Argentina's economic crisis is fast turning into a popular insurrection with dangerous consequences for a country that has a history of strong-armed military solutions to instability. It also promises the first full-scale international financial crisis of the 21st century. Should Argentina abandon its currency peg and default on US$132 billion (HK$1 trillion) of debt, the ramifications would be significant. Whether a general financial contagion across emerging markets will follow is less clear. Market professionals argue a default is 'in the price' of world markets, yet the chain reaction of 'competitive devaluations' across Latin America, drawing in Asia, could prove otherwise. Recessionary conditions leave banks weak and economies exposed to shrinking exports as is being seen across Asia. Hong Kong could see currency selling pressure but parallels with the 1997-98 crisis are misleading. The SAR Government is debt free and has large financial reserves. Four years of deflation have squeezed overblown asset prices and forced firms and households to reduce debt loads. While the SAR would suffer from a generalised contagion, there is no reason to think it is at particular risk simply because it runs a currency board like Argentina. Argentina's predicament reveals how little has changed since grand promises were made to fix the world's financial architecture after the Asian crisis. Bankers kept lending despite Buenos Aires' fiscal profligacy. Both parties will be looking to the International Monetary Fund for another bailout. In theory, most economists think such bailouts only encourage repeat performances. In reality, the prospect of letting a country go bankrupt is too much for First World creditors to bear and the risk of political turmoil is worth buying off. Yet with rioters on the streets, Argentina may have lost its battle. Government credibility and debt restructuring efforts are in tatters after yesterday's resignation by Economy Minister Domingo Cavallo. A formal default and currency devaluation may be the only option. Sadly, the spectre of returning hyper-inflation looms. Asian governments would do well to look and learn. Throughout the 1970s and 80s, Asia seemed to avoid the Latin American disease of government debt-induced financial crises. That situation no longer applies. The cost of bailing out bust banks and counter-cyclical spending has been an explosion of public debt, led by Japan. Without serious structural reform, the region could be heading down the same sorry road as Argentina.