Emerging market bullshit rides again

["Ian Murray" <seamus2001@xxxxxxxx>]

Argentine debt crisis infects markets

Buenos Aires losing fight to stay solvent

Larry Elliott and Mark Milner
Thursday July 12, 2001
The Guardian

Financial markets were gripped by fears of a full-blown emerging
country crisis last night amid mounting expectations that Argentina
could be forced to default on its $128bn debt burden.

With the country's stock market plunging and overnight interest rates
soaring, Argentina's finance minister, Domingo Cavallo, sought to
boost investor confidence by pledging draconian cuts in spending and a
crackdown on the black economy to bring the country's budget back into
balance.

But economists were sceptical about the chances of success. "Argentina
has a solvency crisis, not a liquidity crisis," said one analyst.
Another added: "All of Wall Street is like the townspeople who are
afraid to tell the emperor he is not wearing any clothes, because they
are hoping to get a buck from Argentina."

Other leading Latin American countries were infected by the contagion
from Buenos Aires, with Brazil's currency hitting new lows against the
US dollar. In Mexico, share prices and the peso were also down on
fears that Argentina could trigger another Latin American debt crisis.

The Federal Reserve in Washington refused to comment on rumours that
it had met secretly to discuss the financial and political woes of
Latin America's third largest economy, where recent problems came to a
head this week when the government was forced to pay dearly to
refinance a small part of its debts.

Mr Cavallo has insisted that the Argentine economy will start to
recover at the end of this year, but with unemployment about to hit
16% and with a near-three year recession showing little sign of
ending, investors are unconvinced. They believe that a further dose of
economic austerity will prove untenable with key elections looming in
the autumn.

Analysts at the Washington think tank, G7 Group, said: "Argentina
managed to place $850m in short-term debt, allowing it to meet debt
obligations due at the end of this week. But the cost was high and the
government can't afford to continue rolling over debt at these rates."

Fears that Argentina may be forced to restructure its debt prompted a
mass exit from emerging countries, such as Mexico and Russia, which
had recently been star performers.

On the foreign exchanges, Latin America's woes coupled with a fresh
wave of profits warnings from the high-tech sector led to a hefty fall
in the value of the dollar, which at one stage was down 1.5 cents
against the euro. The US currency later recovered some ground as
remarks by Didier Reynders, Belgium's finance minister and chairman of
the eurozone finance ministers' group, contradicted European Central
Bank chairman, Wim Duisenberg, over the strength of the single
currency.

In the latest of a series of public disagreements between the two men,
Mr Reynders said he was "concerned" about the external value of the
euro. On Tuesday, Mr Duisenberg had shrugged off the euro-dollar
exchange rate, saying "the euro is not very weak. It is very stable".
At the end of European trading, the single currency was changing hands
at around $0.86, its best for two weeks.

London's stock market was dragged down by renewed evidence of the
scale of the slowdown in the high-tech sector, which Compaq said was
spreading from the US to Europe.

The FTSE closed down 76 points at 5391.9, its lowest level for four
months.