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. Last Updated: 07/27/2016

Argentines Brace for Peso Float

BUENOS AIRES, Argentina -- Companies in Argentina will lose billions of dollars in net worth after the peso currency was devalued by almost 30 percent, already leading some to slash or even close their local operations.

Argentina's decision to break its currency peg, which made 1 peso equal to $1 for a decade but was blamed for deepening a recession in its fourth year, will ravage the balance sheets of countless local firms.

Argentina on Sunday announced it was cutting the value of the peso by 29 percent. After a decade of one-to-one parity, the dollar now buys 1.4 pesos.

Just days earlier, South America's No. 2 economy formally defaulted on its massive $141 billion public debt, missing a $28 million payment on a Eurobond for the first time.

Some foreign companies like French auto parts group Valeo SA immediately shut down plants in Argentina after the foundation upon which their investments had been guaranteed was pulled out from under them.

Meanwhile, some U.S. household names with sizeable investment in Argentina have already factored the situation into their earnings forecasts. Bleach maker Clorox CLX.N on Monday affirmed its outlook for fiscal 2002 earnings, saying cost cuts will help offset a decline in sales from Argentina.

About $140 million of soap maker Dial Corp's estimated $1.7 billion in 2001 sales came from Argentina, said chief financial officer Conrad Conrad. "The company is still determining what impact the devaluation will have.

"Obviously in a devaluation, it does impact the financial statements," he said.

Already fragile Argentine banks struggled to stay afloat after the government -- seeking to ease social tensions in a country where 80 percent of private debt is held in dollars -- converted dollar loans up to $100,000 into devalued pesos. President Eduardo Duhalde said banks must still somehow return intact deposits denominated in dollars -- which most analysts say is impossible.

Worries about the devaluation's effect on foreign companies sandbagged stocks from Madrid to New York as firms rushed to declare their exposure to Argentina to concerned investors.

Some analysts speculated that Spain's biggest bank, Santander Central Hispano, and rival Banco Bilbao Vizcaya Argentaria, world leaders in lending to Argentina, may leave rather than recapitalize local units.

Mexico's financial group Banamex SA de CV, owned by U.S. giant Citigroup, said Monday it had sold its 59.58 percent controlling stake in Argentina's Banco Bansud.

The government's plan to ease the strain on banks -- a new, as yet undefined tax on fuel exports -- predictably ruffled the feathers of energy companies like Spain's Repsol-YPF.

"We're going to have meetings with the economics minister," said an official at Repsol-YPF, whose shares in Madrid fell nearly 8 percent Monday.

Utility companies that moved into Argentina during the 1990s free-market boom era, such as Spain's Telefonica and France's Suez, reeled after the government said it would convert their dollar-based tariffs into pesos.

Suez said it would start talks with the government rapidly with a view to adapting its activities and contracts.

Argentina plans to peg the peso at 1.40 to the dollar for at least a couple of months before then letting the currency float. But many economists said they doubted it would withstand the market pressure, leading some to predict the peso could depreciate by up to 70 percent by year-end.

"The payments I'm making on my machinery I imported from the United States last year are impossible now," said Ricardo Vandelay, owner of a small grain processor in a gritty Buenos Aires suburb. "I don't see what good this devaluation does for anybody."

(Reuters, AP)