The Peronists - who hold a majority in both chambers of Congress and in 17 out of 24 provincial governorships - are behaving less like the party that brought Argentina back from hyperinflation in the 1990s and more like the one that in the 1970s led it into the abyss.

The collapse of Adolfo Rodriguez Saa's interim presidency has at least forced the abandonment of the ill-conceived plan to hold elections in March. Eduardo Duhalde, the newly installed president, now has until December 2003 to lift Argentina out of its worsening nightmare. Jorge Remes Lenicov, finance minister, is expected to make an important policy announcement today. What should he say?

First, he should clarify the nature of the crisis. Contrary to a view commonly held in Buenos Aires, Argentina is not suffering a Keynesian crisis that requires stimulation of domestic demand. It has been running a current account deficit, which means it has been spending more than it has been earning, financing the gap with foreign savings. As these resources dried up, domestic spending crumbled. The situation is aggravated by domestic capital flight, caused by the imminent collapse of the currency regime and the weak banking system.

Stimulating domestic demand is not the solution. Instead, stimulating foreign demand via a competitive exchange rate and re-establishing financial stability are essential. Argentina does not need an injection of fresh liquidity. It has to move quickly to restore the liquidity of the existing but now frozen bank deposits.

Mr Lenicov should recognise that Argentines were in love with their old - now defunct - exchange rate system and help them get over their grief, which has slowly turned from denial to rage. He should then persuade voters to accept a new and durable policy.

He should refrain from guessing what the new equilibrium exchange rate is supposed to be. The Argentine press talks about a fixed exchange rate of 1.3 pesos to the dollar, possibly linked to a wider basket of currencies. Before too many calculations are made on this basis, it is worth remembering that since 1998 Brazil's Real has depreciated 50 per cent against the dollar and even well managed, investment-grade Chile saw its currency fall 32 per cent in real terms.

Without access to inter-national finance and with a much more closed economy, Argentina should expect a substantial depreciation. It does not have the international reserves to prevent it but nor should it try.

Rather, it should seize the opportunity to create jobs in agriculture, industry and tourism and adopt an aggressive trade integration strategy, simplifying its tariff structure and moving quickly towards Mercosur, the regional economic co-operation zone, and the Free Trade Area of the Americas.

The exchange rate needs to be anchored by a credible monetary policy. Mr Lenicov must show that the central bank will be able to control the money supply and that it will want to do so. This will require a prudent fiscal policy and a well capitalised banking system, as well as a respectable central bank.

He should therefore announce a sound budget for 2002 that includes limited issuance of real domestic liabilities and should refrain from printing any more Mickey Mouse money.

He should also explain how the banking system will survive the change in the currency regime. Given its dollarisation, the system cannot survive the needed depreciation, since borrowers will not be able to repay the dollar loans. Something must be done.

Mr Duhalde imprudently promised that he would return deposits in the currency in which they were contracted. This would require a government recapitalisation of the banks - an awkward additional burden for a bankrupt government. Converting all assets and liabilities into pesos and protecting them from domestic inflation through indexation seems a more feasible and fairer solution.

The central bank's independence needs to be re-established after the illegal and shameful ousting of its president last April; and its mandate to target inflation should be enshrined in law.

Argentina should not seek debt forgiveness from the International Monetary Fund, the World Bank or the Inter-American Development Bank. It should not run into arrears with these institutions either. Instead, it should gain their continued financial support as it negotiates a private debt restructuring with a large write-down.

Argentina's future lies in finding opportunities for its citizens in the world. Shutting up its amazingly closed economy is a recipe for disaster. A boom in export activities, sound banking and the return to inte-rnational financial markets after a debt restructuring are the way forward.

The writer is professor of economic development at Harvard university