The Government is turning to hand-outs from oil firms as global aid is conspicuous by its absence
Nobody could say the collapse of Argentina's economy and financial infrastructure has been a surprise. After both default and evaluation, the post mortems are under way. Whose fault was it? Why didn't someone do something about it? Will it happen to anyone else? Does it matter if it does?
One point of agreement is that most international investors saw the crisis coming at least a year ago. Over the last two quarters of 2001, only the truly brave or trapped were still sticking in there.
Once the situation started to unravel, fingers were pointed at the usual suspects ' speculators, the US and the International Monetary Fund. Plus, a new Bogeyman known as 'the Washington Consensus'.
This refers to an alleged conspiracy among key Bush officials to downsize the US's role as chief global bailer-outter. It has some fuzzy connection to Moral Hazard but the line of argument is a secret.
The fact is, with mounting debt and a fixed currency, Argentina has been heading for a fall for some time. The currency board, pegging the peso at par with the US dollar, lasted 11 years but there were question marks over it for at least half that time. Too late, alas. The latest economic team in Buenos Aires started making fervent pledges to cut back spending. They have also set an inflation target of 'about' 10%. Such promises are already drowned out by the growl from the streets. Argentines, with their jobs, savings and pensions all under threat, are in no mood for a lecture on international economics.
International investors are extending no concessions either. They have already rubbished the proposals to treat dollar-denominated debt differently from peso paper. With liabilities in dollars and their assets in pesos, how long is that distinction going to hold? And then there is the old chestnut of 'controlled' devaluation, a feat not yet achieved by any government, ever.
As this cauldron heats up, expect a resurgence of the unsavoury practices of old. No country is free of corruption but some have a decidedly stronger bent towards it than others. The government is already asking oil companies for 'one-off contributions' to help keep the economy turning over, while more permanent taxes and tolls are devised.
Bond markets are also cutting Argentina loose. Both Brazil and Mexico have recently offered investors more than $1bn worth of paper, which was snapped up in hours. The first few days of a new year are always a good time to bring new issues but investor confidence in the two biggest Latin American markets is clearly intact.
This does not extend to European companies involved in Argentina. The Spanish equity index fell 3% in one day as the impact of the new oil arrangements and a proposed cap on utility tariffs was digested. Repsol YPT, the oil group, big banks like Santander Central Hispano and BBVA and telecom companies were most affected. But other European firms have significant exposure as well: Italy's Banca Nationale del Lavoro, Dutch group ING and French banks like Credit Agricole.
Utilities and car and parts manufacturers are already under pressure. So, here is another worry for global investors: you may have escaped contagion but globalisation will get you in the end.
Joined as head of strategy, multi asset, in June
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