What Next for Argentina? Study on Argentina, Brazil and Uruguay Argues Wall Street Country-Risk Perception Assisted Crises.

BOSTON -- The partial restructuring of Argentina's $100 billion sovereign debt earlier this month makes the prospects for a return to economic stability look more promising. So says Toby Nangle, a Director of Fixed Income at Baring Asset Management (BAM), the global institutional investment management firm.

Mr. Nangle is the author of the newly published study, "Washington and Wall Street: The Interplay of External Financial Influences on the Course of Debt and Currency Crises in Argentina, Brazil and Uruguay, 1998 - 2002," sponsored by Baring Asset Management (BAM).

"The Government's success in persuading creditors holding 76 percent of the country's defaulted bonds to accept its $100 billion restructuring offer has been viewed positively by the markets," said Mr. Nangle. "That such a high proportion of US dollar bonds tendered were swapped into peso-denominated securities bodes well for the country's financial stability, and improves its debt dynamics.

"Argentina found itself in a vicious cycle of diminishing market confidence, higher interest costs, and a deteriorating fiscal profile," he said. "It implemented policies that were without economic merit in an effort to win back the confidence of the markets, the IMF and the US Treasury. Reducing the proportion of debt denominated in US dollars reduces the likelihood of such a situation recurring."

Described by Dr. Charles Jones, Director of the Centre for Latin American Studies, Cambridge University, as "simply the best account of the Argentine crisis that I have read," Mr. Nangle's study describes how, during 2001, market measures of Argentina's 'country-risk' soared, the economy contracted, and the government collapsed. Over the first half of 2002, Uruguay followed Argentina into an economic and financial tailspin, and Brazil encountered financing problems that endangered government solvency.

The study investigates the influence of both Washington-based institutions and financial markets on the course of the debt and currency crises. Rather than reflecting solely on domestic policy errors and existing shocks, Mr. Nangle argues that these crises became self-fulfilling, assisted by Wall Street's perception of country-risk, until Washington institutions intervened to stop them.

The study argues the understanding of the broader geopolitical framework in which countries sit is key, as is an understanding of the interaction between perceptions of financial fragility and financial fragility itself. The Argentinean, Brazilian and Uruguayan crises also illustrate that with increasing levels of financial integration, political choices are narrowed: the electorate in these countries are presented with options that are the function of Wall Street belief-systems that may make little economic sense.

The 75 page study, "Washington and Wall Street: The Interplay of External Financial Influences on the Course of Debt and Currency Crises in Argentina, Brazil and Uruguay, 1998 - 2002," is available in the market commentary section on www.baring-asset-us.com.

About Baring Asset Management

Baring Asset Management (BAM) is a global investment management firm that manages approximately $35 billion on behalf of governments, institutions, charities, private clients and mutual fund investors located around the world.

Within North America, BAM provides asset management services to institutional investors, offering them a range of equity and fixed income products in both domestic and international markets from their offices in Boston, San Francisco and Toronto.

BAM follows a Growth at a Reasonable Price (GARP) equity investment strategy. Its approach focuses on identifying favorable earnings surprise and valuation characteristics through fundamental research, and it seeks companies, sectors and markets whose attractive growth prospects are not fully reflected in their prices.

Baring Asset Management is part of the MassMutual Financial Group, a global, diversified financial services organization. Massachusetts Mutual Life Insurance Company (MassMutual) is one of the largest life insurance businesses in the USA.

More information about Baring Asset Management can be found at www.baring-asset-us.com.

Disclaimer

The views and opinions expressed in this document are those of the author (Toby Nangle) and do not necessarily reflect those of Baring Asset Management (BAM). BAM does not make any warranty or representation as to the accuracy of the information contained herein; and as publisher, cannot accept any liability for any loss or damage which may arise or result from any errors or omissions in this publication.