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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Terry Whitman who wrote (4900)	10/19/2001 10:06:07 AM
From: John Pitera	Read Replies (2) of 33421

We keep hearing it's coming--Warning: Argentina will default the Waiting for Godot Debt crisis.... plods along. ---------------------------------- Commentary: Biggest debt crisis in years is looming By Paul Erdman, CBS.MarketWatch.com Last Update: 3:25 PM ET Oct. 17, 2001 SAN FRANCISCO (CBS.MW) -- The world is about to be hit with the biggest debt and currency crisis in years. It is only a matter of days before Argentina will default on its sovereign debt -- which now amounts to $132 billion. Neither the International Monetary Fund nor the Bank for International Settlement nor the United States Treasury will step in to prevent this since none of them are willing to throw more money down that black hole. This default will inevitably trigger a major devaluation of the Argentine peso. The shock waves emanating from these Argentine events will roil currency markets throughout Latin America. Brazil's currency, the real, which has already depreciated 28 percent in the year to date, will be severely tested. And all of this will further undermine confidence in the currencies of those Asian countries that are facing rapidly mounting economic problems of their own as a result of recessions in their principal export markets. The mirror image will be renewed strength of the safe-haven dollar. Argentina's default will be triggered by the refusal of current holders of its public debt -- 60 percent of which are foreign institutions -- to accept a swap arrangement that would force them to accept huge losses now and still not solve the basic problems brought on by the irresponsible fiscal policies of the Argentine government. To cover its domestic budgetary deficits, during the past 10 years Argentina was forced to borrow $89 billion in the international capital markets, more than any other emerging market. To put this in perspective, Mexico, whose economy is twice as large as that of Argentina, has only borrowed half that much over the same period of time. The situation was brought to the breaking point last Friday when Moody's cut Argentina's credit rating to below that of any other country. Reflecting this, the yield on Argentine bonds is now 33 percent. How this new external shock will affect financial markets in the United States, Japan and Europe is an open question. But I believe it is safe to say that it sure won't help. Economist and author Paul Erdman is a CBS.MarketWatch.com columnist. His column also appears on FTMarketWatch. cbs.marketwatch.com.

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