Financial Crisis Spreads From Argentina

Despite the government announcement that Argentina would immediately eliminate its fiscal deficit to overcome the economic crisis, South America’ economic crisis continues as Argentine stock and bond prices continue to plunge, and the exchange markets in the neighboring countries, such as Brazil, are showing unstable signs.

Amid increasing risk of default, local Merval share index fell 8.16 percent following the yesterday’s 2.23 percent closing at 311.65 points. The Merval share index fell more than 40 percent from the year’s highest (539.20 in January 23). President Fernando de la Rua summoned an emergency meeting of the Cabinet Thursday night and decided to issue additional national bonds of $ 3 billion won.

Standard & Poor`s (S & P), the international rating agency, decided to cut Argentina`s long-term credit rating from `B` to `B minus` with negative outlook. Prior to this, Fitch IBCA, Britain’s rating company, also cut Argentina’s international credit rating from `B plus` to `B minus`.

In the midst of this, Mexico’s peso fell to the year’s lowest 9.4 against the U.S. dollar on Thursday. The Brazilian real also recorded the lowest 2.59 against the U.S. dollar.

Donald Mattison, who is in charge of the newly rising market in the IMF, said that ``if Argentina, which has a total debt of $128 billion, declares the default, the neighboring countries, such as Brazil, will be heavily damaged. The impact on the Asia’s newly rising markets will not be small.``

Lee Jong-Hoon taylor55@donga.com