Residents Rush to Buy U.S. Dollars as Government Fails to Bolster Its Currency

By Anthony Faiola
Washington Post Foreign Service

BUENOS AIRES, March 25 -- Argentina's financial crisis worsened today as the peso plummeted in value despite emergency government measures to prop it up,
igniting fears that the currency is heading into a free fall that could rapidly destabilize the government.

A growing panic among average Argentines and big businesses over the falling currency fueled a stampede to safe-haven U.S. dollars today. In its biggest one-day
drop ever, the peso lost almost a quarter of its value, plunging to a record low of 4 pesos to the dollar before rebounding slightly to 3.9 in late trading, a significant
weakening from the 3.1 level it was at late Friday.

The Argentine Central Bank failed to halt the currency's fall by shortening the hours of currency-exchange agencies and pressuring banks to sell dollars at a
discounted rate.

The peso has shed 74 percent of its value since the government was forced in January to end the currency's one-to-one peg to the dollar. The fall has prompted fears
of a return to the hyperinflation that plagued Latin America's third-largest economy in the late 1980s and that could now prevent a long-awaited recovery here.

The currency's tumble comes as the International Monetary Fund and U.S. Treasury have taken an increasingly tough line with Argentina. President Eduardo Duhalde
returned this weekend from a United Nations poverty conference held in Mexico, where he and his staff saw their hopes of quick aid dashed as President Bush said
Argentina still had to make "some tough calls" to further limit government spending before financial assistance would be approved.

The IMF and the United States are insisting on a reduction in government spending and an improvement in tax collection before a loan agreement can be reached,
while Argentina argues that it has already made deep cuts and that further austerity moves may generate the kind of social explosion that has led to the fall of three
presidents since late December.

Analysts say the impasse has generated a crisis of confidence in the peso among individuals, businesses and foreign investors who doubt the ability of the Argentine
government to stabilize the economy without foreign aid.

Now, analysts are questioning whether Duhalde, who took office on Jan. 1, will last long enough to even attempt to meet IMF demands. Concern is rising that after
only 11 weeks, he is losing control of the economy and may be forced to call early elections.

"Duhalde needs to stop the fall of the peso -- and now," said Rafael Ber, chief economist for Buenos Aires-based Argentine Research. "He already has a weak
support base linked to the [labor] unions, some economic sectors and the governors of the Argentine provinces. But if he cannot stop the peso's drop and start
bringing it back . . . he risks losing that support, and his ability to govern will be put in jeopardy."

The problem is, nothing the government does seems to work. The central bank has spent more than 15 percent of its dwindling dollar reserves in an effort to prop up
the peso over the past two months. With only about $12 billion in reserves left, the central bank has now decided -- reportedly in response to IMF advice -- to stop
intervening in the currency market for the time being.

But the speed of the peso's devaluation has exceeded all predictions, dealing a severe blow to an economy already in tatters from a massive debt default and a
deepening four-year recession. In a nation that was once the wealthiest in Latin America, one out of four Argentines are jobless; one of every two are living on less
than $2 a day.

The peso's fall has worsened the crisis by causing inflation to worsen during a crippling recession. In other words, prices are rising while earning power is plunging.

Argentines have bad memories of the hyperinflation of the late 1980s, when prices were soaring by the hour. Many here feared that the peso's fall today heralded a
return to the days when shoppers would race down the aisles at grocery stores to scoop up goods before they could be re-tagged with higher prices. Some stores
today refused to sell certain goods or closed all together, unsure about what to charge.

The scene in the center of Buenos Aires was chaos as panicked crowds lined up for hours in front of exchange agencies to buy dollars. The peso's plunge has been
worsened by speculators who tried to capitalize on the currency's instability by buying and selling for quick profit.

"I don't know what to do. I'm frightened, very frightened," said Emilio Curia, 77, a retired government clerk who was buying dollars with the meager
300-peso-a-month pension he gets. "Prices are going up at the grocery store and the peso keeps falling. I don't know how I'm going to eat. All I can think of is
saving what little I have by coming here and buying dollars. The peso is just going to keep falling; things are going to keep getting worse."

                                               © 2002