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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (19365)	1/7/2002 3:40:51 PM
From: Sully-	Respond to of 99280

Argentine companies lose billions in devaluation By Brian Winter BUENOS AIRES, Argentina, Jan 7 (Reuters) - Companies in Argentina will lose billions of dollars in net worth after the peso currency was devalued by almost 30 percent, already leading some to slash or even close their local operations. Argentina's decision to break its currency peg, which made one peso equal to one dollar for a decade but was blamed for deepening a recession in its fourth year, will ravage the balance sheets of countless local firms. Some foreign companies like French auto parts group Valeo SA immediately shut down plants in Argentina after the foundation upon which their investments had been guaranteed was pulled out from under them. Already fragile Argentine banks struggled to stay afloat after the government -- seeking to ease social tensions in a country where 80 percent of private debt is held in dollars -- converted dollar loans up to $100,000 into devalued pesos. New President Eduardo Duhalde, the country's fifth leader in a month, said the banks must still somehow return intact deposits denominated in dollars -- which most analysts say will be impossible. Most believed the long crisis would only get worse as the peso was widely expected to fall much further in value, sparking runaway inflation and a complete drought of both foreign and local investment. ``We were in bad shape before, but now the crisis is terminal,'' said an official at one of Argentina's largest companies, burdened like many local firms by choking debt levels as demand plummets amid the long crisis. BANKS, UTILITIES HIT HARD Exporters are the biggest winners in the devaluation, which makes their goods cheaper abroad, but their output accounts for just 8 percent of gross domestic product in Latin America's third-largest economy. Worries about the devaluation's effect on foreign companies sandbagged stocks from Madrid to New York as firms rushed to declare their exposure to Argentina to concerned investors. Some analysts speculated that Spain's biggest bank Santander Central Hispano and rival Banco Bilbao Vizcaya Argentaria , world leaders in lending to Argentina, may leave rather than recapitalize local units. Some wasted no time. Mexico's financial group Banamex SA de CV, owned by U.S. giant Citigroup (NYSE:C - news), said on Monday it had sold its 59.58 percent controlling stake in Argentina's Banco Bansud . The government's plan to ease the strain on banks -- a new, as yet undefined tax on fuel exports -- predictably ruffled the feathers of energy companies like Spain's Repsol-YPF . ``We're going to have meetings with the economy minister,'' said an official at Repsol-YPF, whose shares in Madrid fell nearly 8 percent on Monday. Utility companies that moved into Argentina during the 1990's free-market boom era such as Spain's Telefonica and France's Suez reeled after the government said it would convert their dollar-based tariffs into pesos. Suez said it would start talks with the government rapidly with a view to adapting its activities and contracts. Argentina plans to peg the peso at 1.40 to the dollar for at least a couple of months before then letting the currency float. But many economists said they doubted it would withstand the market pressure, leading some to predict the peso could depreciate by up to 70 percent by year-end. ``The payments I'm making on my machinery I imported from the United States last year are impossible now,'' said Ricardo Vandelay, owner of a small grain processor in a gritty Buenos Aires suburb. ``I don't see what good this devaluation does for anybody.''