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Brazil & Southern Cone - August 2008 (ISSN 1741-4431)

ECONOMIC OVERVIEW: ARGENTINA

Although tax receipts are high, the government appears to feel that it is likely to run short of money. This fear is the most likely explanation for the controversial decision to pay 15% for seven-year money from Venezuela at the beginning of August. The move sent the Buenos Aires financial markets into a panic. The country's risk premium (ie the chance of a default) jumped on 8 August to over 700 basis points above US Treasuries. To be fair, the premium fell back on 11 August when traders realised that the government had used the Venezuelan money to buy back debt at an artificially depressed price.

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