Brazil's Banker Gives Argentina History Lesson On Devaluation
BUENOS AIRES -- The Argentine economic team, trying to find its footing following the devaluation of the peso, got a look at neighboring Brazil's playbook yesterday.</br></br>At the invitation of Argentine colleagues, Brazilian Central Bank Gov. Arminio Fraga visited Buenos Aires yesterday to share the story of how Brazil pulled itself out of a similar financial crisis in 1999. Mr. Fraga met with Argentine Economy Minister Jorge Remes Lenicov to discuss how Brazil managed a significant devaluation of the Brazilian real, which boosted exports, while keeping inflation to single-digit rates.</br></br>The talks were punctuated by the sound of demonstrators beating drums, chanting and blocking traffic outside government ministries in this bankrupt capital city. Meanwhile, in the far north, gangs of the unemployed broke windows at utility and bank offices.</br></br>Argentina, after linking its currency 1-1 to the U.S. dollar for a decade, last week devalued the peso by 29% to an official rate of 1.4 pesos to the dollar. Since then, the peso has dropped even more on a parallel free market. It closed at 1.85 to the dollar yesterday, down from 1.70 Monday. In the meantime, the new government of President Eduardo Duhalde is scurrying to put together an economic plan that will allow angry Argentines to access bank accounts that have been partially frozen for the past six weeks.</br></br>Yesterday, Mr. Fraga "discussed Brazil's experience in 1999 moving from a fixed to a floating exchange rate and Brazil's experience with inflation targeting," said Thais Heredia, a spokeswoman for Brazil's central bank. Within six months of the devaluation, Mr. Fraga formally implemented a system of using inflation targets to govern interest rates. When prices rise faster than expected, the central bank raises interest rates to cool off the economy.