well, did Gold selling help Argentina?
INTERVIEW-Dollarization only
Argentine wild card
By Alejandra Labanca
BUENOS AIRES, May 21 (Reuters) - After a week of hotly
denied rumors of an Argentine devaluation, the only possible
change in the nation's current economic scheme is dollarization, a
government official said Friday.
''It's absurd to think that Argentina is going to change its (economic) regimen and if there is one
sole change that may be contemplated it's dollarization, in the short or long run if the people want
it,'' Economy Vice Minister Pablo Guidotti told Reuters.
Economy Minister Roque Fernandez has said the country has no intention of adopting the dollar in
the short run, but that there are on-going talks over the issue with the U.S. Treasury and U.S.
Federal Reserve.
Since 1991 Argentina has had a convertibility system pegging the peso 1-to-1 with the dollar and
prohibiting the printing of unbacked money.
Adopting the dollar as the national currency was first put on the table by President Carlos Menem
just before Brazil's real currency was devalued in January. Dollarization was presented as a
full-proof safeguard against the spectre of an Argentine devaluation.
Besides talk of devaluation, Argentina has been touched by other ill winds. Friday rumors of the
eventual resignation of Fernandez and the possibility that Argentina would ditch convertibility shook
Latin American markets despite being heavily denied at home. The Argentine bourse closed down
4.3 percent, while Brazil dropped 1.88 percent and Mexico fell 2.98 percent.
Financier George Soros added fuel to Friday's fire by saying convertibility may be causing
Argentina's recession and that the country's peso is probably overvalued.
''Soros' comments are simply a reflection that whichever currency is attached to the dollar, in a
case where the dollar is stronger, the currency attached to it is also strong,'' said Guidotti.
''There has been a lot of commentary to that effect over the last five years, there are always people
with one opinion and others with another, and because of that people win and lose money,'' he
added.
Guidotti noted that in the face of the dollar's appreciation in international markets in recent years
Argentina's growth has averaged five percent and exports have gone up.
The country's two-quarter-old recession, which is expected to drag the GDP down 1.5 percent this
year, is a consequence of the increase in interest rates provoked by Russia's debt moratorium, he
maintained.
Analysts argue there are no good technical reasons for Argentina to devalue since its currency is
fully backed by dollar reserves, the financial system is highly liquid and the government is six months
ahead in its debt financing.
The rumors of a currency plunge were largely based the government's desire to shave $700 million
out of the budget in a move supported by the legislature. The maneuver will permit Argentina to
have a new fiscal deficit goal of $5.1 billion according to its agreement with the International
Monetary Fund, far above the $2.95 billion initially projected at the top of the year.
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