January 19, 1999
Argentina ponders a dollar currency

                  BUENOS AIRES (Reuters) -- Talk by Argentina's government of adopting
                  the dollar should not be taken lightly, according to experts who say it would
                  resolve questions about peso devaluation and would not be hard to do.

                  Since Brazil devalued the real currency last week, an increasing number of
                  government officials and economists have suggested the best thing for
                  Argentina would be to get rid of the peso.

                  President Carlos Menem proposed last week that his economy minister
                  study the possibility of adopting the dollar as the common currency, first in
                  the Mercosur trade bloc and then in all of the Americas.

                  For Argentina, that option is very real because its currency board has
                  pegged the peso to the dollar since 1991.

                  "Its possible," said Gustavo Canonero, head of research for Mercosur at
                  Deutsche Bank Global Markets. "If there is confidence in the banks, it could
                  basically be done overnight."

                  Under Argentina's currency board system, the Central Bank can only print
                  as many pesos as it has dollars in reserve. The more dollars in reserve, the
                  more pesos in circulation and the more loans available to fuel growth.

                  What would make the switch to dollars possible right now is that foreign
                  currency reserves are at record levels, meaning a wholesale exchange of
                  pesos into dollars by the population could be achieved. And without the
                  peso, large dollar reserves would be unnecessary.

                  "Basically what you need is to have enough foreign reserves to exchange the
                  liabilities of the Central Bank, which is what you have now," said Canonero.

                  Argentina's history of runaway hyperinflation in the 1980s had already made
                  it an economy where the dollar is widely used as a store of value. Few
                  Argentines can remember when contracts to buy or rent property were not
                  carried out in dollars.

                  With the currency peg to the dollar, the level of "dollarization" has increased
                  with some economists estimating that more than 60 percent of financial
                  transactions are carried out in dollars. Cars are now bought in dollars and
                  mortgages are rarely taken out in pesos.

                  Standard & Poor's, the credit-rating agency, already has taken note. It has
                  given several Argentine firms investment-grade ratings because their
                  revenues are mainly in dollars. This makes their chances of defaulting on
                  foreign debt lower than the government's.

                  "The proposal of dollarization has two virtues," Gabriel Rubinstein, head of
                  Duff & Phelps Credit Rating Co's Argentine office, wrote in business daily
                  Ambito Financiero Tuesday. "As a minimum, it (the proposal) reaffirms the
                  commitment to the peg and as a maximum it optimizes the peg by definitively
                  leaving behind the ghost of devaluation."

                  The advantage for Argentina in adopting the dollar is that it would finally end
                  the incessant speculation that has followed every recent currency crisis in
                  Latin America-- the flight of capital.

                  Brazil's devaluation leaves Argentina as the only major Latin American
                  economy not to devalue its currency at some stage since economic reforms
                  swept across the region at the beginning of the 1990s.

                   Copyright 1999 Reuters.