With the Argentine central bank struggling to cope with new regulations following a devaluation of the peso, the government in Buenos Aires failed to open foreign-exchange houses for a third day yesterday, causing renewed concerns in Latin America and on Wall Street about the future of the peso.
Argentina devalued the peso by an official 29 per cent on Sunday, ending a 10-year link with the US dollar. However, Argentinians buying dollars in banks and exchange bureaux have to pay a new floating rate. If this soars above the official business rate of 1.40 pesos to the dollar, it could raise the spectre of a return to the hyper-inflation which wrecked the economy in the late 1980s.
US investment bank JP Morgan has predicted that the peso will slide to as much as 2.70 to the dollar this year when it is freely floated in six months. According to reports from Buenos Aires yesterday, dollars were already trading at above the 1.40 rate, with some dealers quoting 1.50 to 1.60.
Presidential spokesman Mr Eduardo Amadeo said yesterday that the banks would re-open for business today. The clutch of populist fiscal measures taken by Argentine President, Mr Eduardo Duhalde, has meanwhile caused some damage to the interests of multinationals and banks in Europe, Latin America and the US that had exposure in Argentina.
The company with the biggest exposure to the devaluation fall-out is Brazilian oil giant Petrobras, which has invested $1.1 billion (€1.23 billion) in Argentina. French supermarket chain Carrefour has $963 million in investments. The biggest US investor is Liberty Media, with $417 million invested.
US multinationals like McDonalds, which has 215 fast food restaurants in Argentina as part of a $72 million investment, are "taking a long-term view", waiting for the economy to come out of crisis, a McDonald's spokesman said.
US banks were prepared for the devaluation, but were caught off guard by Argentina's decision to allow dollar loans and mortgages up to $100,000 to be repaid in pesos. FleetBoston Financial, with 3 per cent exposure in Argentina, will take additional charges of $50 to $100 million on top of the $90 million in after-tax charges in the last quarter related to Argentina, an analyst said.
In Madrid, stocks fell because of exposure to Argentina, while investor interest in leading Spanish banks and utilities with major stakes in the South American economy is reported to have dried up.
Any further delays in easing money supply could trigger further unrest in Argentina. The Buenos Aires daily Clarin newspaper said yesterday that the government would raise the present monthly withdrawal limit of 1,000 pesos to 1,500 pesos for individuals.
Meanwhile, prices on imported goods and on some locally-produced items in Argentina are said to have shot up.
The new government is working on a 2002 budget promised for later this month. An International Monetary Fund delegation planned to return to Washington yesterday after discussions with the new government in Buenos Aires.
