Bank Raid Argentina's Attempt to Prop Up Peso Fails

Argentina's central bank imposed strict new controls on foreign exchange dealing yesterday in an unsuccessful attempt to prevent the country's currency sinking to new lows.

Fearing further economic turmoil and a rerun of the riots which toppled the previous government, the bank ordered foreign exchange dealers to shorten opening hours and sell dollars only at the official rate. That is a significant retreat from the government's decision three months ago to allow the currency to float.

Hours after the announcement, the peso hit an all-time low of 3.75 to the greenback, 75% lower than its level before January's chaotic devaluation.

Under the new rules, banks and exchange houses will be restocked with dollars only if they agree to buy and sell at official rates. The central bank set a rate early yesterday of 2.80-2.90 pesos per dollar for retail sales, well below the market rate. People nonetheless mobbed banks (above) to buy dollars.

The diving peso has driven up prices of items ranging from steaks to petrol, feeding fears that rising inflation will cause more violent protests and the fall of the government of Ed uardo Duhalde, Argentina's fifth president since December.

With unemployment above 20% and little chance seen of snaring soon a badly needed loan package from the International Monetary Fund, many analysts predicted more blows to an economy already battered by this year's debt default and a hated freeze on bank deposits.

The Fund suspended a $9bn loan last December, forcing Argentina to default on its foreign debt and triggering street protests which left 27 dead. The IMF refuses to resume lending until the government agrees to tough limits on public spending.

President Duhalde's argument that deep spending cuts would cause renewed social tensions has fallen on unsympathetic ears at the US government and the IMF.

Most analysts predicted the latest foreign exchange controls would further alienate the IMF, which has called on Argentina to stop artificially propping up the peso, and would almost certainly fail to stem further declines in the currency.