FALKLAND ISLANDS DISPUTE: ECONOMIC IMPACT

Created: 4/1/1982

OCR scan of the original document, errors are possible

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have minimaln ihc Argentine economy in UKuie lniiii.iiioii. un iinporb. by ihc United Kingdom anC Ihc Kerorcanh> (rum AijcaiiM nil require tome Im* io lakeioug li there have* loan csncdUitom.Aire* Mill it far from financialAnd. even though mmk tcriou. technical problem* arc nriung in cowing obliguuoiuritishhere iRjon lu be enough imcrcti un the run of boili debtors and creditor* to arrangeervice Argentina's external debts.

Ibe IK-HI fewhe duuiiMii of the conflict nnd llw Inienwi* of Hrilivh measure* will be important factors in determining lto+ muchpi ion occur* ioconomy andfiruiscing Ai tbe limit, IIimoui Aire*rewtves adequate to meet Ii* debt obligation* and basic import requirements over ihc ncit three to fivehc British do not choose to block adc Argentine mcrcham shilling.engthening of ihc crisis wuukl. however, add io cutting Argentine. and substantially raise Uie rinkeneralized debt retched tilingoreover. Hie puliiicul fallout of growing inflation, arvand ihortage* would seriously constrain llw Culticri ndminis-

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I .ilklaiuKonomic Impact!

Economic Sanction*

BriuJi .etc gun* to react to the allVom represented b> Argentina'* invasion of ihcondon:

an on imparl* of Argentine good*.

I rare Argentine ritcincialin the United Kingdom.

Cut off export credit* and miiiia.->

1 he L'urupeun Communis|yU-da) mi on trade with Argentina. This measure, whichsrevtauslj unproved cutoff in arm.u lirst appeared more immcdliilcljail subscqucni information node clear, ll will notto good* under prior existingnd most UC import* front Argentina arc covered b> long-term LiMiirai I IHI

insurance for I

Buenos Aires was quicketaliuic.pril the Aigcatutc Central Bank ftvwc lirilisll ustcit and aniwuuceil legal measures to fc-lrict foreign exchange payment* tonks. The guvcrimwnt also orckted ibe Mupcittioii of export erediir UK-bound shipment* andnode eredii withoutr

borrowersCaughtudden financial crow fire:

0 nulhca loan lor an Argentine utility was canceled .Una UK fi-

luivc imperiled debt servicingK banks Failure to note loan enable ihem to declare Argentine loan* in I*liiii situation could be compli-prcsstircs within Britain to demand strict il is in the best

nancial itiMuuiion withdrew from ihe svndi

Argentine exchange restricts meets b> prcsvDiing paymcn repayment* io these banks cc default under Ihc loan agrcci eatcd by any increase lit rati

adherence to original loan paymentven iho interest of Ihc banks te reach an amicable conclusion

The pruvliUw* for such ueclaistiuni depend on His inins and cirsumtftncct ot tlx bu jirccnKiiu Synriieitvd ctcuIm often csll lor drclsfairan^ofdcriiiltt liicd on a

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? momenl. Ihc OiHUh and Arjciitinccou.ticfnicijgrci meimned impact. Tlie bilateral trade emu IT affect, only0 tmllion in trade with the United Kingdom. Thu representscrccm or Argentina', total trade, andn .mailer pcrccatagc ot'J|

A cruu laming no more iliun one or iwo monihi would be unlikdv to cripple Ihc Argentine economy. Dcspiic lhe cancellation of some Jordan enfjna can probably iikxi foreign exchange requirement..

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niomciii. the government rvuiuinft domett icn

qocnily. liucno* Aire* pruUibly has enough foreign exchangeand iicew lu adclition.it fund* lu avoid sharp Incmiaca In uitcmpKij nicni. cutback* inj kiiuuk rationing for theinJ

militar; and diplomatic initiative*.!

uenos Aires liut sufficient foreign exchange to (unction normal-ly over (he next few inonilii. na eroding internaitoatal credit iLtndini; will make borrowing more difficult in ilic near future. Argentinacuniinuc lo experience technical difficulties in arranging loan repayment* lo Urilish bank* nndredit may tighten ai US nnd other intcrn.-tiioiial fi-

1 institution* become more cautious regarding debt rolluvci* and extension* of new credits

If the crisis is prolonged, externally Imposed trade restiiciloiis will tuke un increasinglie suipcniion ot trade with the LC potentially could extend io affect ioukercent ot Argentina's lOUl foreign commerce.inimum, the Falkland dispute will Impede Buenos Aires'* ability to improve its current account jxnitkmo crcdli

facilities dry up. reserve drawdown by itself would nol be sufficient lo meet debt service obligations ihi*en una could thus be forcedeicheduting by the end of 11

The broader riik* for lhe Argentine economy arc severe. Concern la growing over Buenos Alrcs's ability to sustain necessary economic reforms. The Central Bank, for example, bos recently Increased monetaryMoreover, mililary .pending in support of the Falkland campaign would Increase the public deficit. Tuken together, these additionalstimuli would push inflation beyond the present DO-pcrccnt Well

Bucno* Aires'* international credit rating may suffer over tlie longer lcrmrotracted Argcntinc-UK encounter cauic the country lo abandon local restraint. There arc alicudy indication* that the interest spread may rise from lastS pereeni over LlflOK lohigh at .'for new loa

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llollowing un economicevere cutback in liitefiiulionuTjcnditiB would imcmif> difficulties In rcimtiiulinrj reform i:c*

International Financial Impact

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Allowing maneuvering by the British and nervous rumblings from the weaker bunks in loan syndicates, there is still little immediate likelihood

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that bankers will dc probably be able to any mcliiuiion of si lone as Argentina is ul batiks liuvcuccon foros

abort folk could Imperil Buenos Aim's ability to meet debt payments over the coursever the pail iwo year* Argentina hits allocatedoercentts ckjkwi earnings Im debt servicing. If ihc EC trade embargo is extended, it could affect this year about Ii percent of the SlO billion in csjvrt earnings that had been projected for Argentina.

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duration of the conflict and ihc intensity or British measures will be important factors in dcjcirmoing how much disrupt wa occurs to Ar|

ucnoi Aires can probabty afford io continue debt over tbancxt tliree to five months. Should ihc crisis persist this lone, however, the domestic economy would have bartic serious financial and material stresses and the jccdater lenerilizcd would have risen apprcciabl

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