In Europe, the dawn of the New Year brought the rather uneventful reality of the euro to 300 million people in 12 EU states. In Argentina, 2002 brought continuing uncertainty as the country's hastily rearranged government fought to find a solution to its unfolding political and financial crisis based around public debts of $5,166bn (£3,585bn).
Newly elected president Eduardo Duhalde received almost unanimous acclaim in the Argentine Congress when he identified the US-backed free market policies of the 1990s as the road to ruin for Latin America's third-largest economy. He has been given two years to lead the Argentine economy to salvation and his 36 million countrymen, along with the international business community, wait to see if the policies unveiled in his new economic plan will deliver his promise to bring “recuperation of national production, jobs, domestic markets and an improved distribution of wealth”.
The past month has seen death and riots on the streets, coinciding with a general strike that paralysed the country. This was an unwelcome return to the scenes witnessed in July 2001, when protesters brought chaos to the highways and shut banks and government offices to protest against the $1.5bn (£1.04bn) austerity package announced by the government. These protests were followed by the hope of rescue in August as the International Monetary Fund (IMF) agreed $8bn (£5.5bn) of new aid to boost depleted currency reserves in a bid to stave off default in debt repayments.
However, within less than four months, the IMF cut off this lifeline, refusing to make the next $1.26bn (£875.66m) loan installment because of concerns over the content of Argentina's 2002 budget proposals. On 17 December, there was a $9bn (£6.2bn) package of budget cuts in an attempt to win back IMF support and prevent a formal default on the country's debt, but the lifeline was not reconnected.
Within two days, the government declared a state of siege as thousands of unemployed workers and activists raided supermarkets for food and demanded president Fernando De la Rúa's resignation. This took place on 20 December and his place was taken by Adolfo Rodríguez Saá, who proposed the argentino as the new unit of currency, together with the peso and the US dollar. However, his presidency lasted just over a week due to a lack of political support and unrealistic economic proposals. With the heads of the two houses of Congress each serving briefly as 'interim' presidents, Duhalde arrived as the fifth man in the presidential hot seat in the space of 14 days.
Over the weekend of 5 and 6 January, Congress enacted a law proposed by the new president to put an end to convertibility and which delegated broad powers to the executive and converted into pesos debts less than $100,000 (£69,400) that were originally nominated in US dollars. The government has announced a new economic plan, which includes a devaluation of local currency, with a dual rate of exchange (one for commercial and financial purposes at 1.4 pesos per US dollar, and a floating one for other purposes), exchange controls and restrictions on foreign trade. Bank deposits will be returned to the public in their original currencies, subject to extended time periods which have yet to be announced.
There are certain legal issues arising as a result of these measures. Historically, devaluations have been associated with inflation, since the government has used them as an excuse to finance public expenses by issuing notes. As a result, the Argentine legal system is one of the most experienced in providing legal solutions to deal with high levels of inflation.
In emergencies, the local courts have generally considered that the government can postpone the exercise of legal rights but cannot suppress them, so we can expect the extension of bank deposit terms to eventually be found valid.
The conversion of utility company tariffs into pesos from dollars will require a renegotiation with the companies involved over changes in prices and investment plans, which are in most cases in the hands of foreign investors.
Whether this plan will succeed and restore confidence remains unknown, but business opportunities do exist in Argentina and investors need to take a long-term view of the country.