BUENOS AIRES, Argentina -- Critics of President Cristina Fernandez say she missed a perfect opportunity to ease strains on Argentina's currency supply when she unveiled a new 100-peso note honoring Evita Peron this week, shunning calls for bigger bills as inflation erodes the value of the paper in people's wallets.
The 100-peso note is still Argentina's highest denomination, worth just $22 at the official exchange rate and about $16 in the illegal exchanges that most people have to use to buy dollars amid ever-tighter currency controls. With rampant inflation, that forces people to handle increasingly large wads of cash.
Consumers are more frequently running up against cash limits at automatic teller machines, going from bank to bank to get enough bills to pay the rent and buy food. Highway tolls and subway and train rides also jumped in price this week, and "everybody's asking to raise the limit on their credit cards, which is no small factor, because there are 37 million credit cards in a population of 40 million Argentines," said Enrique Dentice, an economist at the private University of San Martin.
Bills are racing off Argentina's printing presses as the government stimulates consumer spending and job growth, with salaries rising 25 percent or more a year to keep pace. The overall money supply has grown 23 percent and the nominal peso value of the bills and coins in circulation has jumped 36 percent in the last 12 months, to nearly 176 billion pesos.
As she unveiled the new bill Wednesday night to honor the country's iconic former first lady, Fernandez made no mention of inflation, now running at some 25 percent annually according to private economists, though only 9.9 percent according to the widely discredited government statistics agency.
"Evita was the perfect excuse to bring out a bill, but at 500 pesos," said Alfonso Prat-Gay, a former central bank chief and current congressman with the Civic Coalition party, on a political talk show on Canal 26. "This devalues Evita by putting her on a bill of 100 and not recognizing the phenomenon behind all this, which is inflation."
But some say a sudden five-fold increase in the nation's largest bank-note could itself feed inflation.
"The problem is that if I put out a bill like that, expectations of inflation will take off. It would be like throwing gasoline on a fire. You have to be very careful with these matters," Dentice said. "Otherwise you create doubt, and nobody invests ... Saying that things are going to get worse is like writing a chronicle of a death foretold."
As other major economies slow to a crawl and endure painful austerity measures, Argentina's government seems convinced that counter-cyclical investments and an accomodating monetary policy is the best antidote to recession, and it has failed to do anything to stem inflation, according to Lorenzo Sigaut Gravina, chief economist at the Ecolatina consulting firm.
"Beyond changing the face on the bill, what's really important here is recovering confidence in the nation's currency, by changing its monetary policy," Sigaut Gravina said.
For now, the currency controls are only getting tighter.
On Friday, the central bank announced that anyone sending more than $1,500 dollars a month to family members in other countries must get its approval first, and that anyone buying dollars to pay for travel outside Argentina must file a sworn declaration about the purposes of their trip. The tax agency meanwhile announced that it had discovered that 6,800 people bought dollars for travel but then stayed at home. The agency said such money must be returned within five days, or civil penalties will ensue.
Pressure on the money supply should ease somewhat after Aug. 3, when Argentina plans to pay off $2.28 billion in Boden 2012 bonds, thus resolving nearly all the debts remaining from its world-record default and devaluation in 2001. With another large bond issue due in December, the government has sought to limit capital flight and hoard dollars, so that the payments can be made without taking on more foreign loans that might limit the nation's efforts at economic independence.
Some economists argue that inflation isn't a problem as long as productivity, salaries and overall economic growth keep pace. For years as it climbed out of its economic debacle, Argentina had been one of the fastest-growing economies in the world, and many workers have had year-after-year pay hikes accordingly. But now the economy is slowing sharply.
"The problem is that sooner or later, you're going to end up in a situation of high inflation and little growth. That's the road we're headed on," Sigaut Gravina said, pointing government data showing a reversal in monthly industrial activity this year, down 0.6 percent from first-semester 2011. "The economy is almost at a standstill, or at least a very sharp slowdown. And these are official statistics."
