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Friday, 20 April, 2001, 22:09 GMT 23:09 UK
Latin American markets slump
Brazilian stock trader
Traders ran for cover as Latin America's bond and stock prices bombed
Fears that Argentina will be unable to find the money needed in the short term to repay its massive foreign debts sent share prices, currencies and bond markets in Latin America into downward spirals on Friday.

Latin American traders
"Nobody really admits to believing [the rumours], but then they turn around and sell"
Argentina has the third largest debt burden among the Latin American countries, after Brazil and Mexico.

The debt default rumours were branded "irresponsible" by Argentina's economy minister Domingo Cavallo.

But the markets were unstoppable.

"People are taking seriously every rumour that circulates - Cavallo stepping down, friction between him and the central bank, whether Argentina has sufficient financing, what's happening with April tax collection," said Caboto emerging markets strategist Siobhan Manning.

"Nobody really admits to believing [the rumours], but then they turn around and sell," said Mackintosh brokerage's trader Juan Plett.

Diving markets

The Merval stock market in Buenos Aires fell more than 5.5% on Friday, with ripple effects into neighbouring Brazil shaving 5.1% off the region's main stock market, the Bovespa.

Fernando Henrique Cardoso, Brazilian president
Brazilian president Cardoso says the markets' reactions are overdone
Mexico and Chile also felt the pinch, as the local markets in Latin America were "worried by the situation which affects the main economies of the region, as it could scare off foreign investors," said a trader in Santiago.

"Investors are focusing again on the bad news from Argentina and Brazil," agreed a trader in Mexico City.

Presidential intervention

The Brazilian president Fernando Henrique Cardoso said he understood the concerns, but insisted that the markets' reaction was overdone.

shouting trader
Traders fear that the chaos could it could scare off foreign investors
However, in Argentina, ex-president Carlos Menem added to the economic chaos by advising people to buy US dollars.

Mr Menem said the current government's plans to peg the country's currency to a basket of dollars and euros rather than only to the dollar would in effect lead to a devaluation.

Cavallo dismissed any suggestions that he is pushing ahead with a policy of currency devaluation.

Instead, he insisted that linking the peso to both the euro and the dollar would help exports and reduce currency volatility.

Mr Menem has long proposed that Argentina should scrap the peso and instead adopt the US dollar as its currency.

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