Argentina seeks IMF olive branch

Sporadic rioting resumes in Buenos Aires

Argentina's president, Eduardo Duhalde, goes on TV tonight to try to encourage collaboration by politicians, business leaders and the unions - and to promise renewed efforts to seek help from the International Monetary Fund.

The IMF has already sent one team to investigate the situation in Argentina, whose default on its debts was in part precipitated by the IMF's refusal to loan it $1.3bn after Buenos Aires broke a promise to balance the budget.

But Mr Duhalde still thinks a second team, due at the end of this month, could be convinced to chip in. Officials say the country needs anything up to $20bn to get back on its feet.

Jorge Todesca, Argentina's current finance minister, has been scathing about the performance of the Fund. But that will not necessarily stand in the way of new loans.

No trades

The parlous state of Argentina's financial markets seems to support the contention that ouside help is vital.

The stock markets were shuttered yet again on Monday because the lack of cash in the economy due to government-imposed banking restrictions has left most local equity traders unable to cover their transactions.

The country's bourse has been closed for all but a handful of sessions since 20 December, when widespread rioting forced an interim government led by Fernando de la Rua to step down.

Under emergency legislation introduced late last year in a bid to prevent a run on the banking system, cash withdrawals for private account holders are limited to 1,500 pesos a month.

Cash shortages help peso

Acute cash shortages also helped to shore up Argentina's struggling currency on the foreign exchange markets, with many cash-strapped Argentines forced to exchange some of their scarce dollars for pesos.

Exchange houses were buying dollars for around 1.60 pesos early on Monday, up from around 1.65 pesos on Friday.

Still, many economists still expect the peso, which was decoupled from the US dollar on 6 January for domestic transactions alone in an attempt at a controlled devaluation, to fall further in coming weeks.

The devaluation of the peso is intended to lift the Argentine economy through increased exports, while the peso-dollar exchange rate has been fixed at 1.4 to one for international transactions in a bid to prevent the price of imported goods from rising in an inflationary spiral.

To help the two-week-old government fight the inflationary risk, the finance minister of neighbouring Brazil is spending two days in Argentina.

Brazil introduced a new currency in 1999 to combat rampant inflation, using targets of the kind used by the UK and the Eurozone to keep inflation in single digits ever since.

Foreign investors take fright again

And as sporadic rioting resumed in Buenos Aires early on Monday, concerns over the impact of the crisis on Argentina's foreign investors returned with a vengeance.

US bank FleetBoston Corp., a long-standing investor in Argentina, said on Monday that it plans to delay reporting its results for the final three months of the financial year until the situation in Argentina has become clearer.

The bank had been due to publish its results on Wednesday.

Meanwhile in Europe, Spain's Ibex index of leading shares fell by 2.65% to a two-month low amid fears that many of the country's top banks and corporations will be badly hurt by the Argentine crisis.

Spanish telecoms giant Telefonica and BBVA bank, both major players in Argentina, were trading 3.8% and 4.3% lower respectively on Monday afternoon.

In the UK, shares in HSBC bank, which also has significant Argentine investments, had fallen by 2.4% in late London trade.

The renewed corporate worries come despite reassuring reports late last week from credit rating agencies Standard & Poor's and Fitch, which both said that Argentina-related losses at most European and US banks should be manageable thanks to prudent hedging.