Duhalde proposed a bill to Congress that seeks special powers enabling him to dismantle the peg that kept the peso one-to-one against the U.S. dollar. That peg was blamed for worsening a four-year economic slump that sparked deadly riots and political chaos.

Congress, controlled by Duhalde's Peronist party, will almost certainly pass the bill, which also gives the president powers to reform the foreign exchange and banking systems, regulate prices of goods and services, safeguard the value of savers' bank deposits and ensure debtors do not go bankrupt.

While Congress prepared to act this weekend, Argentines huddled in pouring rain outside banks wondering if they would ever recover their deposits. Drug stores ran out of medicines like insulin, and shops raised prices to hedge against a devaluation that will be an effective income cut for millions.

Duhalde became the fifth president in over two weeks after food riots left 27 dead and shook one of Latin America's wealthiest countries. He is placing the burden of devaluation on banks, foreign investors and big firms like oil companies.

``We want to finish with an alliance of decades in the country, the alliance of political power with financial power at the expense of industry,'' Duhalde, a 60-year-old power broker known for favoring trade protectionism and heavy state spending, said in a speech to businessmen.

Harkening back to statism that is largely a thing of the past in Latin America, he plans to fix price limits for basic goods and services including bread and telephone service to stem devaluation-induced hyperinflation of the sort that ravaged Argentina in the 1980s.

Eager to avoid the social protests that caused President Fernando de la Rua to resign last month, which heralded political chaos as three other presidents quickly came and went, Duhalde has also promised measures to safeguard debtors and savers.

Economists are skeptical the measures will succeed because Argentines have lost all confidence in banks and the new system is seen as open to corruption and growth of a black market.

Some Argentines voted with their feet, lining up by the Italian consulate to ask for visas to leave the country.

But perhaps in a sign that economic nationalism touched a cord among Argentines, there were no major street protests against the measures. Banging of pots and pans by the country's middle class and their spontaneous marches had already led to the resignations of two presidents in December.

DRAMATIC SHIFT IN POLICY

The new program is an about-turn from the free market policies that made Argentina a darling of Wall Street. In Latin America, most countries have accepted a free-market focus with polices often encouraged by the United States.

It could pit the government, which defaulted on Thursday on part of its $141 billion debt in what may become the biggest default in history, against foreign bond holders and investors.

On Friday, many of the top foreign firms in Argentina, who benefited from a 1990s privatization program, met to discuss the government's aim to lock in prices in pesos rather than the dollars in their concession contracts.

Oil companies will also be hit with a levy on their exports to compensate banks for what will prove a costly restructuring of dollar debts.

The bill itself contained no more details on devaluation of the peso but local media report the devaluation could be around 30 percent. There would be an official rate for foreign trade and another perhaps for smaller transactions.

It was not clear how a dual exchange rate system would work. Many Argentines fear a return to the currency paranoia of the 1980s, when small-time traders lined streets offering dollars.

Duhalde's plans were met with skepticism.

``I bet he'll tell the bankers exactly what they want to hear too,'' one businessman from the engineering sector said.

The proposed bill would convert private contracts to pesos in a country whose currency has been pegged one-to-one to the dollar for a decade and where even house purchases are made with wads of dollars. It would restructure small dollar debts to protect peso-earning Argentines from the devaluation.

Congress is dominated by Duhalde's Peronist Party which ran the country from 1989 to 1999 and racked up much of the debt now crippling Argentina.

Despite the nationalist hue, the government did wink to the foreign financial community by announcing a ``sharp'' reduction in spending demanded by the International Monetary Fund and Washington and hopes of ``favorable effects'' in six months.

IMF First Deputy Managing Director Anne Krueger talked to Economy Minister Jorge Remes Lenicov on Friday for the first time, but the lender did not reveal details of the call.

IMF sources said it would be unlikely that the fund would support Argentina if it went ahead with the dual currency system, as such plans are not recommended by the fund's governing rules.

Argentina's foreign creditors meanwhile said they will refrain for now from demanding immediate payment on their defaulted bonds and try to negotiate a restructuring.

Converting dollar debts into pesos should help shield the average Argentine from the impact of the devaluation, but it shifts the burden to the banks, which will need help.

``Without support the banks would not remain viable,'' said a Lehman Bros research note. ``Given that the government neither has the means to provide this support nor defend/shepherd the floating or re-pegged peso, we assume IMF support.''

Copyright © 2002 Reuters Limited

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