BUENOS AIRES Factory owner Norberto Garcia was poised to launch a series of new toys this year after grafting hard for the past decade to rebuild his business following Argentina's 2001-2002 economic crash and debt default.
Instead, he's hunkering down for a possible second default this Thursday, cutting investment plans and scaling back his targets.
"We had plans to launch 11 new products. Now we are going to release just three," Garcia, 70, told Reuters inside a cavernous warehouse piled high with boxes of dolls, balls and plastic rabbits. "We would rather keep the money to support the company's structure as it is."
Rather than sink 2.8 million pesos ($342,200) into expanding production lines, he plans to cap the investment at 1.8 million pesos.
Garcia's wait-and-see attitude is typical of other businesses who anticipate a slowdown in sales in a country grappling with a surging inflation rate but are convinced any economic downturn will be moderate.
While unsettling, the debt crisis today is a far cry from the turmoil of Argentina's $100 billion default in 2002, and Garcia is optimistic things will ultimately improve.
"What we lived through in 2001 was catastrophic. The anguish was terrible, we didn't know what to do," said Garcia, whose Turby Toy SA had to shut down its machines, offload most staff and sell real estate at knockdown prices to weather the storm.
Desperate to halt a massive run on the banks and a collapse of the financial system, the authorities froze bank accounts and devalued the peso. More than two dozen people were killed in bloody protests.
Argentina's record default sent shockwaves through global capital markets and millions of Argentines lost their jobs as the economy collapsed.
Garcia says that he shut himself in his bedroom for three days, dejected, until his wife kicked him out of the room.
"I can't measure how much we lost in pesos. What we lost was the dream," Garcia said.
Time is running out for Argentina to pay "holdout" investors suing Latin America's No. 3 economy for full payment on their bonds, or reach a deal that buys more time to avert a default.
Argentina said on Monday that officials would travel to New York for last-gasp negotiations on Tuesday but experts increasingly believe the government in Buenos Aires may calculate that a default would be cheaper than settling. The latter, it argues, would risk legal claims from holders of exchanged bonds that could cost hundreds of billions of dollars.
How much pain a new default would inflict depends on how quickly Argentina could extricate itself from the mess.
"The possibility of default, the exchange rate and inflation, it's like a bomb," said Miguel Rizzo, director of an import company that supplies Argentina's leading utility firms.
But the executive said he had limited means to counter the risks. Rizzo was stockpiling what he could, in particular cables, as an insurance against a possible devaluation of the peso, but tough restrictions cap how much he can bring into the country. Capital controls also make it difficult to buy dollars to hedge his risk.
The threat of a default combined with an ailing peso means foreign suppliers are increasingly worried Argentine firms will fail to make payments and as a result they are imposing very difficult terms.
"All big deals are being cancelled because of this default that may happen," Rizzo said.
Tough-talking President Cristina Fernandez calls the holdout investors she is battling "vultures". She has not flinched in public from her stance that they agree to the large writedowns accepted by more than 90 percent of creditors in 2005 and 2010.
If Argentina defaults this Thursday it will be over a matter of principle. This time around, the government is still solvent.
It was not the case in 2001-2002. For months, protesters fought street battles with anti-riot police, turning downtown Buenos Aires' retail and financial zones into a battleground with police firing rubber bullets from the backs of motor bikes.
Banks were boarded up as desperate Argentines fought to rescue their savings. President Fernando De la Rua quit and fled the palace by helicopter to escape the baying mob.
After the default, the government devalued the peso and seized U.S. dollars held in commercial bank accounts, exchanging them for pesos. Rizzo watched helplessly as the firm's dollar holdings evaporated overnight.
"We lost almost everything," Rizzo said.
Today, the only sign of protest is a smattering of posters on the odd street corner. They set vultures against the U.S. flag running slogans like "Buitres contra Patria" or "Vultures versus Fatherland."
Instead, the most common heard complaint is sky-rocketing consumer prices. Weary Argentines are swift to point out that the grains-led economy lurches from one crisis to another more or less every 10 years.
One of the world's highest inflation rates, fuelled by a dearth of hard currency in the economy and a steep decline in the peso, has eroded the purchasing power of Argentines.
Private economists estimate the inflation rate could hit 40 percent this year. That, more than the threat of default, is changing spending patterns.
"I have cut out unnecessary spending," said 47-year-old accountant Carlos Panero. "I don't travel to the beach on weekends and I try to buy non-perishable goods."
While some Argentines are grabbing deals offered in superstores and stashing their purchases wherever possible, including their car trunks, there is no panic buying.
Nor is there a scramble to get money out of banks.
Panero was lucky in 2001. His distrust for banks meant he hid his dollars elsewhere, clung onto his savings and was able to buy an apartment after the prices of property in dollar terms fell sharply.
Like others, Panero is resigned to Argentina having to muddle through even longer without access to global debt markets if Fernandez and the holdouts dig their heels in.
"This will mean less investment, fewer jobs, fewer dollars coming into the country, so the government may tighten further capital and import controls," said the father of two.
Even so, there are signs the populist Fernandez could get a ratings bounce.
A poll published last week by Poliarquia Consultores showed 47 percent of Argentines believed Fernandez's government was dealing with the holdouts in a "positive" way, compared with 38 percent a month earlier. Only one in four considered the crisis was being handled in a "negative" way.
Fernandez' leftist rhetoric may be striking a chord with those Argentines who benefit from generous government subsidies and social welfare payments.
Argentina's economy rebounded after the 2002 crisis, driven by lucrative agricultural commodity exports and printing of new money to help spur domestic consumption. But demand for shrinks surged too.
"It was a traumatic situation, 2001," said practicing psychologist Cristina Gartland.
"Now the situation is different. People are more confident because they have jobs, the poor have social plans, workers have more rights. In therapy, patients may talk about the economy, but their focus is on their personal lives."
($1 = 8.1825 Argentine Pesos)
(Reporting by Eliana Raszewski and Richard Lough; Editing by Simon Gardner and Martin Howell)