Cavallo’s high-stakes confidence game
When Argentina cancelled a domestic bond auction last month - its government refused to pay the interest rates the market demanded - fears about the country's ability to meet its debts were revived. The government, mired in recession for almost three years, has debt of at least $125 billion. Argentina would need to cut imports in half or boost exports by half to service that overhang.
"Everything coming out of the country right now is aimed at avoiding the double-D, by which I mean default and devaluation," says Morris Goldstein of the Institute for International Economics in Washington. "I hope they make it, but so far it doesn't look as if they will. They're not putting forward enough to do the job."
Few expect contagion on the scale that knocked out Long-Term Capital Management almost three years ago. "We're not likely to see any balance-sheet-based fire selling," predicts Michael Gavin, head of Latin American research for UBS Warburg.