Shell-shocked Argentines lined up at banks to withdraw savings yesterday fearing financial chaos after deadly riots enveloped the country and the embattled economy minister quit.
Weeping housewives and stunned bond traders alike scrambled to protect themselves from what many now see as an inevitable debt default or currency devaluation, either of which would bankrupt thousands and deepen a brutal four-year recession.
Fearing their life savings could be instantly wiped out or confiscated by the cash-strapped government, many Argentines poured what money they had into anything they could find with real value - including stocks, property, cars and jewellery - while others stashed dollars under their mattresses.
"Argentina is hurtling down a road to disaster right now, and I'm not sure anybody can save it," said Mr Ruben Pasquali, an analyst for the local Mayoral brokerage. "Maybe with a political deal there could be a pause, but this is going to get worse. Meanwhile, we're going to have chaos because there is simply no government in charge. Default, devaluation - anything could happen," Mr Pasquali said.
In London, an Argentine government representative said all debt payments had been made so far, but a ratings agency, Fitch, said a "broad, messy" default on most of Argentina's debt was imminent.
Thousands of mostly peaceful protesters beating pots and pans took to the streets early yesterday to demand the end of policies that have left more than 18 per cent unemployed and a third of the nation in poverty.
Protesters accuse the government of sacrificing the poor to service the $132 billion public debt, already written off by sceptical foreign investors.
Many fear the impact of the long-building social tensions could have led President de la Rua to make drastic changes in economic policy, such as ending the peso-dollar currency linkage known as "convertibility".
Introduced by Mr Cavallo in 1991 to end hyperinflation, the linkage helped to stabilise the economy. But it has since become something of an albatross, as the peso is seen as overvalued, helping to make the Argentine economy less competitive.
The emboldened opposition has even begun demanding that Mr de la Rua, largely abandoned by his own party, quit before his term ends in 2003.
"It is the end of convertibility," said Mr Paul Luke, a markets brokerage strategist. "They will replace Cavallo with some nonentity to let the exchange rate float and the devil take the hindmost."
Argentines on the street were taking no chances, lining up at banks to withdraw as much cash as possible fearing the government would devalue or seize deposits.
Some have sought refuge in the stock market, believing it safer to invest in a company with tangible value rather than keep cash in the banks. But the bond market, battered for months by fears that Argentina could face the biggest sovereign debt default in history, was a truer reflection of the nerves rattling the country.
Many foreign exchange cash markets had their doors shuttered, fearing further looting. The peso had traded between 1.1 and 1.15 per dollar late on Wednesday despite the theoretical one-to-one linkage. Interbank lending rates in dollars reached 20 per cent as uncertainty rose.