Latin Markets Keep an Eye on Argentina

Major Latin American bourses will watch Argentina this week for signs that the government can pull the region’s No. 3 economy out of 2 1/2 years of stagnation, market watchers said.

In an effort to revive the economy, Argentina’s Senate over the weekend passed into law a tax on financial transactions. New Economy Minister Domingo Cavallo, who on Tuesday became the third person to hold the post in as many weeks, hopes the new tax will generate the revenue needed to restore confidence Argentina will not default on its debt, and can meet its 2001 fiscal deficit target.

Cavallo also wants to eliminate import duties on capital goods and increase them on consumer goods, and has asked for power that would allow him to cut state pay and sell any state enterprises not already privatized.

The performance of Argentine stocks this week will be anybody’s guess as the market licked its wounds following last week’s political and economic crisis. Nervous international markets see Cavallo’s success as essential if Argentina is to avoid a debt default that would trigger an emerging market debacle.

“We can’t yet say things are calm, but at least things improved from the . . . worst moments,” said Renato Lessa, fund manager for Exprinter bank in Santiago.

The key Merval index lost 3.1% last week in a roller-coaster string of sessions whipped by fears of a possible Argentine debt default, wild rumors over the resignation of the president, and Cavallo’s appointment early Tuesday.

The stock market rallied back 6.2% Friday on news that perspectives for broad-based support for Cavallo’s plan had improved. Traders said they also were encouraged by news that Argentina was negotiating to cover debt obligations in May and July.

Cavallo predicted that Argentina would bounce back so quickly that investors would soon be eager to lend it money.

Brazilian shares lost 5% of their value last week in yo-yo sessions, but a bounce on Friday suggested they may be on the rebound as Argentina looked to be getting to grips with its economic crisis, traders said.

Brazil’s benchmark Bovespa on Friday recouped 2.6% of Thursday’s Argentina-inspired 5.3% dive, leaving the market at December levels.

Volatility will continue to plague Mexico’s stock market as investors look for signs of relief from sell-off in U.S. markets and concerns over a worsening Argentine crisis, traders said.

Investors also will keep an eye on the approval process of the Mexican government’s fiscal reform package, expected to be presented to Congress soon.

Mexico’s IPC index of leading 36 stocks ended the week 4.6% lower.