Argentina's Financial Roller Coaster

He added: "I think what we didn't learn is the lesson that we have to be prudent."

The Argentina of today, of course, is not the broken country of 2001, when millions were plunged into poverty, desperate officials froze bank accounts and one government after another collapsed. This elegant, venerable city has seen real estate prices rise, and its shops and restaurants are packed. The economy has posted growth rates averaging nearly 9 percent in the past five years, and 9 million people were pulled out of poverty.

Many Argentines, convinced that economic prescriptions from Washington and the International Monetary Fund helped create the last economic crisis, see the Kirchners as trendsetters who have led their country on the path to prosperity.

"The Kirchners have said they would save capitalism, and they have demonstrated with the results of their policies that we have a strong economy," said Augusto Medina, 44, a distributor of pharmaceutical products. "They have built roads and schools, things that have not been done in 50 years."

But economists estimate inflation to be close to 25 percent -- the government puts it under 10 percent -- and confidence in the government's ability to pay its debts has been dropping. Credit agencies have taken notice, with Standard & Poor's on Friday lowering the country's debt ratings six levels below investment grade, signaling an increasing probability of default.

Analysts say that while the situation may not be life-threatening for Argentina's economy, they fear that the government does not understand the depths of the problem, further eroding confidence. Though Argentina has $47 billion in international reserves, analysts say, dipping into it to resolve the financial situation could prompt Argentines to exchange pesos for dollars.

"The lack of confidence is a much more powerful force than having enough money to pay your dues over the next couple of years, or having high reserves," said Fergus J. McCormick, senior vice president at DBRS, a New York credit agency that downgraded Argentina last month. He said the underreporting of inflation is a particularly serious problem, which affects inflation-linked debt and influences lenders.

"The government, through these policies, has eroded confidence in itself," he said. "It's sort of a self-imposed wound."

Fernández de Kirchner has taken some recent, positive steps, pledging to pay $7 billion owed to creditor governments and allowing utility companies to hike low, subsidized rates. But McCormick, like other economists, has been spooked by the pension nationalization plan, which DBRS views as a "confiscation of personal assets."

To the government, nationalizing is an urgent matter designed to safeguard pensions from the forces of the free market -- a way to put people ahead of companies.

The funds are part of a system created in 1994 by then-President Carlos Menem, who embraced Washington's free-market prescriptions and whose reputation has been tarnished by corruption allegations. There are 10 million accounts in funds run by firms such as MetLife and Britain's HSBC, and nearly 4 million people are regular contributors. The funds are among the biggest holders of Argentine equities.

Though Argentines have overwhelmingly chosen to participate in the private funds, they have been criticized for high commissions and low returns. Now, the government says market volatility is endangering the future of the retirement accounts.

"Capitalization was a terrible idea," said Labor Minister Carlos Tomada, using the term Argentines employ to describe Menem's pension privatization. "The system of capitalization is based on falsehoods and broken promises."

But the government's plans have generated high levels of anxiety, and not just in Argentina. Last week, U.S. District Judge Thomas P. Griesa blocked a transfer of pension fund investments out of the United States until he hears the case made by bondholders, who have a $553 million judgment against Argentina. In Buenos Aires, Argentines who are paying into the system, or work in the pension funds, protested. Analia Pastorino, 34, who works in a bank, has been contributing since she was 20.

"I've been saving for my future for the last 14 years, and now they're trying to keep it to pay for the loans that the state has to pay," she said. "They just keep stealing from the people. They know what they're doing. They don't want to learn."

Though the government has a legislative majority and is pushing for quick passage of its proposal, there is stiff and loud opposition from the likes of congressman Oscar Aguad. He called the government's moves hasty and improvised, and voiced fear about what could happen to the retirement funds once the state has control.

"While the rest of the world has worked to strengthen markets," he said, "the Argentine economy does the opposite, taking money from wherever it can find it."