Tremors reverberated across key emerging market economies yesterday after the Argentinian President Fernando de la Rua resigned heightening fears the economic crisis afflicting the country could undermine investor confidence worldwide.
Argentina's economy minister and the entire cabinet quit yesterday amid growing civil unrest, which has so far claimed 20 lives. Speculation was mounting that the former star Latin American economy was on the brink of a currency devaluation and would default on its $132bn (£90bn) debt.
The worst-hit economy was South Africa, where the rand collapsed by 9 per cent against the dollar. It also fell to record lows against the euro and the pound. South Africa's open economy and relatively liquid markets have been hit hard by contagion effects from Argentina this year even though analysts say its economic fundamentals are sound.
The currencies of Australia, New Zealand and Turkey also fell. In Europe share prices of banks with assets or loans in Argentina fell, led by banks in Spain which has traditionally strong links with the Latin American state.
But the International Monetary Fund, which is holding back a $1.3bn loan to Argentina, yesterday remained confident any contagion would be limited.
The IMF's first deputy managing director, Anne Krueger, told reporters in Delhi yesterday that contagion had been "amazingly low so far".
Fitch, the credit ratings agency, said mounting social unrest and the resignation of economy minister Domingo Cavallo meant Argentina was likely to default very shortly.Reuse content