Argentina’s Markets Sink Despite Government Steps

Argentina’s troubled economy suffered another glum day Wednesday, as stock and bond prices continued their downward slide despite the latest government attempt to relieve its debt financing burden for this year.

The Merval stock index sank 4.3% to 307.80, bringing its year-to-date loss to 26%. Argentine bonds also got a pounding by foreign investors, sending yields soaring.

The sell-offs occurred despite a steady stream of positive news emanating from Argentina’s political world this week. On Sunday, the Argentine congress finally passed the “zero deficit” bill that will cut spending by $1.5 billion and legally oblige the government to balance its monthly budgets from now on.

Meanwhile, the government announced Tuesday evening that it was making a local debt swap, switching $1.3 billion in securities due to expire this year for one-year or three-year bonds.

Though some analysts said the swap should make a debt default less likely this year, others said it was clear that neither the swap nor the cuts are enough to budge the markets in a positive direction.

Continuing intra-government quarrels over budget cuts--which slashed public workers’ salaries and state pensions by 13%--have not helped convince investors that the government can meet its new zero-deficit target.

At the heart of investors’ concerns is the fear that Argentina will be forced to default on its public debt of $130 billion.

On Wednesday, International Monetary Fund officials said the IMF is considering ways to boost support for Argentina, including the possible acceleration or expansion of loans to the country.

Also, Argentine Economy Minister Domingo Cavallo said he negotiated unspecified “cooperation mechanisms” with European countries.

In another sign of support, the United States is sending Treasury Undersecretary John Taylor to Buenos Aires, Cavallo said.