December 26, 2001

Argentina to introduce new currency

BUENOS AIRES, Argentina (AP) --Desperate to revive the spent economy and keep
a lid on social unrest, the cash-strapped government said Wednesday a new currency,
the Argentino, would start circulating in January alongside the peso and the U.S. dollar.

The new coinage would be "one more currency, like the peso and the dollar," interim
Finance Minister Rodolfo Frigeri told local radio stations.

Introducing the new money is a way of injecting liquidity into an economy battered
by nearly four years of recession without dismantling a hallowed law that pegs the
peso's value at one-to-one with the greenback, he argued.

More immediately, it would put cash in the hands of the poorest Argentines,
downtrodden by a four-year recession and a near record 18 percent jobless rate.

But it also raised fears of an effective devaluation and a return to the galloping
inflation that scourged the economy in the 1980s.

The new government of President Adolfo Rodriguez Saa, formed by left-leaning
members of the Peronist Party, is anxious to keep a lid on simmering discontent that
last week erupted in looting and street riots, driving then-President Fernando de la
Rua from office.

The Argentino will be a government bond that can be used to "pay everything, from
salaries to taxes, goods and services," Frigeri said on local radio.

He said the bonds would not be convertible into dollars or pesos, though, meaning
there would be no devaluation of the peso.

The government "will not devalue," Frigeri said. "The peso-dollar parity will

But analysts were not so sure.

Frigeri did not say how many of bonds would be printed. Economists say up to 3
billion could actually help kick-start consumer activity, but more could spark a
return to inflation and knock the country's books further out of sync.

Chamber of Commerce President Osvaldo Cornide lashed out at "some industrial
sectors" for allegedly marking up some prices by up to 30 percent, based on rumors
of devaluation.

"In the current situation ... it's totally illogical and storekeepers will not accept it,"
Cornide told local news agency Noticias Argentinas.

"I'm greatly concerned we'll be seeing Gresham's Law at work in Argentina," said
Chip Brown, head of economic research at Santander Hispano Central in New York.

That law, named for a 16th century English economist, states that "bad money
drives good money out of circulation."

"The dollar will be considered better than the peso, the peso better than the
Argentino," said Brown. "Dollars will be hoarded, then pesos will be hoarded."

As more Argentinos are printed to fill the void, you will have a devaluation "in
everything but name," he said.

In an interview with daily Clarin, Frigeri acknowledged the new currency would
allow "a controlled departure" from the dollar peg.

The new currency's initial value would be "the same as the peso, one-to-one with the
dollar, he told Clarin, but added: "We don't rule out the possibility that, with time, it
will depreciate."

On Buenos Aires streets Wednesday, ordinary people were generally bewildered by
the announcement of the new currency.

"They say the peso will stay the same value as the dollar and that the Argentino will
be the same as a peso, but I'm not so sure," said Mariano Beglenzoni, a young
accountant waiting to deposit a check at a Citibank branch on Florida Street.

"At the moment, we can only get out 250 pesos a week, and that hasn't changed"
with the new government, he said. "Now people are saying we won't be able to get
cash until after New Year."

Fearing a run on banks, the new government, formed by the left-leaning Peronist
Party, has maintained a partial banking freeze introduced by the former government
December 1 after Argentines yanked $2 billion from accounts in a single day.

On Wednesday, it again extended a "banking holiday," meaning Argentines again
could not change pesos for dollars. With financial transactions limited, the Stock
Exchange also stayed closed.

Nearby, at Tadeo's Juice Bar, a handwritten sign reading "Go Argentina! We all want
you to see you well again!" was hung behind the counter.

"Maybe this (new currency) will help us," said Alejandro Lopez, a 45-year-old
unemployed construction worker outside. "All I know is people need money to buy

All morning, Lopez had earned just 4 pesos by hawking four copies of "Hecho en
Buenos Aires," a magazine for the homeless and unemployed.

Argentines have clung doggedly to the dollar peg for a decade because it slew 5,000
percent inflation that had plunged South America's second-largest economy into

But more recently, the peg has come under fire from Argentine industrialists and
economists at home and abroad.

They say it made Argentine industry uncompetitive, pushed the country deeper into

Maintaining the peg put so much pressure on Argentina's accounts that the first
thing Rodriguez Saa's government did on taking office Sunday was to declare it
couldn't keep up payments on Argentina's massive foreign debt.

News reports Wednesday said the government was also renegotiating its next
installment of domestic debt, worth some $500 million, taking the country a step
closer to all-out default on its $132 billion public debt.

Argentina's country risk, measured by J.P. Morgan's Emerging Market Bond Index,
hit a new high of 5,592 Wednesday, meaning the country would theoretically have to
pay a whopping 55.92 percent over the rate of benchmark U.S. Treasury bills to tap
money on international markets.

Copyright 2001 The Associated Press