By Natalia Kidd
Buenos Aires, Jan 1 (EFE).- Created 30 years ago as part of a plan to tame inflation, the convertible Argentine peso remained at parity with the dollar for a decade but now trades for less than 0.5 cents on the informal market.
On Jan. 1, 1992, the new peso replaced the austral, itself adopted in 1985 as a substitute for the old Argentine peso in an earlier attempt to bring inflation under control.
The peso was maintained at parity with the dollar until Jan. 6, 2002, when Argentina’s Congress repealed the law establishing one-to-one convertibility with the United States currency.
Weeks later, on Feb. 3, provisional President Eduardo Duhalde issued an order converting dollar-denominated bank deposits and debt into already devalued pesos.
Parity with the dollar was “sustainable” as long the government ran a balanced budget, according to economist Mariano De Rosa, who attributes the collapse of the policy to an abandonment of fiscal discipline starting in the mid-1990s.
“The crisis at the end of 2001 was one of the greatest in Argentine history, with a devaluation of nearly 400 percent in two days,” the founder and executive director of business consultancy Mas Inversiones (More Investment) told Efe.
That crisis was brought to a head by the-then largest sovereign default the world had ever seen.
The default was yet another legacy of Argentina’s 1976-1983 military regime, which presided over a 465 percent expansion in public indebtedness while in the process of killing 30,000 people.
Argentina’s accumulated inflation since 2002 is 435 percent.
The cost of a basic food basket sufficient to meet the nutritional needs of one person has soared from 61 pesos in late 2001 to 10,267 pesos now.
“The peso-dollar relationship was 1-1. Today it’s 200-1. That is a rise of 20,000 percent. In the ’90s we bought a mobile telephone for the same amount that today buys maybe a carton of milk,” De Rosa said.
A currency, he said, must serve as a store of value, a medium for transactions and a benchmark for prices.
“In Argentina, when the peso began to decline in value ever more, we stopped regarding it as a store of value. We don’t save in pesos, but rather in some other thing, principally in dollars,” the economist said.
“There is a complete lack of confidence in the currency. We are all expecting a devaluation because ours is a crisis of expectations. Regrettably, this relationship has been totally broken for 20 years,” De Rosa said. EFE