MercoPress. South Atlantic News Agency

Treasury vs Wall Street.

Argentina could be the victim of a strong dispute between the US Treasury and Wall Street who are odds over investments in emerging markets bonds, where returns are greater but not necessarily the risks, according to some US economists.

Contrary to the Clinton administration policy of direct involvement to rescue countries in financial distress, as happened with Mexico, East Asia, Russia and even Brazil, current US Secretary of the Treasury Paul O'Neill, and his deputy John Taylor for that matter, believe Wall Street investors (speculators?) must be punished for over-exposure in emerging markets bonds. Under the Clinton administration rescue plans, emerging market bond holders recovered their money and high returns, because of the injection of hefty loans from American tax payers money to the affected countries.

The Bush administration policy is to avoid direct intervention, even if it means bringing the "victim" closer to the brink of default (could be the case of Argentina), limiting its support to official backing of multilateral organizations such as IMF, World Bank or regional development banks.

In a recent interview with The Economist, Mr. O'Neill said that Argentina has a long history of problems and minimized the situation, adding there's "no horrific movement in financial markets that feels like a wild fire is out of control in the desert".

Earlier episodes of contagion boiled down to stampedes in markets said Mr. O'Neill. "Big guys on horses with whips were hoping the stampede would keep going because they were making an enormous amount of money taking advantage of the stampede", now however, "the sheep are not all running to the cliffs".

But some US economists with long experience in Latinamerican affairs believe this is a rather cruel vision of the current scenario, because "unless the local austerity and reform package do not have a clear international support, default and spill over effect could have a devastating effect for the region and world markets". New US rates cut?Main operators in Wall Street and bonds markets believe another cut rate can be expected when the Federal Reserve meets August 21st.Following the release of the latest US economy indicators, stable 4,5% unemployment last June, the cut is expected to be equivalent to 25 basic points, meaning Federal funds rates would reach 3,50%. They currently stand at 3,75%, following a gradual but persistent policy of lowering rates during 2001, (six consecuti