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Tuesday, 21 August, 2001, 04:23 GMT 05:23 UK
Argentina pays workers in bonds
McDonalds is set to accept the new currency
McDonalds is set to accept the new currency

By BBC World Business Report's Vanessa Heaney

As Argentina's talks with the International Monetary Fund (IMF) drag on - with still no word on whether the country will get a much-needed aid package - the situation at home is getting worse.

From this week 150,000 people who work for the state of Buenos Aires won't get all of their salary paid in cash.

Some of it will now be paid in one-year bonds, called "patacones", nicknamed after a long defunct currency.

Already McDonalds in Buenos Aires is planning to accept the currency and is launching a special meal deal called the "Patacombo".

Dire need of cash

Cash machines at the provincial bank in Buenos Aires are being loaded up with $90bn worth of the freshly minted Patacones bills, named after a currency which was last around 120 years ago.

These will pay the wages of local state employees earning more than $740 a month.

This state, like many others, is in dire need of cash.

It has been hit by falling tax receipts, customers have been withdrawing their savings from the banks, and credit is drying up.

The central government has already agreed with the IMF a "zero deficit" policy, which means it can only spend what it brings in in tax. No public sector borrowing is allowed.

When the Patacones come into circulation in a few days time they'll be accepted by provincial and federal governments to settle tax obligations.

Water and telephone utilities have also agreed to take them.

Meal deal

The fast food chain McDonalds will also accept them in exchange for its new Patacombo meal - two cheeseburgers, french fries and a drink.

While this latest McDonalds range may have provoked amusement among emerging market traders - the advent of the bonds is causing alarm at home.

Workers are already worried that the new bonds could be worthless.

In theory they'll pay 7% interest and be redeemable in a year.

In the past when hard-pressed governments have resorted to printing extra cash to pay their workers - it has resulted in hyperinflation.

Argentina's chronic inflation in the 1980's was eventually overcome with the creation of the currency board in 1991. This meant that every peso was pegged to and backed by the US dollar.

But the introduction of this alternate means of payment raises questions about the future of the currency board.

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BBC World Business Report's Vanessa Heaney
"McDonalds will now accept bonds for its Patacombo meal"
See also:

19 Aug 01 | Business
Bush vows US help on Argentina
17 Aug 01 | Business
Argentine crisis looms over summit
20 Jul 01 | Business
Argentina softens economic reforms
02 Aug 01 | Business
'Give us a chance' says Argentina
19 Jul 01 | Business
Argentina's corporate bail-out
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