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Argentines Wait to See if New Currency Will Ease Economic Crisis

Argentina's new president, Adolfo Rodriguez Saa, is moving ahead with plans to create a new internal currency and take other measures to revive the country's stagnant economy. But his move to suspend foreign debt payments has met with skepticism among some economists, who predict this will ruin Argentina's credit rating for a long time to come.

In Buenos Aires, hardware store owner Rodolfo Rossi says he hopes the new currency and debt moratorium can somehow pull Argentina out of its economic crisis. He says sales at his downtown store have fallen by half since early December, when the previous government imposed limits on bank withdrawals.

Mr. Rossi's views are shared by many in Argentina, as they watch the new government of interim President Adolfo Rodriguez Saa implementing measures to pull the country out of its economic crisis.

It was the combination of rising unemployment, a 42 month recession, and the prospect of a devaluation of the Argentine peso that ignited street rioting across the country earlier this month and brought down President Fernando de la Rua. He was replaced by Adolfo Rodriguez Saa, 54, a career politician of the dominant Peronist party, who was chosen by Congress to serve as interim president until new elections are held in March.

The centerpiece of the president's stimulus package is the introduction of a new currency that will operate alongside the peso and the U.S. dollar.

This currency, called the argentino, is a bond that will function as cash. It will be used alongside the peso, which has been pegged 1-1 to the U.S. dollar since 1991, but is now overvalued because the Argentine Treasury does not have enough dollars to back it up. With pesos increasingly scarce, argentinos will be printed up and used as an internal currency. The argentinos are to begin circulating in January.

Mr. Rodriguez Saa has assured Argentines that creating this new, third currency will permit the peso continuing parity with the dollar.

But Argentines like Beatrice Lupieri have little confidence in the peso's future. Ms. Lupieri, an engineer, fears her savings in dollars will be converted to pesos and this makes her nervous. "We Argentines are pretty worried," she says, "and, unluckily, we are used to this. It has been a long time since we've had this sort of thing. But, even if we have different governments, the things always develop the same way."

Her skepticism comes from recent Argentine history. The peso was pegged to the dollar in 1991 under then-President Carlos Menem, and the scheme worked well for the first few years in ending hyperinflation and reviving economic growth. But by 1999, aided by Mr. Menem's fiscal mismanagement, the overvalued peso and the mounting foreign debt, the economy hit the skids.

Now with the future of the peso in doubt, it has already lost its value in international futures markets - trading as high as 1.7 pesos to the dollar. As for the new argentino, some economists say, even from the start, it will be worth just 70 cents to the peso, and its value will start to decline immediately.

But others, like Rafael Ber, of Argentine Research, believe that the Argentino may not devalue so quickly, and may even serve the purpose of reactivating the economy. "At least, everyone will have something in their pockets; everyone will be able to use it to buy goods," he said. "But, without a doubt, it will not be worth a peso, or a dollar." Mr. Ber went on to say, the introduction of the new currency is paving the way for an exit out of the peso convertibility regime."

Economist Abel Viglione, Fundacion de Investigaciones Economicas Latinoamericanas, FIEL, says Argentina will not emerge from its economic crisis, until it puts its fiscal house in order. "Argentina is like a person who has been borrowing for years to pay expenses, and is now in debt," he said. "He needs to cut spending and work out a repayment plan." Argentina needs to do the same and it will eventually overcome its economic crisis."

Meanwhile, Argentine President Rodriguez Saa is trying to allay fears that the new argentino will rapidly lose value and spark hyperinflation. Mr. Rodriguez Saa has said Argentina will use all its assets, including the presidential residence and other government buildings, as collateral to support the argentino.