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Argentina lets banks cash bigger checks

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BUENOS AIRES, Argentina — The Argentine government Tuesday prepared to ease curbs on cash withdrawals from banks in a bid to get the crisis-racked economy rolling again, as many disenchanted Argentines prepared to emigrate after this weekend's devaluation of the peso.

The administration of President Eduardo Duhalde, the populist who was sworn in last week, was also expected to explain how Argentina's new dual exchange rate — a fixed peso pegged at 1.40 to the dollar and an unofficial floating peso mainly for the tourism sector — would work.

"The idea is to announce today how the banking restrictions on deposits will stand . . . and how the exchange system will work — which operations will be on the official exchange market and which on the free exchange market," Deputy Economy Minister Jorge Todesca told local radio.

Todesca said the government would relax the unpopular bank curb limiting Argentines to 1,000 pesos per month in cash withdrawals — put in place last month to stop a run on banks — to 1,500 pesos for some accounts.

As nervous Argentines waited for devaluation to officially kick in on Wednesday, when the government lifts a foreign exchange holiday in place since bloody food riots toppled ex-President Fernando de la Rua, many sought to flee the basket case that Latin America's No. 3 economy has become.

Long queues formed at the Spanish and Italian consulates in the capital early on Tuesday, as recession-weary Argentines prepared to leave for their ancestral homelands.

But as some shops ignored government pleas not to increase prices to offset the devaluation — particularly importers of electric appliances and electronics products — some investors predicted the peso, which the government hopes to float freely within four to five months, would slide this year.

As many Argentines feared a return to the hyperinflation of the 1980s that saw food lines and sometimes hourly price increases, investment bank JP Morgan predicted the peso—which has already been devalued by 29 percent — could fall to 2.70 to the dollar by the end of 2002.

Inflation has been zero or less for five years — a far cry from the 5,000 percent just before Argentina pegged the peso at parity to the dollar a decade ago. But zero inflation came at a cost, as the peg made exports expensive and prolonged an economic slump.

Duhalde released the peso from its one-to-one peg to the dollar on Sunday, hoping to kick-start an economy that has not grown since 1998 by cheapening exports. Argentina has already suspended payments and defaulted on part of its $141 billion debt pile, heralding the biggest sovereign default in history.

The government is now scrambling to win fresh backing from international lenders. Economy Minister Jorge Remes Lenicov has said the government may seek another $15 billion to $20 billion in aid to help it clamber out of its hole.

A technical mission from the International Monetary Fund, which sent $22 billion in aid in a year, was expected to return to Washington on Tuesday. But the mission was said to have concentrated on reviewing Argentina's fiscal situation rather than on evaluating new aid.

Spanish Prime Minister Jose Maria Aznar said on Tuesday it was vital that struggling Argentina produce a credible recovery plan that would be accepted by the main international financial institutions.

"We hope that the country would recover as soon as possible and we think that for this it is indispensable that we have a plan that is credible and that is acceptable for Argentina's society as well as for the international community," Aznar said.

Some Argentines cannot wait to turn their back on a country widely seen as suffering from decades of endemic corruption and economic mismanagement.

"I plan to go and study (in Italy) because it is the only way to get out of the country," said one woman standing in a long queue outside the Italian consulate in Buenos Aires.

"I don't have citizenship; I have no way of getting it; but I want to get out any way I can. This country is finished. I am sick of the protests, I am sick of taking part in them, and sick of everyone laughing at us."

Such protests by Argentina's middle-class helped bring down De la Rua and saw five presidents in two weeks. But Duhalde's populist policies have shifted the cost of the devaluation onto banks and companies and have helped calm the population.

Some analysts, however, expect Argentina to pay dearly.

"We believe that they will deepen the economic crisis, heighten political risk, and put a recovery further out of reach," Credit Suisse First Boston said in a research note.