New Argentina Currency Baffles Markets

BUENOS AIRES, Argentina – Confusion reigned over Argentina's impending new floating currency on Thursday as depositors worried their life savings could evaporate and markets quivered on fears a long recession might get worse.

Caretaker President Adolfo Rodriguez Saa met with the head of his fractious Peronist Party, former president Carlos Menem, to shore up support for his bid to end a deep financial crisis that toppled his predecessor amid deadly riots last week.

Doubts over the centerpiece of Rodriguez Saa's strategy to alleviate the cash crunch -- minting billions of dollars' worth of a new currency dubbed the ``argentino'' backed only by state property like the presidential palace -- led many to line up at banks.

Worried the argentino could devalue against the U.S. dollar, they withdrew as many greenbacks as they could.

Government finance chief Rodolfo Frigeri has said the argentino would mark an ``orderly exit'' from the decade-old currency system, which pegs the peso at 1-to-1 with the dollar.

The system stabilized the economy, previously prone to periodic bouts of hyperinflation, but has since made Argentina one of the world's most expensive countries to do business.

Unlike Argentina's current peso, pegged for the last decade at one to the dollar, the argentino's value will be determined by markets. The specter of runaway inflation unnerved both bond markets and public workers, who could be paid in the new currency as early as next month, according to officials.

Newspapers printed colorful graphs with titles like ``How to pay with the new currency'' amid widespread confusion over whom would be paid in argentinos, how much they would be worth, and where they would be accepted in a country where 80 percent of private debt is held in dollars.

``If they start paying people in argentinos and they see they cannot pay for anything with argentinos, what is going to happen?'' said a London bond trader as prices for Argentine debt slumped on Thursday.

Other traders worried Argentina's economy, burdened since 1998 by abysmal consumer confidence and soaring unemployment, could sink further after Rodriguez Saa stopped payments this week on part of Argentina's $132 billion debt.

International bond markets were shaky. Argentina's benchmark Global 2008 bond jumped more than 10 percent by early afternoon in very volatile, thin trade after earlier moderate losses. Some longer-term bonds were trading down.

The government said it may send a bill to Congress on Friday to establish the argentino as legal tender, adding the currency could be in circulation on the street in two weeks -- though it anticipated unnamed ``problems'' in meeting the goal.

But thousands of Argentines still did not know what currency they would be paid in next month and feared a return to an era like 1989, when annual inflation of 5,000 percent forced many supermarkets to read steadily rising prices over their intercom systems as shoppers paid in virtually worthless bills.

``We'll accept argentinos, but at less than official value because that thing's going to be worthless very fast,'' said Mario, manager at the Big Star laundromat in Buenos Aires' seedy Once commercial district. ``I wouldn't be surprised if people come with fists full of them and can't buy a thing.''

JOCKEYING FOR ELECTIONS

Rodriguez Saa hopes the argentino can retain value and spur consumer spending, which in turn could reduce 18 percent unemployment, a factor blamed for igniting last week's riots which killed 27 and forced Fernando de la Rua to resign as president.

Many analysts believe the new currency will not be widely accepted, leading to a more chaotic broad devaluation that could send thousands of local businesses tumbling into bankruptcy. Continuing non-stop meetings with local powerbrokers, Rodriguez Saa huddled with Menem, who ran Argentina from 1989-99 and still heads the divided Peronists. The party has up to half a dozen would-be contenders for a nationwide vote on March 3 to elect a new president to serve until 2003.

``We've given him (the president) all our support so his administration can be successful,'' Menem told reporters.

Some speculated that Rodriguez Saa, formerly governor of a small but well-run and fiscally healthy Andean province, could try to extend his rule beyond March.

``I think he's here to stay until 2003,'' said Peronist Senator Luis Barrionuevo. ``With these strong measures that he's taking ... I don't have the slightest doubt.''

Political infighting has been cited by observers as one of the main reasons for Argentina's long, painful decline from one of the world's richest countries in the 1920's and 1930's to the riskiest large emerging market for investment today.