By John Lyons in Sdo Paulo,
Brazil, and Michael Casey in
Buenos Aires
Barely six years after Argentina committed the biggest sovereigndebt default in history and devalued its currency, locals and Wall Street investors are asking an unsettling question: Is it about to happen again?
The short answer appears to be: It doesn't have to happen, but it might. With nearly $50 billion of foreign reserves and one of Latin America's fastest growth rates, Argentina has an array of options to keep its currency stable and meet financing needs in the coming years.
Nonetheless, signs of financial panic have appeared. Middle-class Argentines are cashing out savings accounts to buy dollars, a sign they think the government is in big trouble and the currency will plunge. Wary that the rush for dollars would become a full-scale run on the banks, the central bank spent nearly $1 billion to defend the peso in the past two weeks.
The X-factor is Argentina's first family: President Cristina Fernandez de Kirchner and her husband, Nestor Kirchner, the irascible former president who many believe still calls the shots. With the government's popularity in decline amid a 23% inflation rate and a failure to end a farmers' strike, concerns are mounting over the sustainability of the Kirchners' populist policies.
The government is playing down the risks. "The objective probability of a crisis similar to those of the past is, in the Argentina of today, virtually nil," Martin Redrado, president of the country's central banK wrote in Sunday's La Nacion newspaper. A government spokesman declined to comment further.
Since taking power, the Kirchners have fixed supermarket and utility prices in a failed bid to stem inflation, while relying on a weak currency to spur growth. After antagonizing foreign lenders, the government relies heavily on credit from Venezuelan President Hugo Chavez to fund its spending gap.
Most recently, the government is embroiled in a nasty standoff with striking farmers who are angry about a plan to boost taxes on their exports.
The question is whether Mr. Kirchner, who remains popular here for thumbing his nose at the International Monetary Fund and stiffing foreign bondholders after the last default, will back policy compromises needed to resolve the farm strike, damp down inflation, shore up the budget and boost confidence.
Complicating matters, the government must also contend with the still-painful memories ofthe 2001 financial crisis, when a desperate government froze deposits, wiping out the savings of many middle-class Argentines. As a result, Argentines today are conditioned to withdraw their cash at any sign of danger.
"There is no confidence in the Argentine financial system, period," said Ernesto Bodenheimer, 59 years old, an activist who led an organization of bank-account holders seeking access to savings frozen during the last crisis. "The slightest noise and you get your money out."
And noise is everywhere. The economy minister resigned last month, and a decision by farmers to deprive the government of tax revenue by refusing to export their p roducts added to the tension.
Many economists believe Argentina's published inflation and other data are inaccurate. And given the government's track record, some observers believe the government may weaken the currency again in order to boost growth-a plan that would risk spurring inflation.
While locals buy dollars, Wall Street investors who own Argentine debt are trying to calculate what will happen next. Though Argentina's debt load is rising, the country should be able to make payments at least through 2010, analysts say. However, the government may have to borrow from central-bank reserves and workers' retirement savings to do so. What is possibleto know is whether the government is willing to take these steps.
-Drew Benson contributed to this article.
No comments:
Post a Comment