INTRODUCTION: Argentina devalued the peso by 30 per cent against the U.S. dollar on Tuesday (2 June).
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Background: INTRODUCTION: Argentina devalued the peso by 30 per cent against the U.S. dollar on Tuesday (2 June). It was the second big devaluation in two months. Economy Minister Lorenzo Sigaut took the action after a run on the Argentine currency which had cost the country 400 million dollars by the end of last week. The devaluation follows ones of 10 per cent in February and 28 per cent in April as well as smaller monthly devaluations.
The current run on the peso was sparked by a newspaper report saying the economy was in danger of collapse unless urgent action was taken.
SYNOPSIS: All foreign exchange transactions were suspended early on Monday (1 June). Central Bank President Julio Gomez resigned with his vice-president. Speculation on possible devaluations has cost Argentina more than two billion dollars in foreign exchange this year. The resulting impact on financial markets had helped push interest rates up to around 200 per cent. The peso is to be further devalued by another six per cent during June.
The current crisis started with banks buying at 4230 to the dollar and selling at 4300. There was a rush into dollars and gold. Economic Minister Lorenzo Sigaut said the devaluation was aimed at reactivating industry and agriculture, reversing a mounting foreign trade deficit and ending speculation on the foreign exchange markets. He took office at the end of March but his efforts to stimulate the economy had been widely criticised by nearly all sectors.
Meanwhile, the pesos' value was falling by the minute. It was now being bought at 4280 to the dollar and sold at 4380 by local banks.
Dealing was suspended on the stock exchange. Mr. Sigaut said his latest move should lead to a trade surplus this year. The previous government used an overvalued peso to bring inflation down. Inflation fell from 500 per cent five years ago to 80 per cent last year.