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THE ARGENTINE EMBASSY IN THE UNITED KINGDOM
ECONOMIC & COMMERCIAL SECTION
65 Brook St.
London W1K 4AH
Tel: 020 7318-1300
Fax: 020 7318-1301
[email protected]
www.argentine-embassy-uk.org
NEWSLETTER
MARCH 2006
Content
ARGENTINE ECONOMIC OVERVIEW
*The Argentine economy grew by 9.2% in 2005 according to new data
*The Argentine economy grew by 9.1% in January 2006
*Industrial activity grew by 8.6% in February 2006
*Primary fiscal surplus of 1.9bn pesos (US$ 620 million) in February 2006
*Tax collection rose by 27% in February 2006
*Consumer prices index (CPI) increased by 0.4% in February 2006
*Unemployment rate decreased to 10.1% in the fourth quarter of 2005
FINANCIAL SECTOR
*Standard & Poor’s upgrades Argentina’s rating
ARGENTINE TRADE
*Bilateral trade with UK (2005)
NEWS
*Balance of payments financial account recorded net inflows of US$ 2.7bn in 2005
*Public utilities – the Argentine government rescinds Suez Aguas Argentinas contract
*Public utilities – Telecom and the Argentine government reaches agreement for a new concession
contract
*The Argentine government suspends, partially, beef exports for 180 days
*Argentine fruit exports at record high
*Argentina expects a record soybean crop of 40 million tonnes in 2006
*Reform on Social Programmes
*World Bank approves US$ 350 million loan for Heads of Household transition project in Argentina
*World Bank approves US$ 40 million for solid waste management in Argentina
*IDB approves US$ 500 million loan to Argentina to improve public financial management
*IDB fund approves US$ 1,430,000 financing to improve human resources management in Argentina
in new labour relations framework
*“Argentina, a Natural Taste of Passion” at Harrods (1 to 13 of May, 2006)
ARGENTINE ECONOMIC OVERVIEW
The Argentine economy grew by 9.2% in 2005 according to new data:
The National Statistics Office (INDEC) finally reported an economic growth of 9.2%
in 2005, reviewing therefore the figure announced last month (9.1% -Newsletter of
February 2006-). This good performance was driven by increases of 20.4%, 11.9%
and 7.7% in the construction, agricultural and manufacturing sectors, respectively.
With this result, last year was the best since the economy recovery in 2002, better
than 2003 and 2004, when the Argentine economy recorded growth of 8.8% and 9%,
respectively, and the highest figure since 1993. Thus, at the end of 2005, the
Argentine GDP reached 304.8bn pesos at constant prices (US$ 100bn), of which
32.8% was due to goods producing sectors and 60.7% to services. The remaining
6.5% was due to financial activity. In current terms, the GDP reached 525bn pesos
(US$ 173bn).
The Argentine economy grew by 9.1% in January 2006:
According to official data, the Argentine economy grew by 9.1% in January 2006, in
comparison to the same month of 2005, recording thirty-eight consecutive months of
growth. Private analysts are estimating an economic growth of 7 – 7.5% for 2006,
taking into account that the year started with a statistical carryover of 3.6%.
Industrial activity grew by 8.6% in February 2006:
According to official data, the industrial activity in Argentina grew by 8.6% in
February 2006, compared to February 2005, lead by the automobile sector. Excluding
the production of cars, private estimates consider that the rise would have been 5%.
With this result, in the first two months of 2006 industrial activity has risen by 6.7%,
compared to the same period of 2005. Local analysts believe that it is a good figure
and that the industrial activity will grow by 7% in 2006. The use of installed capacity
reached 70.6% (average) in February, an increase of 1.4% compared to same month
of 2005, with high levels in sectors such as basic metals (96.5%), oil refining (94.5%),
textiles (80.2%) and printing and publishing (76%) and lower levels in the automobile
industry (46.8%), non-metallic mineral (58.4%) and rubber / plastic sectors (64.9%).
Primary fiscal surplus of 1.9bn pesos (US$ 620 million) in February 2006:
The national public sector recorded a primary fiscal surplus of 1.9bn pesos (US$ 620
million) in February 2006, above previous public and private estimates, meaning an
increase of 37% with regard to February 2005. With this result, the national public
sector has accumulated a surplus of 3.6bn pesos (US$ 1.2bn) in the first two months
of the year, a rise of 15.6% over the same period of 2005. Tax collection for more
than 10bn pesos (US$ 3.3bn), due to an increase in economic activity, encouraged this
good performance.
Tax collection rose by 27% in February 2006:
February tax receipts grew by 27% compared to the same month of 2005, reaching
10.5bn pesos (US$ 3.4bn), driven by a very good performance of VAT (30.6%),
income tax (24%) and employer contributions (44%). In addition, import duty
revenues rose by 35%, due to an increase in imports of capital and intermediate
goods.
Consumer prices index (CPI) increased by 0.4% in February 2006:
According to official data, February’s inflation rate was lowest than previously
estimated, the lowest since November 2004, increasing by 0.4%. This good
performance was due to seasonal price reductions in sector such as tourism (-2.4%)
and clothing (-2.1%). However, foods prices increased by 1%, above the 0.9% of
January 2006. With this result, in the first two months of the year the accumulated
inflation rate reached 1.7%.
Unemployment rate decreased to 10.1% in the fourth quarter of 2005:
According to official data, the unemployment rate was 10.1% in the fourth quarter of
2005, decreasing by one point from the one recorded in the third quarter (11.1%) and
by two points from the figure recorded in the same period of last year. With this new
figure, there are approximately 1.1 million unemployed people. The unemployment
rate is 12.7% if social plans are not taken into account (this latest figure was 14.1% in
the third quarter of 2005). The employment rate is now at 41.3%.
FINANCIAL SECTOR
Standard & Poor’s upgrades Argentina’s rating:
On the 23rd of March, Standard & Poor’s, the leading US credit-rating agency, raised
its long-term sovereign credit rating on the Republic of Argentina to “B” from “B-“.
The agency also raised its short-term sovereign credit rating on the country to “B”
from “C”, and its national scale rating to “raAA-“ from “raA”. According to a
Standard & Poor’s credit analyst, “the upgrade reflects Argentina’s improved external
and fiscal flexibility”. He also said that “recent years of impressive economic growth
and fiscal surpluses, combined with a reduction in the sovereign’s debt burden in
2005 after debt rescheduling, have strengthened Argentina’s financial profile” and
that “the threat of economic disruption caused by the acrimonious process of debt
rescheduling, creditors who did not participate in the offer, and a tense relationship
with the International Monetary Fund has also abated”. Standard and poor’s also
raised its long-term issuer credit rating on the City of Buenos Aires, to “B” from “B-“,
and on the Province of Mendoza, to “B” from “B-“.
For further information, please visit www.standardandpoors.com.
ARGENTINE TRADE
Bilateral trade with UK (2005):
US$ Million
1997 1998 1999 2000 2001 2002 2003 2004
2005
Arg. Exports to UK
427
332
317
280
304
388
437
499
496
Arg. Imports from UK
795
778
481
434
382
190
220
319
308
-446 -164 -154
-78
198
217
180
188
686
579
657
818
804
Trade balance
Total Trade
-368
1.222 1.110
798
714
Source: World Trade Atlas (based on H.M. Customs and Excise’s data)
During the 90s, in general, bilateral trade between Argentina and UK improved year
by year, reaching the highest level in 1997, with 1.2bn dollars, representing an
increase of 254% in comparison to 1990.
Due to the international financial crisis of late 90s and the Argentine economic
recession of 1998-2002, bilateral trade began a downward trend in 1998 that recorded
its lowest level in 2002. Finally, as a consequence of better international and domestic
economic conditions, trade between both countries began to improve again in 2003,
reaching more than 800 million dollars in 2004 and 2005.
Last year, Argentine exports to UK reached 496 million dollars, a small decrease of
0.7% compared to the record level of 2004, primarily due to lower exports of
commodity products. For instance, Argentine exports to UK of corn decreased by
76% in 2005, going from 28.1 million dollars in 2004 (US$ 30.4 million in 2003) to
US$ 6.7 million in 2005.
It is worth noting that Argentine exports to the British market of meat, wines, fresh
fruits, articles of iron or steel, essential oils and mineral fuels reached last year their
highest level. Regarding meat, the good performance was due not only to an increase
in Argentine exports of beef, but also to sales increases of Patagonian lamb and
poultry meat.
Concerning Argentine imports of UK products, they decreased by 3.5%, compared to
2004, still remaining below pre-devaluation levels (2001).
Main Argentine exports to UK (2005)
Chapter
Description
US$ million
Part.% %Change 04/05
02
Meat
62
12.5%
18.9%
23
Residues from food industries
62
12.4%
-20.3%
22
Beverages (wine)
51
10.2%
19.5%
08
Fruits
46
9.2%
26.9%
73
Articles of iron/steel
44
8.8%
135.1%
33
Essential Oils
32
6.4%
14.7%
16
Prep. of meat/fish
18
3.6%
-14.0%
27
Mineral fuels
17
3.5%
505.8%
40
Rubber
14
2.9%
-22.3%
38
Miscellaneous chemical prod.
13
2.6%
221.8%
357
72.0%
19.3%
Total
Source: World Trade Atlas
Main Argentine imports from UK (2005)
Chapter
Description
US$ million Part.% %Change 04/05
84
Machinery
43 13.9%
-20.6%
30
Pharmaceutical prod.
40 13.1%
14.0%
38
Miscellaneous chemical prod.
29
9.3%
-24.0%
87
Vehicles & parts
22
7.0%
-39.5%
85
Electrical machinery
19
6.0%
12.6%
90
Optical, medical instruments
18
5.8%
19.8%
71
Precious or semi-precious stones
14
4.7%
131.6%
22
Beverages (whisky)
13
4.2%
10.7%
39
Plastics
12
3,8%
0.5%
29
Organic chemicals
11
3.5%
-32.5%
220 68.8%
-8.3%
Total
Source: World Trade Atlas
NEWS
Balance of payments financial account recorded net inflows of US$ 2.7bn in
2005:
According to official data, the balance of payments financial account recorded an
increase of 53.8% last year, compared to 2004, reaching US$ 2.7bn. Capital inflows
accelerated during the last quarter of 2005, with nearly US$ 1.5bn, an increase of
776% compared to the same period of 2004. In addition, the current account surplus
reached US$ 5.4bn in 2005, increasing by 65%, which was also due, in great measure,
to a good performance in the fourth quarter of last year. External debt, according to
these figures, reached at the end of 2005 US$ 117.2bn, a decrease of 31.5% compared
to 2004. This reduction in the Argentine external debt was as a result of the public
debt swap that included a “haircut” close to 60%, payments made to multilateral
financial institutions and a reduction of US$ 3.4bn in private sector external debt.
Public utilities - the Argentine government rescinds Suez Aguas Argentinas
contract:
On the 21st of March, the Argentine government rescinded Aguas Argentinas´ 30-year
contract to supply water and sewage treatment to residents in and around Buenos
Aires, putting management of the services under government control. Its major
shareholder, French company Suez, had already announced six month ago its
withdrawal from Aguas Argentinas after failing to reach agreement with the
government on the renegotiation of a new contract (see Newsletter of September
2005). According to official sources, the above mentioned decision was finally taken
due to company’s failures in complying with investment goals and improving the
services. Argentine Planning Minister, Julio De Vido, said in a press conference that
President Kirchner had signed a decree creating a state-run company, AYSA S.A.
(Aguas y Saneamiento Argentinos), which will now assume control of the
waterworks. The government will hold a 90% stake in AYSA and current Aguas
Argentinas workers will preserve the 10% stake they hold through an employee
ownership programme. Government officials also said during the press conference
that they would be holding a series of tender offers totaling 143.5 million pesos (US$
46.7 million). These tenders cover a variety of infrastructure improvement projects in
Aguas Argentinas facilities in greater Buenos Aires. Meanwhile, AYSA will continue
with 41 million pesos (US$ 13.4 million) in projects already begun for this year, and
will invest a further 205 million in 2007 (US$ 66.8 million). De Vido said the
government will convene officials from 17 municipalities to design a five-year plan
for AYSA that will be unveiled in 20 days. The plan will address the shortfall in water
that affects 2 million people and the shortfall in sewer service that affects 4 million.
The utility provides water and sewer services to roughly 10 million clients in and
around Buenos Aires.
Public utilities – Telecom and the Argentine government reaches agreement for a
new concession contract:
On the 6th of March, the Argentine government signed with the telephone company
“Telecom”, as they did with “Telefónica” few weeks ago (see Newsletter of February
2006), a “Letter of Understanding” which includes tariff increases of 100% for local
calls between 20:00 to 21:00hs. In exchange, France Telecom will suspend and then
withdraw its claim against Argentina in the World Bank’s International Centre for
Settlement of Investment Disputes (ICSID / CIADI). In addition, Telecom renewed its
commitments to invest 300 million dollars in 2006 as part of a general plan to invest
in Argentina 1bn dollars in the medium-term.
The Argentine government suspends, partially, beef exports for 180 days:
On the 8th of March, in an attempt to control inflation, which reached 12.3% in 2005,
the Argentine government decided to suspend beef exports for 180 days. The
Economy Minister, Felisa Miceli, said at a press conference that this measure was
necessary to prevent surging international demand from pushing local beef prices
beyond the purchasing power of Argentine families. Domestic beef prices have risen
165% since the currency devaluation of 2002 and last year the government signed two
consecutive price accords with the beef industry, but both failed to keep prices under
control amid rising demand. There are, however, few exceptions to this emergency
ban, such as the so-called “Hilton quota”. Meat under this quota will continue to be
exported as well as those shipped to countries that have bilateral beef import accords
with Argentina. The “Hilton” cuts of steak are top-quality portions sold to the
European Union. Argentina is the third largest beef exporter in the world –after Brazil
and Australia– with sales of some US$ 1.39 billion last year.
Argentine fruit exports at record high:
In 2005, Argentine exports of fruits reached a record level of US$ 750 million, an
increase of 33% compared to 2004. Exports of fresh fruits have risen 60% in volumes
since 2000 and the start of the current year could not be better. In Fruit Logistica 2006
(Berlin, February 2006), the most important trade show for this sector, twenty-nine
companies, that exhibited their products in an Argentine Pavilion, could close deals
for about 50 million dollars. Pome fruits (apple, pears) are the most exported by
Argentina, reaching 337.9 million dollars in 2005, followed by citrus (US$ 291.4
million) and stone fruits. Apart from these fruits, Argentina also exports grapes;
berries; tropical fruits such as mango and avocado; melons and water melons; and
dried fruits. Main destinations of Argentine fruit exports are Russia, Brazil and EU.
Argentina expects a record soybean crop of 40 million tonnes in 2006:
According to recent private estimates, Argentina expects to harvest a record soybean
crop of 40 million tonnes in 2006, overcoming by two million tonnes last year’s crop.
Argentina is the third largest soybean producer in the world, after Brazil and USA,
and the first exporter of certain by-products such as soybean oil.
Reform on Social Programmes:
From April onwards the Heads of Household programme (“Plan Jefes de Hogar”), set
up by the Argentine government during the economic and social crisis, will be
gradually reabsorbed in two other programmes: “Plan Familia” (Family Programme),
which will be available for head of households with no job, who have not completed
school and have two or more children. It currently encompasses 240,000 families. The
Government predicts that this number will double by the end of the year. As from
April they will be paid 150 to 275 pesos monthly according to the number of children
they have. They will have to meet certain obligations regarding the health and
education of their children; and “Plan de capacitación y empleo” (Training and
employment Programme), which is intended to train heads of households for a job
while paying them 225 pesos monthly for up to two years. They must accept the jobs
offered by their local council. Concerning the Heads of Household programme, for
the time being it will continue in existence for those who do not qualify for the two
other plans. It currently comprises 1.4 million beneficiaries who are paid 150 pesos
monthly. The social plans will be financed by the Government and multilateral
financial institutions.
World Bank approves US$ 350 million loan for Heads of Household transition
project in Argentina:
On the 23rd of March, the World Bank approved a US$350 million loan to finance the
Heads of Household Transition Project. The World Bank loan will fund the
Government’s implementation of a transition strategy to improve employment
prospects and job placement for current participants in the Heads of Household
programme, as well as support efforts to strengthen the programme’s management
and governance. The Heads of Household is an emergency “safety-net” program
created by the Government of Argentina in 2002 that provides income support to
unemployed heads of families that include children.The “Heads of Household
Transition Project” will tailor support for the program beneficiaries in line with their
needs: those with higher re-employment chances will receive support specifically
designed to help them rejoin the workforce. Other beneficiaries (often households
headed by women with two or more children) requiring longer term assistance will
make a transition to a safety net linked to avoiding the inter-generational transfer of
poverty. The US$350 million loan from the International Bank of Reconstruction and
Development (IBRD) is a fixed-spread loan in US Dollars, repayable in 13.5 years,
including a grace period of 4.5 years.
For further information about this loan, please visit www.worldbank.org and
www.worldbank.org/ar.
World Bank approves US$ 40 million for solid waste management in Argentina:
On February 28th, the World Bank approved a $40 million loan to support the
development of sustainable systems for urban solid waste management in Argentina.
The project will directly support the Argentine government’s goal of improving
public health and quality of life, especially among the poorest sectors of the
population, by reducing their exposure to poorly managed solid waste. In particular,
the project will support the following activities: the financing of the construction of
new environmentally and economically sustainable landfills, as well as the closure of
existing open dumps; the implementation of a series of initiatives to ease the
transition for waste pickers working at the dumpsites being closed or rehabilitated by
this project; the strengthening of the institutional capacity of the Secretariat of
Environment and Sustainable Development, and other agencies involved in the sector,
by establishing cutting-edge technical and financial models for solid waste
management, and improving the legal and regulatory framework at provincial and
municipal levels. The US$ 40 million fixed-spread loan is repayable in 11 years,
including a 6.5-year grace period. The total project cost is US$ 54.38 million,
including counterpart financing from local sources and the borrowing country.
For further information about this loan, please visit www.worldbank.org.
IDB approves US$500 million loan to Argentina to improve public financial
management:
The Inter-American Development Bank approved on the 1st of March a US$ 500
million loan to Argentina to support a sector programme to increase effectiveness,
efficiency and transparency of public financial management. The Economy Ministry
will be in charge of the programme to improve investment planning, budget and
public debt management, covering four policy areas: macroeconomic environment,
strengthening of public investment, financial management and public debt systems.
This project follows the IDB’s 2004-2008 strategy with the country to support its
efforts to achieve a sustainable and more equitable growth by strengthening
institutions for improved governance and fiscal sustainability, a prerequisite for a
modern, effective and efficient financial management. The programme will be
executed over an 18-month period. The loan is for a 20-year term, with a grace period
of five years at a variable interest rate, to be disbursed in two tranches of US$ 150
million and US$ 350 million respectively. Conditions for disbursement consist of a
matrix of agreed upon requirements based on maintenance of a stable macroeconomic
environment and reform measures in each of the areas covered by the programme.
For further information about this loan, please visit www.iadb.org.
IDB fund approves US$ 1,430,000 financing to improve human resources
management in Argentina in new labour relations framework:
The Inter-American Development Bank’s Multilateral Investment Fund announced on
the 28th of March the approval of a US$ 1,430,000 grant to establish a new framework
for labour relations in small and medium-sized enterprises in Argentina.
Competencies-based management models will help attract, retain and develop human
resources and improve individual productivity and employability. The programme
will be carried out by Fundación Social Aplicada al Trabajo (FUSAT - Social
Foundation Dedicated to Work Issues) of Argentina, which will develop the new
model and will validate it with employers and workers in innovative small and
medium-sized enterprises that have made progress in worker training, competencies
certification and quality improvement processes. This initiative will benefit 2,000
Argentine workers and 50 small and medium-sized enterprises. It will also strengthen
FUSAT’s institutional capacity and finance the training of 24 consultants as experts in
human resources management based on competencies. Priority will be given to the
construction, automotive, tourism and financial sectors. Small and medium-sized
companies in business production chains that already use competencies-based human
resources management will also be included.
For further information about this grant, please visit www.iadb.org
“Argentina, a Natural Taste of Passion” at Harrods (1st – 13th May):
From the 1st to 13th May, the Harrods Food Halls will highlight some of the very best
Argentina has to offer in the field of food & drinks. Close to fifty Argentine
companies will be promoting high quality products such as tea, mate (tea-like
beverage consumed in the Southern Cone of Latin America), organic and
conventional dulce de leche (caramel toffee), marmalades, olive oil, honey,
Patagonian lamb stew, lamb and beef meatballs, wines, beef and others gourmet food
and confectionery products. During these days, different special events and evenings
will take place at Harrods, promoting not only Argentine food and drinks but also
tourism and Argentine culture.
For further information about this Argentine fortnight at Harrods, please contact us at
[email protected] or 020 7318-1300 / 1334.