Two Reuters articles on Argentina:
1. Argentine Menem says Fernandez; dlr peg to stay
By Carlos A. DeJuana
BUENOS AIRES, May 21 (Reuters) - Seeking to calm financial markets throughout Latin America,
Argentine President Carlos Menem Friday rejected rumors his economy minister would resign before
his term ends in December and that the country might devalue its long-stable peso currency.
Economists guiding the two leading candidates vying to succeed Menem also stressed their
commitment to continuing the country's eight-year-old policy of pegging the peso one-to-one to the
U.S. dollar. Local financial analysts said Argentina could weather the latest financial storm, even if
speculators tried to actively push the peso lower.
The president said in a communique that Economy Minister Roque Fernandez would stay in office
until the Menem administration completes its term in December.
"He is staying until the end," said Menem, who is prohibited from seeking a third re-election in
October presidential elections.
Menem also said London's Financial Times newspaper had misinterpreted statements made by his
former Economy Minister Domingo Cavallo, in a story Monday which sparked fears Argentina
would devalue its peso currency.
"There was a misinterpretation and that created some uncertainty," Menem said of the article which
reported that Cavallo believed Argentina would jettison "convertibility" -- its currency board system
which has pegged the peso to the U.S. dollar since 1991.
Cavallo, who helped wipe out years of hyperinflation when he masterminded the convertibility
system, also told Reuters he had been misunderstood by the Financial Times. He said the only
possible way Argentina would leave the peg would be if the economy was so strong the peso
appreciated against the U.S. dollar.
Coming atop a poor earnings period, corporate debt defaults and increasing politicking ahead of
October's presidential elections, the rumors came to a head Wednesday, rattling Argentina's financial
market and dragging other Latin American stocks, bonds and currencies down with it.
By Friday, Argentina's markets remained cautious, down 1.5 percent midday, but players said they
were more concerned about the effects of the rumors on other markets than the validity of the rumors
themselves.
"There's a misconception of what is going on in Argentina from the outside," a trader said.
Fears of a devaluation in Argentina also continued to weigh on Brazilian and Mexican markets,
stalling their continuing recovery from Brazil's own currency crisis just five months ago.
By midday Friday, Brazilian shares were off 1.7 percent and the real had weakened to 1.7 per dollar.
Mexico's IPC .MXX> index was off 0.9 percent.
The top economic advisors to the two most likely contenders to replace Menem told newspaper Clarin
that a devaluation would be a mistake.
The next government "should not abandon convertibility. I am against that," said Jorge Remes
Lenicov, the chief economist for Buenos Aires province Gov. Eduardo Duhalde, who is expected to
win the Peronist Party primary in July.
Adalberto Rodriguez Giavarini, an economist for the opposition Alliance, agreed: "At this moment,
given the country's current economic situation, it would be highly irresponsible to raise the possibility
of leaving convertibility because it would bring more inconveniences than benefits."
Both are seen as contenders for the Economy Minister post for their respective presidential candidates.
Analysts said a devaluation was a Brazilian solution to an Argentine problem and speculators would
find it hard to break the currency peg.
"What happens if the market makes the decision (to devalue) for the government? The economy has
very strong defenses. The market cannot force the government to devalue," said Pedro Rabassa, an
economist at Scotiabank-Quilmes.
Under the currency board system, almost every peso in circulation is backed by a dollar in Argentine
reserves. Even if everyone exchanged their pesos for dollars, Argentina's economy would not buckle,
Rabassa said.
Furthermore, Argentina is six months ahead of its financing requirements after a series of successful
placements on the international and local debt markets, he said.
Still haunted by memories of hyperinflation and botched devaluations, Argentines are not ready to
give up almost a decade of economic stability, Rabassa said.
"A devaluation here would not accomplish anything. Prices would compensate immediately," he said.
Much of the hoopla began earlier this month after the government was forced to increase its budget
deficit forecast to $5.1 billion from $4.95 billion following a strong outcry against $280 million in
education spending cuts.
The target is part of its three-year $2.8 billion Extended Fund Facility with the International Monetary
Fund (IMF).
Michael Mussa, the chief economist for the International Monetary Fund, said Thursday Argentina
was "wedded" to convertibility, "for better or for worse."
15:39 05-21-99
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2. Soros says forex peg cause of Argentine recession
CHICAGO, May 21 (Reuters) - Financier George Soros said on Friday that Argentina's recession is the price
that the Latin American country is paying as a result of its currency board system.
"Brazil and other countries have devalued," Soros told Reuters at the Federal Reserve Bank of Chicago
conference on Global Financial Crisis and Economic Development.
"The Argentine peso being tied to the dollar makes it probably an overvalued currency which they have to pay
for with a recession," Soros said.
Soros said Brazil has not yet seen much benefit from the devaluation of its currency, the real, but he said some
improvements should be expected in the months ahead.
"Brazil's trade balance has not improved very much," Soros said, when asked about the impact of Brazil's
currency devaluation on its economy. "With the passage of time, exports should pick up," he added.
Soros earlier detailed his views about reforming the global financial system and warned, "the next crisis is
bound to originate from a different direction...a rise in interest rates or a decline on Wall Street. The next test is
liable to come when one of those events occurs."
Soros, however, declined to say whether he expected the Fed to raise interest rates in the near-term.
15:58 05-21-99
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