|It Was Supposed to Float - Not Sink!|
|Subject||Devaluation, Economic Growth|
|Topic||International Finance Monetary Policy|
|Key Words||Devaluation, Exchange Rates, Default, Economic Growth|
The value of Argentina's national currency, the peso, plummeted throwing the country into a deeper financial crisis. Increasing concern over the failing currency and domestic economic problems caused Argentines to dump the peso, dropping a record 25 percent in one day. The International Monetary Fund and the U.S. Treasury are reluctant to provide additional aid to Argentina until it reduces government spending and adopts other reforms. Argentine President Eduardo Duhalde is losing popular support and unless he can stop the peso's fall, his ability to govern is questionable.
Argentina dropped the 1-to-1 dollar to peso peg in January and allowed the peso to float as a means of determining its value. Since the peso was freed from its dollar peg, it has lost 74 percent of its value. The dollar peg was in effect for a decade and was established as a means to control the country's hyperinflation. Inflation in Argentina in the 1980s was so high that prices for many goods changed by the hour. Eliminating the peg has revived fears of hyperinflation especially as the floating peso has already led to price hikes.
Argentina's peso problem is a part of an economic crisis that is sweeping
the country. A country that was once the wealthiest in Latin America,
has suffered from a devastating four-year recession and a massive debt
default. One out of every four Argentines are unemployed and half of the
population is living on less than $2 a day. As incomes fall, the decline
in the value of the peso has increased prices and made it more difficult
to purchase needed goods.
(Updated May 1, 2002)
|Source||Anthony Faiola, "Argentine Crisis Deepens as Peso Plunges," The Washington Post, March 26, 2002.|
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