The Argentine Congress last night adopted emergency legislation ending the peso's parity with the dollar and allowing the government to devalue the currency.
The emergency legislation will give President Eduardo Duhalde special powers to end a decade-old system of pegging the peso to the US dollar, which he blames for economic and social chaos in the country.
The government-controlled Senate approved the measure, which passed the lower house at dawn.
Mr Duhalde's economic team has signalled that the devaluation will be around 30 per cent, taking the peso from one to the US dollar to 1.30-1.40 to the greenback.
"A new economy begins," declared the front-page headline of Clarin newspaper, which published 20 pages explaining how the devaluation would change life for the 36 million people in Latin America's third-largest economy.
Mr Duhalde, a populist from the Peronist party, became Argentina's fifth president in two weeks on Wednesday and immediately blamed the peg policy that his party created for "destroying the middle class" by making it one of the most expensive places to do business.
Now he has to move quickly to defuse a ticking social time bomb. The economy, mired in a four-year recession, has been all but paralysed since December 21st, when rioting and looting left 27 dead and toppled former President Mr Fernando de la Rua.
Medicines, including antibiotics for transplant patients, are running short and prices have risen on everything from refrigerators to bread as businesses hedge against devaluation.
A $1,000 (€1,117) monthly limit on cash withdrawals remains in place, reducing purchasing power to a trickle and infuriating many middle-class Argentines.
A series of errors could bring the Argentines back out on the streets, banging the pots and pans in spontaneous protests that have come to symbolize their disgust with politicians.
The devaluation will undoubtedly wreak havoc on an economy built on 10 years of peso stability, in which 80 per cent of loans are in dollars but wages are paid in pesos.
"They drugged us Argentines with convertibility by pegging the peso to the dollar," said lowerhouse opposition lawmaker Mr Gustavo Gutierrez.
"This plan is about jumping off a cliff."
Mr Duhalde plans to soften the blow by allowing Argentines to pay dollar debts up to $100,000 with pesos at one-to-one.
But to avoid a return to the exchange paranoia of the 1980s and an accumulation of dollars, he will keep liquidity tight by maintaining the drastic restrictions on withdrawals decreed by Mr De la Rua in late November, newspapers said.
A weekend poll by Aresco consultancy showed 52 per cent of Argentines "highly" in favour of Duhalde's plans and another 34 per cent gave a "medium" approval.
Peronist Senator Oscar Lamberto, treasury secretary designate, told senators that the changes "will generate turbulence".
"This is one of the most transcendental decisions we have to take, to rebuild a productive alliance and become a different country, perhaps less arrogant and more humble," the senator said.
The Peronists are hoping that devaluation will make Argentine products more competitive at home and abroad, spurring new industrial investment and reducing an unemployment rate of nearly 20 per cent.
