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Argentina keeps clamps on ailing peso

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BUENOS AIRES, Argentina — The Argentine government kept foreign exchange houses closed for a third day Wednesday following devaluation of the peso, preventing the currency from floating freely in the marketplace, where its value faces a decisive test.

The government announced over the weekend it was devaluing the peso, linked at parity to the U.S. dollar for the past decade, by nearly 30 percent for large-scale business transactions.

But ordinary Argentines wanting to buy dollars will have to pay a new, floating rate at banks and exchange offices.

Analysts say that rate will be a litmus test of the government's emergency plan to drag South America's No. 2 economy out of nearly four years of bitter recession.

If the rate soars way above the new, fixed business rate of 1.4 pesos to the dollar, it could undermine the currency and plunge Argentina back into a period of hyperinflation like the one that scourged the economy in the late 1980s.

The government has kept exchange houses closed and barred banks from selling dollars — meaning the only way Argentines can change pesos is through the black market. Street prices for dollars were slightly above the 1.4 rate on Wednesday. For weeks the government has also restricted how much Argentines can withdraw from their accounts to prevent a run on cash. By continuing the restrictions, the government is effectively postponing judgment on its plan and risks renewed street protests like the kind that brought down former President Fernando de la Rua in late December.

"I've been trying to withdraw my salary for the last two weeks but my new ATM card doesn't work," complained Alejandro Cardenas, a 42-year-old sociologist waiting at one Buenos Aires bank on Wednesday. "I've been borrowing money from family and friends."

Their daily routines disrupted by the banking freeze, Argentines are impatiently waiting for the government to ease the restrictions, introduced Dec. 1 to prop up the ailing financial system after a run on banks.

The Buenos Aires daily Clarin reported Wednesday that the government would raise the current 1,000-peso monthly withdrawal limit — about $700 at the new official rate — to 1,500 pesos, or just over $1,000.

It also reported that Argentines could start reclaiming their savings, also frozen under the restrictions, beginning in March. The government was preparing a timetable to hand back the savings gradually.

Presidential spokesman Eduardo Amadeo said the banking holiday would be lifted Thursday.

As Argentines brace for the free-float, prices on a range of goods from diapers and perfumes to imported coffee and computers have shot up.

Even non-imported goods like bread and sugar have seen prices increase in recent days, as wheat or sugar producers prefer to hold the raw commodities in stock rather than sell in today's uncertain times.

On Wednesday, local media reported that basic goods ranging from Coca-Cola and Pepsi to bread would rise between 7 and 10 percent.

On Tuesday, Deputy Economy Minister Jorge Todesca urged supermarkets and other businesses not to raise prices, saying the government will "act with force" against unjustified price rises. He did not explain how.

That call drew a conciliatory response from supermarket owners, with Ovidio Bolo, head of the Chamber of Supermarkets, saying that while many of the price hikes were unavoidable, there have been some "unjustifiable increases."

Alberto Bernal of New York-based economic think tank IDEAglobal said it was "unrealistic" to think the government could keep the lid on inflation as the peso's value slides.

"Inflation is definitely the problem everyone's worried about," says Bernal, predicting that this year, "if the government's lucky, inflation will be something like 35 percent."

The government has promised to present a cost-cutting 2002 budget by the third week of January. A fact-finding mission from the International Monetary Fund, which cut off funds to Argentina on Dec. 5, was to return to Washington Wednesday after several days of behind-the-scenes talks with the new administration.

Further austerity measures are likely to be received badly by most Argentines, now angry and on edge after wave upon wave of cutbacks.