Fears of a new emerging market crisis intensified yesterday as Argentina appeared to move closer

Fears of a new emerging market crisis intensified yesterday as Argentina appeared to move closer to defaulting on its debts.
Financial markets across Latin American tumbled, with Argentine shares plunging almost 8 per cent at one point after the government was forced to hike its interest rates to a five-year high to raise fresh debt.But the benchmark Merval index, which has fallen 24 per cent this month, regained ground to end down just 2.23 per cent on news that the economy minister, Domingo Cavallo, would make an announcement today. Traders took this as a sign that the government could finally agree a $1bn-2bn (£700m-£1.4bn) round of spending cuts, which is needed to meet a $6.5bn deficit target demanded by the International Monetary Fund. Without this, Argentina will not be able to access a $40bn aid package agreed with the IMF to help it out of its two-and-a-half-year-old recession.Argentina’s $128bn debts make up almost half of its entire annual economic output. Its short-term bond yields, which were less than 8 per cent last month, soared to 16 per cent yesterday.Stock markets in Chile, Brazil and even Turkey also fell while the Brazilian currency, the real, and the Mexican peso dropped to new record lows.

There were fears Argentina would be forced to abandon the peso’s one-to-one peg against the US dollar.The gloom triggered wider fears with the dollar falling as much as 1 per cent against the euro on concern that a full-blown Latin American recession would hurt the already weak US economy.Nick Stamenkovic, senior analyst at Nomura International in London, said: “There are growing worries that Argentina could default because of its inability to meet its debts.”There has been a capital flight towards quality. The US dollar would normally benefit but because of its proximity to Latin America it has been under pressure from fears the US could be hit by the Latin American downturn. There has also been a knock-on impact on eastern European emerging markets but this not a 1998-style financial crisis.”. Napster was dealt another serious legal setback when a federal judge ordered the song­swap company remain off­line until it can fully comply with an injunction to remove all copyright music. Napster was dealt another serious legal setback when a federal judge ordered the song­swap company remain off­line until it can fully comply with an injunction to remove all copyright music.
That means Napster, which allowed users to download free music files, will need to delay a comeback after being off­line for more than a week.In a closed door meeting with US District Judge Marilyn Hall Patel on Wednesday, Napster said it was about to restart the music trading service after a short hiatus as the company retooled its song screening software.Napster counsel told the judge the company felt it could block more than 99 percent of all infringing song files, but the judge shot back, telling Napster it needed to block 100 percent of unauthorized copyright songs or stay off­line indefinitely.Napster chief executive Hank Barry blasted Patel’s ruling. “The Court’s ruling today that Napster must block all file transfers threatens all peer­to­peer file sharing over the Internet and is at direct odds with the 9th Circuit’s ruling,” Barry said.”While we are disappointed by this ruling, we will work with the technical expert to enable file transfers as soon as possible and we are continuing full steam ahead toward the launch of our new service later this summer.”Napster plans to comply with Patel’s request to remain off­line. However, the 9th US Circuit Court of Appeals notified recording industry attorneys Wednesday that Napster plans to appeal Patel’s latest order by noon Thursday.

The recording industry will have until Friday to respond to that request.Napster’s service has been down since July 2 and there is no date set for its return online.Napster has tried to comply with an injunction ordering it to police its system closely for infringing files, only to produce mild results. The company has been buying time until it can launch its much anticipated paid subscription service, due this summer.The recording industry, which sued Napster in 1999 for copyright infringement, was elated with Patel’s order.In a statement, Hilary Rosen, president of the Recording Industry Association of America, said: “While we appreciate that Napster is attempting to migrate to a legitimate business model, its inability to prevent copyright infringement from occurring on its system has only hampered the development of the marketplace in which it now hopes to compete.”It is difficult for the legitimate online marketplace to compete with free,” Rosen said.Major labels will attempt to garner their own online following with paid online music services. Major labels Sony Music Entertainment and Universal Music Group have formed a joint venture called pressplay. AOL Time Warner Inc., EMI Group PLC, and Bertelsmann AG are set to launch a competing music download service called MusicNet, of which Napster also is a business partner. Both businesses are set to launch later this year.Copyright expert Allen Baden, a partner at Kenyon & Kenyon, said Napster’s admission to Patel might have only served to remind the judge the company’s song swap system is still short of perfection.”What I think it is a sort of damning admission that they don’t have it yet,” Baden said.. Singapore is in recession, having suffered two consecutive quarters of declining output – the generally accepted definition of recession. Singapore is in recession, having suffered two consecutive quarters of declining output – the generally accepted definition of recession.
Not surprising, you might think, since its economy is heavily dependent on hi-tech manufactured exports to the US and the hi-tech sector there has ground to a halt.

What is surprising is the scale of the slump: output fell at an annual rate of 11 per cent in the first quarter and now at a rate of 10 per cent in the second. I cannot recall any advanced economy heading down as fast as that in recent years, and certainly not such an organised, sophisticated economy as that of Singapore.Expect similar numbers in the next few days from other East Asian countries similarly dependent on the US market. Thailand, Taiwan and the Philippines were all down in the first quarter and there is little reason to expect they will have done better in the second. Factor in the probability that Japan, too, is in recession and it begins to look as though the east Asian time zone as a whole could be in recession. Only China, if you believe the numbers, is still growing fast – and the official numbers should be taken with the proverbial pinch of salt.This rising probability of a regional recession raises a string of questions. One is whether we should be concerned about an east Asian crisis, or should we worry more about an emerging market crisis? Given that the two countries currently causing most concern in the financial markets are Turkey and Argentina, there is a clear possibility of the contagion we saw in 1997/8 where one country’s problems affected the credit rating of others, even though the circumstances were entirely different.My instinct is that we should think times zones for two reasons.

Firstly, the problems of Turkey and Argentina are specific to those countries and Turkey at least will not have serious regional knock-on effects: the Turkish tail does not wag the European dog. The second reason is that the countries of east Asia matter enormously in world trade in a way that the other middle-income and emerging markets do not. East Asia was the fastest growing of the three time zones through the 1980s and 1990s, accounting for two-thirds of global growth. That was despite the late 1990s blip.That blip did not matter in global terms because it coincided with strong US growth and a modest continental European recovery. But now we can expect at best very modest growth from these two time zones, so suddenly there is the prospect of all the zones heading down together. Besides, since east Asia has accounted for much of the world’s recent growth, if it is in recession it drags the entire world down.You can see the significance of the developing world (all right, the expression is a bit of a misnomer) in global exports in the graph.