Argentine markets plunge on budget balanceing fears : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Wednesday October 3, 5:39 pm Eastern Time Argentine markets plunge on budget balancing fears By Gilbert Le Gras

BUENOS AIRES, Argentina, Oct 3 (Reuters) - Argentine financial markets plunged on Wednesday amid growing concerns about the country's ability to balance its budget following a steep fall in September tax revenues, traders said.

Rumors that Economy Minister Domingo Cavallo, recruited in late March to rescue the economy from a three year slump, may resign also weighed heavily on the country's stock and bonds prices.

Argentina's benchmark Global 2008 dollar bond traded down 3.89 percent to 55.5 percent of face value, while the blue-chip MerVal (^MERV - news) share index closed down 7.02 percent at 214.55 points on light volume of $14.1 million.

``I don't pay much attention to rumors but the fact is the (Economy) Minister's lack of performance since he arrived in March and introduced all these measures raises these doubts and that puts into question (currency) Convertibility,'' said Leopoldo Olivari of Bacque brokerage.

The Economy Ministry could not be reached for comment.

Argentina has pegged its peso to the dollar since passing the Convertibility Law in April 1991.

Years of chronic budget deficits compounded by more than three years of economic slump have raised fears Latin America's third-largest economy may default on its $132 billion debt.

Tax collection slid 14 percent in September compared with the same month a year ago although the government said a more accurate figure was a drop of 10.7 percent due to administrative issues like tax rebates.

``There's an election going on and some people are saying he needs to go. They are in the minority but it creates political noise and it generates talk,'' said a Wall Street emerging market analyst, who did not want to be identified.

Argentina's country risk rating, which measures the premium the government must pay above safe-haven U.S. Treasuries, widened 45 basis points to a six-year high of 1,756 basis points as the MerVal closed, J.P. Morgan's Emerging Markets Benchmark Plus index showed on Wednesday.

Argentine country risk was more than 200 basis points above that of Ecuador, a country which defaulted on its debt in 1999, but 360 basis points below that of Nigeria.

Financial holding company Grupo Financiero Galicia , whose main unit Banco Galicia holds a significant amount of Argentine bonds, fell 7 percent to $0.517. The MerVal's most heavily weighted stock closed just off a new low of $0.51.

The second most heavily weighted stock, energy concern Perez Companc , fell 6.1 percent to $0.92.

``It's a massacre,'' said Ruben Pasquali, a trader for Mayoral brokerage. ``The selling is local. People are upset about the poor tax collection and rumors are everywhere...the prices don't even matter.''

Key economic indicators, meanwhile, continued to show an economy in crisis with auto output down 46.5 percent in September, year-on-year, while consumer prices dipped 0.1 percent last month compared to September 2000.

But depositors' confidence remained relatively strong, according to central bank data. In nearly six weeks up to Sept. 28, bank deposits grew $2.428 billion to $74.596 billion. That followed a drop of $8.631 billion in July and August in the thick of the country's financial crisis.

Brazilian stocks and the real (BRBY - news) currency were pressured by renewed concerns about Argentina and fears of war and a global recession, traders said.

In New York, the Dow Jones Industrial Average (^DJI - news) rose 1.93 percent and the technology-laden Nasdaq Composite Index (^IXIC - news) soared 5.93 percent a day after the U.S. Federal Reserve cut interest rates another 50 basis points.

No problem, we'll just loan them more money and when they run out of that we'll just loan them more money and when they run out of that we'll just loan them more money................................

-- Guy Daley (, October 04, 2001

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