trying to stem the flight of capital from the recession-ravaged country.

Three weeks after a wave of demonstrations brought him to power, Argentine President Eduardo Duhalde finds his administration at a critical juncture, caught between the demands of millions of his citizens and the expectations of the international finance community. Every day brings a new protest in a nation beleaguered by unemployment and a banking freeze that has crippled economic activity.

Following days of uncertainty, hoarding and repeated calls for calm, Argentina allowed its currency to float freely against the dollar for the first time in a decade Monday. The peso slipped slightly in value but did not suffer the free fall many feared. Hundreds of people lined up outside exchange houses in Buenos Aires, the capital, where the dollar sold for about 2.1 pesos, a drop of about 5% from the peso's unofficial value Friday.

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.

Stocks across Latin America and in Spain plunged Monday after Argentina stunned the financial community with a new policy on exchange rates that some analysts saw as a de facto devaluation. The policy changes, announced over the weekend, obliterated much of the confidence earned when Argentina exchanged $29 billion in debt this month, a move that seemed to give the country some breathing room from worried creditors.

Argentine Economy Minister Domingo Cavallo on Tuesday urged citizens to return almost $10 billion they have pulled from domestic banks since the end of June, saying it would help the country avoid a currency devaluation and debt default. That money, he told a group of economists and students, remains in Argentina and could help make the financial system stable.

Argentina said Thursday it's studying the idea of scrapping its currency and replacing it with the U.S. dollar, to help shield the nation from being rocked by currency crises such as Brazil's. Argentine officials first met with the U.S. Federal Reserve and the Treasury last July to discuss the move, which could be a first step in eventually using the dollar hemisphere wide, said Central Bank President Pedro Pou.

The emerging-markets crisis is supposed to be over, but the signals from Latin America suggested otherwise Monday as rumors of a currency devaluation in Argentina accelerated across the region and sent stocks down sharply. Economists insisted that a devaluation and an abandonment by Argentina of the peso's peg to the U.S. dollar are unlikely, but several warning signs--including provocative comments last week by financier George Soros--have rattled much of Latin America.