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By Bloomberg

Pablo Lopez, who sells motorcycles at a Ciudad Moto dealership in Buenos Aires, doubts President Cristina Fernandez de Kirchner's new cheap-credit program will persuade Argentines to shun dollars in favor of a new ride.

As the peso plummets and inflation surges, "sales have fallen to at least half what they were last year," he said in an interview at the two-floor showroom, which stood virtually empty except for the rows of bikes ranging from locally produced Motomel scooters to Japanese imports made by Yamaha Motor Co. "Any bit of help is welcome. But the slump has been so large that I don't think this will compensate."

Many Argentines share his skepticism as the nation's second default in 13 years sinks the economy deeper into recession. A week after Fernandez said in a televised speech that the nation shouldn't be "fooled" into thinking that stockpiling dollars will preserve their savings and recommended buying durable goods instead, demand for the U.S. currency reached an all-time high.

While she decreed that credit-card companies can't charge interest for a year on purchases of domestically produced motorcycles, washing machines and other big-ticket items, the peso's record slump shows Argentines aren't buying her pitch.

Fernandez wants to boost consumer spending as a way to preserve dollars after a stalemate with hedge funds led by billionaire Paul Singer over its decade-old unpaid debts prevented it from paying current bondholders and borrowing internationally.

'Free Money'

Argentines are buying dollars at a record pace through a mechanism created in January to meet demand for foreign currency after a 19 percent devaluation. Individuals who don't receive approval from the government are turning to the black market, where the peso has tumbled 33 percent this year.

The demand for dollars is leaving Argentine banks awash in pesos, pushing deposit rates to an eight-month low of 20.3 percent, about half the estimated inflation rate.

"In a normal situation people would say, zero interest rates at 40 percent inflation -- it's free money, I'll take it," Luis Secco, the director of Buenos Aires-based research organization Perspectiv@s Economicas, said by telephone. "But it comes at a complex time when the economy's not looking good, where the government already devalued once and lost credibility."

Economy Ministry spokeswoman Jesica Rey didn't reply to a phone call or e-mail seeking comment.

Fernandez, who in 2011 converted her dollar savings to pesos and urged her countrymen to do the same, said last week that the dollar and the euro are losing value and aren't the safe havens people think they are.

Legal Dispute

"They've got us all fooled with the idea that by buying dollars you're safe," Fernandez said in the Sept. 11 speech at the presidential palace. "You should invest in things you can touch and see. The rest is nonsense."

Demand for dollars has soared since a legal dispute stemming from Argentina's 2001 default led a U.S. court to block the country's bond payments and trigger a default on July 30. While the nation renegotiated about 92 percent of its debt with creditors by issuing new bonds worth 30 cents on the dollar in 2005 and 2010, some holders including Singer rejected the terms, sued and were awarded full payment in court.

U.S. Judge Thomas Griesa ordered trustee Bank of New York Mellon Corp. to keep $539 million of interest payments until Fernandez complies with the ruling or settles.

The default comes after the economy shrank 0.2 percent in the first quarter, the most in almost two years.

Black Market

Demand for greenbacks through a window opened by the government after it eased some currency controls in January increased 55 percent to a record $260 million in August. That total has already been exceeded in the first two weeks of September, according to the tax agency. Since January, the mechanism has drained $1.57 billion from reserves, which have tumbled 20 percent in the past 12 months to $28.3 billion.

The exchange rate for the peso in the black market fell to a record 15.1 pesos per dollar yesterday, widening the gap with the official rate to 79 percent.

Consumer prices rose 40.1 percent in August from a year earlier, according to the Buenos Aires city government. The government, which hasn't issued an annual inflation figure since unveiling a new consumer price index in February after being threatened with sanctions by the International Monetary Fund, estimates price increases in December will be 21.3 percent.

Eligible Models

The widening gap between the exchange rates is also fueling concern the government may devalue the peso again, creating more incentives to seek refuge in the dollar, said Aldo Pignanelli, a former central bank president who now runs research firm Saver in Buenos Aires.

"You can also see and touch the dollar," he said by phone from Buenos Aires. "It seems people heard her and went to buy dollars straight away."

Lopez, the motorcycle salesman, said that while he's yet to receive the list of models the government will deem eligible for the program unveiled by Fernandez, he's not optimistic it will do much to help.

Argentines are "concerned about the economy," he said.