Buenos Aires, Argentina — Spanish stocks took a dive in Monday trading as the market absorbed the impact of the Argentine devaluation on multinational companies that made billions of dollars in investments in Argentina during the 1990s, investments that now have lost value.
Argentina's capital city, which was racked by civil disturbances in December, was calm Monday. Banks and exchange houses in Buenos Aires observed the first day of a forced two-day holiday, with business set to open Wednesday, when pesos will start trading at 1.40 to the U.S. dollar. It will be the first time since 1991 that the peso's official value has been weaker than one dollar.
Markets elsewhere were turbulent as the significance of the devaluation began to sink in.
Shares of Spanish energy giant Repsol, which paid $15 billion for Argentine oil giant YFP in 1999, lost nearly 8 percent on the Madrid bolsa after the Argentine government said it would tax oil sales to create a fund to help businesses withstand the devaluation.
Spain's economy minister complained about Argentina's economic plan before the European Union in Brussels, Belgium, on Monday. "If some of the conditions under which Argentinians and foreigners have invested in your country must change, it should be done with the consensus of those affected," Rodrigo Rato said.
Spanish banks alone are looking at losses of as much as $4 billion, sources said.
Spanish, U.S., French and other foreign investors poured more than $35 billion into Argentina in the 1990s to acquire businesses including water and electric utilities, banks and telephone companies. Many were former state-owned utilities sold at auction when they were privatized. Part of their lure was that customer payments were indexed to the dollar.
Now those investments have in one fell swoop been rendered less valuable after Argentina announced Sunday it was devaluing the currency by nearly 30 percent, abandoning the peso's 10-year link to the dollar, and converting all dollar-denominated debts and contracts of as much as $100,000 to being payable in pesos.
The country also has announced it is defaulting on the $135 billion it owes to foreign institutions and other creditors. The debt grew as the government borrowed to pay for social services while the economy went into recession and tax revenues dried up.
The government is converting the denomination of loans and other obligations from dollars to pesos to ease the pain caused by the peso's loss in value. The government at the same time has promised dollar depositors whose accounts are now frozen that they will recover all of their money.
Thus, banks' loan assets have been devalued, but their liabilities in deposits remain tied to the dollar, creating a "balance-sheet problem," said SCH economist Omar Borla in New York.
The predicament caused shares of Spanish banks Santander Central Hispano and Bilbao Vizcaya Argentaria, which together control roughly 20 percent of the Argentine banking system, to fall 4.4 percent and 3.3 percent, respectively, Monday on the Madrid bolsa.
The Spanish market overall fell 3.4 percent, as measured by the IBEX index. Among Latin American markets, Brazil's main share index inched up 0.3 percent Monday, while Mexico's eased 0.7 percent.
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