BUENOS AIRES, JAN. 29 -- Nine months of relative economic stability here have come abruptly to an end with the Argentine currency taking a steep nose-dive, prices taking a big jump and President Carlos Menem's team of economic advisers apparently taking a hike.
Economy Minister Erman Gonzalez, known here as "Sup-Erman" for his success in bringing monthly inflation rates down into single digits, offered his resignation Monday after a wild day in which the financial markets verged on sheer panic.
Tonight, Menem named Harvard-educated economist Domingo Cavallo, currently Argentina's foreign minister, to replace Gonzalez as the economy minister.
At a news conference tonight, Cavallo , who was central bank president for a brief period in 1982, said he would authorize the country's central bank to intervene in the foreign exchange market to maintain the austral in the 8,000 to 10,000 per dollar trading range. Cavallo said banks and financial markets would operate normally on Wednesday, not Thursday as the central bank had said.
The rapid price increases raised fears of another bout with hyper-inflation. Menem's government is being watched closely as a gauge of how South American democracies will be able to handle trouble-plagued economies. Menem had won praise for reducing inflation to single-digit monthly levels -- around 6 percent in December, a figure considered low in a country that has seen some months with inflation of more than 100 percent.
The current crisis, like others over the past several years, was sparked by exchange rates and fears of inflation. For the better part of last year, the Argentine austral had been extremely strong, trading at fewer than 5,000 to the dollar before slipping gradually to around 6,000 near the beginning of January. Argentina had become, in dollar terms, one of the most expensive countries in the world. Diplomats and foreign bankers were puzzled as to why the austral, once laughable, was suddenly so rock-solid. On Friday, the austral began to crumble, slipping to a rate of around 7,000 to the dollar. Monday, as excited crowds gathered in the financial district to watch the changing tote boards in the windows, the exchange rate slipped to nearly 8,500 before the central bank flooded the market with an infusion of $45 million, briefly halting the slide.
There was no agreement on what had happened. Eduardo Amadeo, president of the Bank of the Province of Buenos Aires, said he believed that statements by Economy Ministry officials that seemed to promise some kind of drastic monetary adjustment had compromised "the general credibility of the system." Others said that over recent weeks, the government had simply gone back to its old habits of printing more and more australs to cover expenses.
The impact of the austral's slide was more apparent. Stores and restaurants rushed to raise their prices by as much as one-third. At wholesale markets, the price of beef, a staple of the Argentine diet, jumped by more than 30 percent overnight.
In the resort city of Mar del Plata, motorists were reportedly forming long lines at gas stations to fill up for the trip home -- anticipating that gasoline prices, recently deregulated, would surely rise.