Argentina yesterday ended a decade old fixed currency peg blamed for strangling its economy and devalued the peso by nearly 30% against the US dollar.
Just five days after President Eduardo Duhalde took office, he secured special powers from Congress to make the shift that will affect every facet of Latin America's third largest economy.
'This is a change of direction that includes transitory measures, but we want to have an economy like other countries,' economy minister Jorge Remes Lenicov told a news conference.
He announced the devaluation of the peso to a fixed rate of 1.40 to the dollar and a possible shift to a floating rate in four to five months.
The emergency economic plan - which comes after a month of cash shortages, rioting and looting that forced the resignations of two presidents - includes measures to soften the blow of the devaluation for individuals.
In a country where 80% of loans are in dollars but wages are in pesos, the government will order a conversion of dollar debts up to $100,000 into pesos at one-to-one to avoid widespread bankruptcies.
To compensate for the losses to an already weakened banking sector, the government will give banks bonds backed by fuel exports.
Public utilities, including telephone, electricity and water companies, will also take a hit as the government switches dollar tariffs into pesos to protect consumers.
Foreign banks and utility companies - mainly Spanish and US giants that moved into Argentina through the purchase of state assets in the 1990s - may be big losers.
At the same time, Argentina extended an olive branch to lenders after a default on part of its $141bn debt. Duhalde's economic team will start renegotiating foreign debt in February and could ask international lenders for up to $20bn in aid.
