THURSDAY AUGUST 23 2001 Salaries panic by Buenos Aires workers BY GABRIELLA GAMINI, SOUTH AMERICA CORRESPONDENT ARGENTINIAN teachers, policemen and bureaucrats queued at supermarkets yesterday to spend newly-printed bonds that they received in their wage packets instead of cash, fearing that they may become worthless. After announcing that the Buenos Aires state coffers were empty, the authorities said that payments to more than 160,000 state workers would be made in one-year bonds. Cash dispensers belonging to the Buenos Aires Provincial Bank were loaded with £62 million-worth of the bills, which have been nicknamed patacones after a defunct 19th century currency.

In theory, the bonds will earn 7 per cent interest and be redeemable in a year, but civil servants fear that they will devalue. There is little faith in state assurances that the bonds have equal value with the peso.

“I have gone out and paid my bills in advance and will spend the rest on stocking up with food for the month,” said Maria Lourdes Flores, a teacher, who queued at a cash machine in central Buenos Aires.

Banks are accepting the bonds as payment for bills and supermarkets are receiving them at face value, but many are refusing to give official currency change for patacones.

The move is the latest signal that Latin America’s third largest economy is near meltdown after a three-year recession.Past governments would have printed more money but the peso has been pegged to the US dollar since the 1990s and Argentina is intent on keeping to this for fear of a return to the hyperinflation of the 1980s.

The announcement that the International Monetary Fund has agreed to lend Argentina £5.5 billion brought temporary relief to the markets. But even optimistic analysts say that the loan is a last-ditch effort to recover some confidence from foreign investors and at home.

http://www.thetimes.co.uk/article/0,,3-2001292659,00.html

-- Martin Thompson (mthom1927@aol.com), August 22, 2001

Answers

Argentina is caught in a catch-22 situation. Lose-lose, all the way. If they drop the dollar peg, their peso becomes of wallpaper worth. If they keep the peg, all of their provinces are going to start issuing this ersatz, monopoly money, which will cave in value in a very short time.

-- JackW (jpayne@webtv.net), August 23, 2001.