Peso crisis hits Spain

January 7, 2002 Posted: 1203 GMT

LONDON (CNN) -- Spanish companies with interests in Argentina are beginning to the feel the impact of the Latin American country's currency devaluation. 

Shares in banks and telecommunications companies, which have the largest exposure to Argentina, plunged on the Madrid stock exchange.

The two biggest banks, Banco Bilboa Vizcaya Argentaria and Santander Central Hispano, dropped 1.9 percent and 3 percent respectively. Spanish telecom giant Telefonica fell 2.3 percent.

Energy group Repsol, which is also heavily invested in Argentina, saw it's shares plunged 4.2 percent, while shares in power company Endesa slipped just 0.1 percent. Energy companies such as Repsol could be hurt by a proposed tax on crude oil exports from Argentina.

The nearly 30-percent devaluation of the peso is part of an economic reform package approved on Sunday, as the new Argentinian government attempts to deal with the country's growing economic crisis.

There are concerns the devaluation could jeopardize future international investment in Argentina.

For example, many global investors bought into Argentinian utilities with the understanding their fees would be indexed to the U.S. dollar, with the peso pegged on a 1-to-1 ratio since 1991.

The devaluation means they could see a loss of about 30 percent in potential revenues.

EU economic commissioner Pedro Solbes expressed on Monday his confidence in Spanish companies with interests in Argentina.

"I am convinced that they (the Spanish companies in Argentina) are in a good health and can weather the storm," Solbes said in an interview broadcast on Spanish national radio.

Spain along with the United States is one of the biggest investors in Argentina and has invested about $30 billion in the recession-blighted country in the last decade, with its biggest companies some of the most active participants in Argentina's economy.