By Tito Drago
MADRID, Nov 2 2001 (IPS)

The decline in European stock markets of the value of the shares of Spanish companies with interests in Latin America has reflected fears that fallout from Argentina’s crisis will be felt throughout that region, and especially by the other members of South America’s Mercosur trade bloc.

Spain was the world’s largest investor in Latin America in 1999, and the second biggest in 1997 and 1998. Its large telecommunications, electricity and construction firms as well as its leading banks began to invest heavily in Argentina in the 1990s. After purchasing shares in public enterprises, they eventually held controlling stakes in many of them.

In the past few days, as fears of a debt default in Argentina grew, Spain’s stock exchanges felt the impact of the dip in the value of the shares of the Spanish firms Telefónica, Repsol and Endesa, and the Bilbao Vizcaya Argentaria (BBVA) and Santander Central Hispano (SCH) banks.

An analyst with the Merrill Lynch consultancy commented Wednesday in the corridors of the Madrid stock exchange that the companies were “cutting back investments throughout Latin America, due to the prospect of contagion from the crisis in Argentina.”

Investors still have vivid memories of the so-called “tequila” and “samba” effects, terms coined to refer to the impact in Latin America of the financial crises that broke out in Mexico in December 1994, and in Brazil in January 1999.

The threat of a “tango effect” has hung over the region for months, as attempts to bail out Argentina have fallen flat.

Some analysts, like Alejandro Bueso, director of the Bolsamanía consultancy, said Argentina’s problems were not of liquidity, but of solvency, and for that reason, “none of the aid packages received so far have had a lasting effect.”

Spain’s stock markets were closed for holiday Thursday.

The stock exchanges that did open in Europe registered sharp falls of the shares of the Spanish multinationals Telefónica, a telecoms company, and Repsol-YPF, an oil firm.

In the case of Repsol-YPF, the impact of the Argentine crisis was aggravated by the slump in oil prices triggered by the slowdown of the international economy that was accentuated by the Sep 11 terror attacks on the United States.

The stocks of Spain’s leading banks rallied slightly, with the exception of BBVA and SCH, whose interests in Argentina represent 10 percent of annual earnings, which were down.

The J.P. Morgan, Lehman Brothers and Goldman Sachs international consultancies downgraded their projections Thursday for the performance of shares of Spain’s large companies with interests in Argentina.

Argentina also displaced Nigeria as the riskiest country for investing in financial assets, as listed by the J.P. Morgan emerging market index.

Business interests in Argentina account for 30 percent of the annual revenues of Repsol-YPF, 20 to 30 percent of those of Endesa, Telefónica and its subsidiary Telefónica Móviles, and 10 percent of those of Gas Natural and another Telefónica subsidiary, Terra-Lycos.

According to Ibersecurities, another consultancy, fully half of the returns of Telefónica, BBVA, SCH, Repsol and Endesa depend on the performance of the economies of Argentina, Brazil and Chile.

The Spanish government reiterated its support for Argentina, while underlining the need for a rigorous stabilisation plan.

Foreign Minister Josep Piqué said Spain would continue to provide aid to Argentina. He added, however, that Argentinians must “comprehend that they are in a very difficult, complex and extreme situation.”

The big fear haunting Spanish investors and the executives of large Spanish firms is that if Argentina fails to get the crisis under control, the contagion could lead to a downturn in the rest of the countries of Latin America, and especially the other three members of Mercosur: Brazil, Uruguay and Paraguay.

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