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Argentina

Argentina's New President Unveils Emergency Economic Plan

Strategic Insights

— 2 min read

Eduardo Duhalde, the newly appointed president of Argentina, has presented a sweeping economic plan aimed at stabilizing the crisis-ridden economy. The plan involves devaluing the peso by 30 to 40% and adopting a dual-exchange rate system. The measures are designed to soften the blow on the middle classes and spread the pain of devaluation broadly. The plan also includes measures to help offset the losses of devaluation, such as redenominating dollar debts under $100,000 into pesos and imposing price controls on basic goods and services.

Key Takeaways:

  • The Argentine government plans to devalue the peso by 30 to 40% as part of its emergency economic package.
  • The official exchange rate will be reset below its current level for 90 days, after which it will be left to market forces.
  • A dual-exchange rate system will be introduced, where the peso will float freely in parallel markets.
  • The plan aims to soften the blow on the middle classes by spreading the pain of devaluation broadly.
  • Measures to help offset the losses of devaluation include redenominating dollar debts under $100,000 into pesos and imposing price controls on basic goods and services.
  • The privatisation contracts signed with foreign-owned utility companies will be amended, and their rates will be switched into pesos.
  • A six-month freeze on rents will be introduced to allow both parties to renegotiate dollar contracts into pesos.
  • There are unconfirmed reports that the government will introduce a special tax on oil exports to help offset the impact of the devaluation on its own accounts.
  • The government coffers are severely depleted, with $155bn in federal and provincial government debt.
  • The plan aims to protect local companies, which have been badly hit by the combination of an overvalued currency, foreign competition, heavy taxation, and sky-high interest rates.
  • President Duhalde has stated that he will aim to leave the next president a country on its feet.

Statistics:

  • The peso is likely to be devalued by 30 to 40%.
  • The official exchange rate will be reset below its current level for 90 days.
  • There are $155bn in federal and provincial government debt.
  • The government coffers are depleted after 42 months of recession.
  • The plan aims to protect local companies, which have been badly hit by the combination of an overvalued currency, foreign competition, heavy taxation, and sky-high interest rates.

Sources:

  • The Financial Times (www.ft.com/argentina)
  • The Financial Times forums (www.ft.com/forums)
  • International Monetary Fund (no official source provided, but mentioned in the article as being in contact with the new administration)

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