What Is Next for Argentine Economy?

BUENOS AIRES -- After months of teetering on the brink of the biggest sovereign debt default that markets have ever seen, Argentina has finally declared a moratorium on part of its $132-billion debt.

Exactly what the default will mean for South America’s second-largest economy and its long-suffering people is still not clear.

Optimists say Argentina could rebound as quickly as Russia did after its unilateral default in 1998. Pessimists predict a messy devaluation, a return to hyperinflation and spiraling poverty, sparking further unrest and violence.

Some questions and answers on what’s next for Argentina:

Question: Will Argentina be banned from international capital markets for years?

Answer: Possibly, but probably not. Despite its 1998 default, Russia bounced back in three years. Its stock market is booming and foreign reserves are up to $40 billion. South Korea and Mexico made similar recoveries.

“Nobody can predict exactly when Argentina will get access to new, market-based financing, but I don’t think it’s going to be years and years,” said Chip Brown, head of economic research at Santander Hispano Central in New York.

Q: Are new negotiations with the International Monetary Fund likely?

A: New interim President Alfredo Rodriguez Saa said he will first seek aid from President Bush and Spanish Prime Minister Jose Maria Aznar. But analysts predict that either the president or one of his ministers will be courting the IMF as soon as the holiday season is over.

Q: Could the Argentine moratorium spark a wave of similar “can’t pay, won’t pay” defaults by other emerging markets?

A: Unlikely. Most vulnerable to the Argentine crisis is Brazil. But although its currency, the real, slid this year as Argentina’s crisis deepened, it has strengthened recently. Walter Molano of BCP Securities in Greenwich, Conn., said any effects on Brazil “are already priced into the market.”

Q: Is Argentina’s default the biggest markets have ever seen?

A: In nominal terms, yes. Argentina owes $132 billion in public debt. But Russia’s 1998 default on $40 billion of domestic bonds sent more shock waves through markets.

Q: What does the default mean to ordinary people?

A: Downtrodden by nearly four years of recession, most Argentines welcomed the move. They accused the previous government of President Fernando de la Rua of making debt payments more a priority than repairing the economy. .

But they also worry that the default could force the government to devalue their peso and plunge the country back into hyperinflation that in the 1980s reached 5,000%.

Q: What are the prospects for government stability?

A: Last-minute wrangling within the Peronist Party delayed Rodriguez’s swearing in, and he is slated to stay in office only through March 3, when fresh elections are to be held. Any unpopular government decisions could spark a repeat of the frenzied looting and street protests that ejected De la Rua.

Q: What is the impact for tourists and foreign businesses?

A: Foreign businesses are likely to steer clear of Argentina for a while. In fact, a number of foreign companies--including Home Depot and Iveco, a truck maker belonging to Italy’s auto maker Fiat --have said in recent months that they are leaving the country.

Barring a return to street violence, it should be safe for travelers to visit Argentina. A devaluation of the peso would make Argentina cheaper for travelers. Prices, especially in the capital, Buenos Aires, are often the same, or even higher, than those in the United States and Europe.