AFRICA MONEY-Greenback is the prize of the herd in South Sudan

JUBA Thu May 31, 2012 9:18am EDT

JUBA May 31 (Reuters) - Longhorn cattle are the traditional measure of wealth in South Sudan but the preoccupation these days in the capital Juba is with a hornless green-backed beast, preferably in mint condition, no blemishes on its watermarked hide and no more than six years old.

Ask shoppers in Juba's bustling markets why prices in South Sudanese Pounds of everything from charcoal to meat and onions have gone through the roof since the start of the year and they will say: "It's the dollars". The lack of them, that is.

A harsh U.S. dollar famine is squeezing the world's newest nation, born last July. It struck after the former rebels who run the infant African state closed down oil production from January, effectively shutting off 98 percent of state revenues.

Friends, allies and donors called them mad. But South Sudanese leaders said they had no choice to stop arch-enemy Sudan from "stealing" their crude in a fight over borders and oil transit fees - the pipelines traverse Sudan.

Tensions remain raw between the south and the north, who fought Africa's longest civil war before a peace deal in 2005.

"The injection of dollars has been reduced from around $200 million a month to $40-50 million," Deputy Finance Minister Marial Awou Yol told Reuters. "We are still at war."

Even before the crunch, South Sudan was struggling to raise health and education levels among the worst in the world in a sprawling nation with very few tarmac roads and a diverse 8.6 million population of mostly rural cattle herders and farmers.

The foreign currency choke-off has sent the black market rate for the South Sudanese Pound to near 5 against the dollar, from 3.55 when the crude was still flowing.

This is throttling businesses from contractors to restaurants and supermarkets which have to import almost everything in dollars to a country that has oil underground and millions of cattle above it, but precious little else.

Nudged by the United Nations and China, the main investor in both oil-reliant states, Sudan and South Sudan have resumed talks on their disputes, and many hope an eventual deal can turn the oil taps in the south back on soon.

With the dearth of greenbacks, visitors may be surprised to find their proffered dollar bills being scrutinised by waiters, drivers and hotel staff with all the suspicion of a Las Vegas cashier sniffing out a counterfeit.

Sorry, can't take that one, there's an ink stain, nor that one, too scuffed and dirty. Oh, and we don't accept any U.S. notes older than 2006, so sorry, 2004 won't do and you can forget about 1991. Crisp "Benjamins", the 100 dollar bills that carry the image of U.S. founding father Benjamin Franklin, are the preferred species.

"The banks won't accept the others," is the apologetic explanation given. "We can't take them, because none of our customers will take them," the executive of one foreign bank in Juba, who asked not to be named, told Reuters.

HUMMERS AND "TUKULS"

This pecuniary pickiness developed a few years ago, the executive said, even before South Sudan gained independence in July 2011. It is now a practice observed by everyone.

South Sudanese Pound notes, many of them now coated in grime or handed over in humid wads, face no such scrutiny.

It is one of several startling features in a nation literally under construction. The capital, Juba, is a chaotic mix of building site and refugee camp, with some paved streets and a labyrinth of dirt roads.

Inequality feeds on poverty, so you will find shiny Hummers and Toyota Land Cruisers parked outside humble "tukuls", the pointy-roof thatch-and-mud huts that dot the rural landscape.

Mirroring the dollar drain, many Juba petrol stations periodically run dry as fuel supplies trucked from Kenya falter - or are diverted to the black market. Vendors sell plastic bottles of gasoline by the road, like some exotic pink liquor.

Facing dire warnings from the World Bank and donors that the economy risks a dramatic collapse in GDP, South Sudan's governing Sudan People's Liberation Movement (SPLM) has drawn up an austerity budget that slashes costs by 30-40 percent.

Defense and security still have a lion's share. The government says it will prioritise education, health and infrastructure but the financing gap is clearly huge.

"Even God can't turn 2 percent into 98 percent!" lamented one government insider, commenting on the oil revenue shut-off.

Seeking bridging loans and emergency budget support from sympathetic states, South Sudan's rebel-commander-turned president Salva Kiir has travelled to China and South Africa in recent months, and ministers have been on similar missions.

Deputy Finance Minister Yol says a $100 million Qatari loan is helping fund essential imports of food, fuel and medicines. A further $250 million line of credit is being negotiated with a "bank in the Middle East".

Another bank in the same region could provide $500 million of project finance, Yol said.

Soon after Kiir visited Beijing, Juba officials said China had offered $8 billion for development projects. But Chinese officials have not clarified the offer and it seems clear most of this will not be available immediately.

Obtaining definitive financial figures for the newborn nation sometimes seems as difficult as pursuing a lost cow in the vast Sudd swamp that straddles the White Nile.

One senior SPLM official said the country had enough hard currency reserves to last "more than a year'. Deputy minister Yol saw them lasting "up to around October, December".

Earlier this month, Central Bank governor Kornelio Koryom Mayiik told a reporter the reserves were "in the region of $1.5 billion". A Juba-based development expert, who asked not to be named, put them "in the region of $500 million" and said the government was "buying a month at a time".

SPLM leaders put a brave face on South Sudan's capacity to survive without oil revenues. "I am very optimistic that we are not going to die with our oil beneath our feet," Yol said.

Citizens hope hardship will be short-lived: "God willing, the oil will resume again," said Abuk Dut, 20, a student.