Markets try to contain Argentinian crisis

LONDON, England -- World markets and financial institutions are keeping a nervous watch on Argentina, after the president quit and the economy plunged into chaos following days of bloody riots.

Many investors are afraid uncertainty could spill over into other markets.

Thursday's resignation of President Fernando de la Rua, a day after his economy minister Domingo Cavallo stepped down, and the downgrading of Argentina's foreign currency debt is already being felt in global bond markets.

Moody’s Investors Service cut Argentina’s rating on Thursday out of concern for bondholders as the country edged closer to the largest sovereign debt default in history.

VIDEO How financial markets are trying to contain the crisis: CNNfn's Kitty Pilgrim reports (December 21) Play video (QuickTime, Real or Windows Media) President Fernando de la Rua resigns and flies away after two days of rioting. CNN's Lucia Newman reports (December 21) Play video (QuickTime, Real or Windows Media)   MORE STORIES • Argentina on brink of collapse  • De la Rua: Promises fizzled out    RESOURCES Message board: Argentina

“We felt the resignations were clear signals that economic policy was in total disarray and the expected loss for investors will be higher than we had anticipated,” Mauro Leos, the Moody’s Argentinian analyst, told Reuters. Argentina has been rocked for months by fears that a deepening recession, now in its fourth year, could mean it would have to devalue its currency or default on $132 billion in public debt.

Until now, the impact of the economic turmoil has been limited to Spain, where companies have a large exposure to Argentina.

Madrid’s main index, the Ibex 35, extended its losses, slipping 0.3 percent on Friday, with Spanish banks, which are heavy lenders to Argentina, also weaker.

Santander Central Hispano, Spain’s biggest bank, dipped 0.1 percent, and rival Banco Bilbao Vizcaya Argentaria fell 1.4 percent.

Telefonica, Spain’s dominant phone company -- which earns about 10 percent of earnings before interest, depreciation, taxes and amortisation in Argentina -- has also seen declines in recent days.

Officials at Telefonica and the two banks told CNN in November that they had been preparing for months for the latest crisis in Argentina, in an effort to minimise the damage.

In South Africa, the country’s currency, the rand, has been hit by concerns the crisis could spread to other emerging markets. It has fallen to historic lows against the dollar, British pound and euro this week as investors sold some of their emerging market assets.

Meanwhile, the growing crisis has also prompted criticism of the International Monetary Fund, which earlier this month refused to grant Argentina a $1.3 billion loan installment. The IMF said it would not continue with its loan program until the government introduced stronger to cut the country’s debt.

“Whatever government comes into power has got to get the finances in order,” Mark Tinker, an analyst at Commerzbank, told CNN.

Most experts agree this new crisis is a serious blow for Argentina, but they believe the impact on emerging markets can still be contained. “Most markets have priced it (the crisis) in, with the exception of the South African rand, which I think people are using it as an excuse to sell,” Frank Gill, an emerging markets analyst at IdeaGlobal, told CNN.