TD Bank economists say that although the credit situation in Argentina is certainly precarious, it is not likely to precipitate another worldwide financial crisis.

After a week in which the dangerous credit situation in Argentina has been worrying traders, TD economists try to demystify just what’s going on in the country. TD Economics says that a variety of factors are contributing to Argentina’s troubles, raising concerns that it may default on its US$ 131 billion debt. The most recent trouble has come as federal and provincial governments have squabbled over its budgets.

But the other factors are more systemic, not least of which is that the Argentine peso is pegged to the U.S. dollar. The country has stuck with the doggedly strong dollar, eroding its global competitiveness, particularly as its neighbours have devalued their currencies. This, coupled with the U.S.-led global slowdown has crimped export demand. Conditions imposed by the International Monetary Fund for a support package have thwarted spending and subdued domestic demand, too, helping push the country into a prolonged recession.

The two big fears are that Argentina defaults on the debt, or abandons the peg and surrenders confidence in its markets. While these events may transpire, TD says that a global meltdown is not in the cards.

Although, emerging markets may well suffer along with Argentina, TD says, “Latin America and non-Japan Asia are in better shape than they were before the 1997/1998 financial crisis, so that suggests that even if we have a long, hot summer ahead of us, descent into a 1997/98 style inferno is unlikely.”

TD does say that emerging markets may suffer, as will commodity-related currencies, such as the Canadian dollar.