George cools Argentina fever

BANK of England Governor Sir Edward George today assured nervous investors that the rest of the world will not be sucked into the escalating financial crisis in Argentina.

As the Latin American country plunged into fresh chaos and uncertainty following the resignation of President Fernando de la Rua, George said the fallout from the crisis had already been 'substantially discounted' by markets.

He described Argentina's problems as a 'tragedy a long time in the coming' and said there were few implications for the rest of the world.

Rating agency Moody's last night slashed Argentina's credit rating to only one notch above its lowest C rating, and warned that the country's problems increased the likelihood that bondholders would suffer losses of more than 50%.

The move rattled Argentinian Samurai bonds, which were quoted below 20 yen against a face value of 100. Holders of the Samurais - yen-denominated bonds issued in Japan by Argentinian borrowers - dumped the paper amid worries that future interest payments will not be honoured.

But experts agreed with Sir Edward that the slow evolution of the crisis meant the West was well insulated from shock waves from South America.

They were confident that a repeat of the global contagion seen during the 1998 Russian financial crisis is not on the cards.

Latin American leaders, remembering the devastating ripple effect of Mexico's 1995 tequila crisis and Brazil's 1999 devaluation, have reassured the world that this time the region's economic shock absorbers are firmly in place.

'This has been a slow motion disaster,' said Juliet Sampson, an emerging market economist at Bank of America. 'The situation lacks both the uncertainty and surprise we've seen in almost every other emerging market crisis.'

Spanish banks stand to be the biggest Western casualties of the crisis because they hold a large proportion of Argentina's $132bn external debt.