Emerging-Market Currencies Drop

Call it the Buenos Aires Effect.

Emerging-market currencies tumbled Friday, led by the Polish zloty, on concern that problems in Argentina will spread to other developing markets.

Argentina’s budget problems, and fears it will default on its debts, have rocked Latin American markets this year.

Turkey also faces economic woes. It has yet to reach an agreement with the International Monetary Fund on a badly needed $1.5-billion loan.

On Friday, the Polish zloty slumped 4.3% to 4.205 per U.S. dollar, its lowest level since December. The Turkish lira fell 4.2% to a record low of 1,334,000 per dollar. The Hungarian forint, which had been the world’s best performer against the dollar in the last month, also slid.

While investors in Poland worried the government will agree to widen the budget deficit, the impact was deepened as money managers worldwide pulled back from emerging markets in general, fearing contagion from Argentina and Turkey. The currency woes sparked memories of the broad meltdown in Asian currencies in 1997-98, though so far the contagion is limited.

“This is all about Argentina and Turkey,” said Laurent Fontaine, head of local markets strategy at J.P Morgan Chase & Co. in London. “People are reducing their risk positions across emerging markets.”

Meanwhile, Argentine government bond yields pulled back slightly as some investors bet the government will reach an accord with provincial governors this weekend on critical spending cuts. But the nation’s key stock index still lost 0.8% to a 52-week low.