The Washington Post
Wednesday, January 16, 2002; Page A14

Argentina Signals Shift Away From U.S.

Rioting Spreads as New Leader Calls for Latin American Unity Against 'Domination'

By Anthony Faiola
Washington Post Foreign Service

BUENOS AIRES, Jan. 15 -- Amid renewed public protests and violent attacks on foreign-owned banks, President Eduardo Duhalde declared today that Argentina
would try to deepen ties within Latin America and confront the region's economic "domination" by the industrialized world.

In remarks that signaled a shift away from Argentina's decade-long stance as Washington's closest ally in South America, Duhalde called for the creation of a
common currency with neighboring Brazil, and for a united front against "protectionist" U.S. trade barriers blocking Latin American agricultural exports.

During the 1990s, Argentina embraced U.S.-backed economic policies and, in return, received the coveted "non-NATO ally status," reserved for such countries as
South Korea and Egypt, that gave it preferential status for some military sales. But Duhalde's comments today to foreign journalists appeared to foreshadow a
challenge to U.S. economic interests in the region.

Analysts said demands by Argentina and Brazil -- the region's third-largest and largest economies, respectively -- for greater access to the U.S. market for their
agricultural products are unlikely to be granted by Washington. This disagreement could derail Bush administration plans to establish a Free Trade Area of the
Americas stretching from Tierra del Fuego to the Arctic Circle.

Duhalde is struggling to stabilize Argentina, which in recent weeks defaulted on part of its crushing $142 billion debt and was forced to end the peso's peg to the
dollar. This led to a 40 percent devaluation in the currency. The peso fell sharply today, dropping to 1.95 to the dollar, from 1.70 yesterday, as confidence in the
currency continued to dwindle.

Duhalde said Argentina is now "one step away from anarchy," and as he spoke, the country was hit with fresh outbreaks of violence by left-wing groups of the
unemployed. They were protesting a widely disliked freeze on bank deposits, which has barred millions of people from withdrawing their savings. The deposits are
held by a banking system that is owned largely by foreign financial institutions, including U.S. banks.

In mounting frustration, thousands of protesters rioted in three provinces today, throwing eggs and smashing windows of foreign-owned banks.

In the northern province of Jujuy, demonstrators broke windows and destroyed computers and ATMs at BankBoston and Citibank. In Buenos Aires, thousands
marched on the presidential palace demanding food, jobs and an end to the banking freeze.

To quell social tensions and maintain his presidency, Duhalde, a veteran senator, governor and former vice president from the populist Peronist party, has promised
to create jobs by protecting domestic industries crippled during Argentina's opening to foreign trade in the 1990s.

Duhalde's remarks during his first two weeks in office have raised alarms abroad that he may be turning away from free-market economics, a movement that could
spread to other parts of Latin America.

Duhalde said today that he intended only to provide Argentina with the same kind of protection from excessive foreign imports "that any other successful country in
the world now has."

Of more immediate importance, however, is the six-week-old banking freeze. Duhalde is forcing banks to accept the peso at its pre-devaluation rate for payment of
many loans denominated in dollars, resulting in billions of dollars in losses for the banks. As compensation, the banks, some of which are threatening to leave
Argentina, are pressing Duhalde to convert the dollar accounts held by Argentines, or 74 percent of all deposits, into pesos.

Duhalde has resisted doing that but has maintained the freeze, which will deny some Argentines full access to their deposits until the end of 2005.

"This is a time bomb that will explode if we don't carefully disarm it," the president said.

Political observers said Duhalde is trying to use populist rhetoric and nationalism to sustain his administration, but he is being criticized from all sides. He has
attempted to limit the impact of the devaluation on the population by shifting the costs to the banks and Argentina's privatized utilities, which will not be allowed to
raise their rates. This has cost him key support from powerful financial interests here who are now clamoring for his ouster. But his decision to maintain the banking
freeze -- which is considered essential to avoid a banking crisis -- is bleeding him of public support.

Also looming is the budget for next year and questions about how Duhalde will handle it. The draft budget is expected to be released this week. An austere budget,
addressing Argentina's chronic deficits, is considered key to winning a vital cash infusion from the International Monetary Fund.

Though Duhalde criticized the fund today, saying the "IMF has been part of the problem and should now be part of the solution," sources close to his administration
said he will nonetheless take risks in the budget in an attempt to please the IMF. He is expected to suggest deep cuts -- such as rollbacks in teacher salaries -- that
will test his support.

                                               © 2002