One-to-One Peg to the U.S. Dollar Is Annulled

The interim Argentine government led by President Eduardo Duhalde announced its strong economic reform plan including the annulment of one-to-one peso-dollar conversion.

The reform plan also includes the devaluation of the peso by 40 percent and the introduction of the floating exchange rate system to overcome the economic crisis. Cabinet Chief Jorge Capitanich expressed his worries saying "The primary purpose of the reform is to stabilize the society, but it could affect the whole price system."

Mr. Capitanich, however, reiterated that "the repayment of foreign debts will be suspended `temporarily` until the repayment condition is completely readjusted."

Argentina is officially in a default state by failing to pay 28 billion dollars of foreign loans on Jan 3rd.

The local presses reported that the decision to change the rate to 1.4 pesos to 1 dollar is based on the currency basket of the U.S. dollar and the euro. However, foreign newspapers indicated that the economic reform plans including the devaluation of the peso might bring about another revolt.

lailai@donga.com