40 Per Cent Devaluation of Peso, Dismissal in 6 Months Prohibited.

The Argentine lower house overwhelmingly passed the emergency economic reform bill, which is to grant the interim President Eduardo Duhalde sweeping authority to devalue Peso and take measures to rebuild the fallen economy.

The Argentine Senate is scheduled to review the bill on the 6th, but the approval is expected without difficulty since the Senate is under Peronist control, which supports Mr. Duhalde.

As the emergency economic reform bill passed in the lower house, the new government is in relief. However, according to overseas analysts, the new Argentine government still faces numerous obstacles in securing supports from creditor nations including the International Monetary Fund (IMF) in order to tackle the crisis and pay for the foreign debts worth 141 billion dollars.

Brief overview of new economic measures content:

Emergency authorities granted to President Duhalde include:

- Ending Peso`s parity with the U.S. dollar

- Reform of the financial system

- Control of prices

- Safeguard over domestic industry and employment market

Economic reform bill does not state the exact exchange rate, but government officials suggested 1 to 1.4- rate, which would devalue Peso by 40 per cent.

In order to minimize the impact of devaluation, Mr. Duhalde offered to apply the original exchange rate for debts below 100,000 dollars as well as electricity, water supply, and gas bills. He also imposed a 180-day freeze on job layoffs.

For the banks that will suffer losses due to the devaluation, national bonds will be issued and some portion of the petroleum export tax will be used to support them.

The new government has decided especially to maintain the freeze on the bank accounts, which was implemented by Fernando de la Rua on 1st of the last month in order to prevent sudden a withdrawal rush.

Domestic and International Response, Fear of Hyperinflation

President George W. Bush expressed his support for the new economic reform measures. Mr. Bush also successively called the Mexican, Uruguayan, and Chilean presidents to discuss ways to support Argentina.

The Washington Post reported on the 6th that the super-high inflation, which Argentina experienced in the 80s, might resurface due to the devaluation. It also reported that the Argentine people are sweeping through stores to buy necessities and goods like electronics.

Firms are also raising prices on products based on higher import prices. Pharmacies and supermarkets also raised prices up to 20 per cent.

lailai@donga.com