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Latin American Weekly Spotlight March 8, 2004 Argentina: Resignation of Horst Köhler as IMF chief will not facilitate the second revision of the IMF agreement Brasil: Government attempts to block the installation of a, investigation committee Chile: Economic upturn consolidating Colombia: Tax and pension reform still on the agenda Ecuador: Better conditions for oil concessions Mexico: Inflation expectations have risen Peru: Unexpected surge in inflation Venezuela: Reduced chances of the referendum against Chavez to take place Argentina The Global Committee of Argentine Bondholders (GCAB) withdrew its participation from the so-called „Consultative Groups“, which had been established by the Argentine government. As a reason for its withdrawal the committee stated a lack of willingness by the Argentine authorities for proper debt restructuring negotiations. After the withdrawal of the GCAB Argentina is losing its main negotiation partner within the consultative groups. ---- The strong increase of tax revenue in February (+36.7% y-o-y) is a clear signal that GDP growth continues to be dynamic. ----- Consumer prices rose a lower than expected 0.1% in February, which brought the 12month inflation rate down to 2.3%. In March, consumer prices should rise at a higher rate due to tariff hikes in the electricity and gas sectors. Outlook: On Tuesday Argentina has to pay US$3.1bn to the IMF. The Argentine government indicated its willingness to pay in case of receiving convincing signals by the IMF that the second revision of the IMF agreement will be successful. Although we still think that Argentina is going to make the payment, the probability that the IMF will not receive the money has increased over the last couple of days. Argentina has sharpened its rhetoric against the IMF, and at the same time private creditors expressed their discontent with Argentina’s attitude. This could provide enough reason for the IMF not to give in to Argentina’s pressure, at least for now. The resignation of the IMF's managing director, Horst Koehler, does not make things easier, either. Brazil As the opposition seems to have collected enough votes to call two investigation committees (one for the 'Waldomiro case', the other for illegal gambling), these committees may be blocked by the government. According to the newspapers, PT and PMDB have agreed to make no nominations for the planned investigation committees, which thus will be unable to begin work. page 1 of 4 Such conduct will reduce the government's credibility. The most recent Datafolha poll seems to confirm this, as the approval rate of the government has fallen from 42% in December to 28% in March. ----- Following several months of growth, car sales fell 2.4% in February, partly due to seasonal reasons (vacation month, less working days). ----- The trade balance showed a surplus of around US$ 2 bn in February. Exports rose by 14% yoy. Outlook: : Most recent inflation indicators point downwards, which should be confirmed by the IPCA inflation (February forecast: 0.35% mom, Thursday). ----- After São Paulo's industrial production having been surprisingly strong in February (+1.7% mom, s.a.), we expect that national industrial production (IBGE) will likewise have grown (+0.4% mom, +3.9% yoy, Wednesday). ----The Senate largely approved the preliminary decree (Medida Provisoria) concerning new regulations to the electricity sector. Yet smaller changes are still expected for this week. Many observers consider the respective law as detrimental to investment. Chile In January, the economic activity indicator IMACEC rose by 3.1% y-o-y which was in line with our expectations (DBLA: 3%, consensus: 2.8%). We expect economic activity to gather some steam over the next months. GDP growth should reach 4.8% in 2004. ----- After four consecutive months of deflation, consumer prices remained unchanged in February. The 12-months inflation rate came in at 0% as well. We expect that due to increasing nominal wage gains and the likely end of the peso appreciation, consumer prices should soon start to creep upwards. Outlook: Exports should have increased strongly in February (Tuesday). The strong increase in copper prices should lift the surplus in the trade balance to US$610mn compared to US$280mn a year ago. [email protected] Colombia Inflation accelerated slightly in February (6.3% yoy and 1.2% mom, against 6.2% yoy and 0.9% mom in January) ---- In January, the unemployment rate rose unexpectedly to 18.1% in the largest cities and to 17% in Colombia as a whole. This should primarily be the result of the end of the Christmas season. We do not exclude the possibility that the Government, due to the negative development on the job market, will increase pressure on the central bank to continue to cut interest rates. In February the key interest rate was lowered by 0.25% to 7%. Outlook: Shortly before the beginning of the legislative period the government tried to find alliances by contacting different party leaders, in order to accelerate the process of the tax and pension reforms. We expect intensive political debates on this central subject in the following weeks. Ecuador The members of the investigation committee concerning illegal election campaign donations for Gutiérrez declared that no indications were found which would confirm the accusations, and that the investigations would now be terminated. So, there is one possible source less that could destabilize the government. ----- Progress in granting licenses for private investment in state-owned oil fields: The government abandoned the plan to levy a minimum amount for the granting of concessions (35% of additional production). Thus the chances increase that the 16 companies which up to now have acquired bidding rights for the licenses will make an offer during the bidding period, which ends on April 5 (postponed). The government hopes to increase the production of stateowned oil fields by private investment. ----- The unemployment rate, at 11.4%, nearly reached a three-year high in January. This confirms our view that the current growth acceleration is primarily due to the oil sector, which is not very labor-intensive. Outlook: This week, there could be signals from the IMF with regard to the second revision, which is still pending, of the current standby agreement: We expect the generous stance of the IMF to continue; at least, the current agreement should be extended until end-2004. Mexico According to latest surveys President Fox still enjoys a high popularity rating among Mexican citizens (“Reforma” and “El Universal”: 55%), despite three difficult years in office, which can not be characterized as years of huge structural progress in the economy. Unfortunately, the high popularity does not constitute a strong mandate for structural reforms, as the success of the page 2 of 4 opposition parties in last year’s congressional elections has shown. We still do not believe that profound structural reforms will be implemented by the law-makers this year. ----The government reached a surplus in the public sector of MXN25.8bn in January, which was a huge improvement over last year’s figures (+MXN9.7bn). The reasons for the better performance were higher oilrelated income, lower interest payments and a tight control on spending. Even if oil prices will drop somewhat over the course of the year, we are confident that the government will keep the public deficit (narrow definition) within its upper limit of 0.3% of GDP. ---- Inflation expectations of the private sector rose to 4.2% in February compared to 3.95% in January (for impact on monetary policy please see “outlook”) ----Consumer confidence, as measured by Inegi, was basically unchanged in February (95.5) compared to January (95.9). Positive factors (slight improvement of the labor market; strong GDP growth in the fourth quarter) were slightly outpaced by negative factors (steep increase of interest rates; erosion of real wages due to the acceleration of inflation). Outlook: This week’s focus will be the release of inflation figures for February, due on Tuesday. We expect an increase of consumer prices of 0.6%, which would lift the 12-months inflation rate from 4.2% to 4.5%. Despite the fact that inflation runs far above the central bank’s inflation target of 3% (=/- 1 percentage point) we do not expect a further tightening of monetary policy at the central bank meeting on Friday, as it probably first wants to study the impact of the recent hike in interest rates on inflation and inflation expectations. Banxico raised the “corto” only two weeks ago on its latest policy meeting by MXN4mn to MXN39mn on a daily basis ---- In December gross fixed investment should have risen by 1% compared to the same month last year. Considering the lack of structural reforms and the increase in interest rates, investment demand will only recover moderately, despite the positive external conditions. Peru Accelerating inflation: The strike in the transport sector, which lasted two weeks, caused a surprisingly strong increase in food prices (2% mom) and consumer prices (1.1% mom). Compared to the previous year, the consumer price index rose by 3.4% (central bank’s target: 2.5%, DBLA forecast: 2.3%). ---- The central government disclosed a higher than expected budget surplus for January. This resulted from clearly higher current income (8.5%, real) and a decrease in expenditures (7.1%, real). ---- An IMF delegation traveled to Lima last week to give advise about the construction of a new stand-by agreement.---- Finance Minister Kuczynski proposed a gradual lowering of the banks’ transaction tax [email protected] (from currently 0.15% to 0.10% by the end of the year, 0.08% in 2005 and 0.06% in 2006) ---- A persistent export boom (January: + 21.2% yoy) led to a 140 million US$ trade surplus in January. The average of the last ten years for this month is a deficit of US$ 100 million. Venezuela The strategy of president Chávez seems to work: The election authority (CNE) only considered valid 1.83 million out of the 3.4 million signatures given in favor of the referendum against Chávez. As 2.44 million valid signatures are needed, the opposition is lacking more than 600,000 signatures. There were violent clashes with the military (Guardia Nacional) again, in which two people died. ----- In protest against president Chávez' policies, the Ambassador of Venezuela to the United Nations declared his resignation. ---- Consumer prices rose by 1.6% M/M in February (less than expected, as several administered good prices were lowered). Dresdner Bank Lateinamerika AG Neuer Jungfernstieg 16 20354 Hamburg Germany Economics Dept. Chief economist: Dr. Heinz Mewes Tel.: (+49 40) 3595 3494 Fax: (+49 40) 3595 3497 E-Mail: [email protected] http://www.dbla.com Outlook: The CNE will announce further steps to be taken after having talked to the opposition and international observers. It must be determined how and when the referendum proponents who had their signatures declared invalid can attempt to get their signatures recognized; the CNE period of 2 days is clearly not enough (what may have been the exact reason for determining it such short). There is little chance left that the referendum will take place. ------ According to the Finance Ministry, this week debt securities of US$ 1.5 bn will be issued and partly used for swaps. Two thirds of the issue will be denominated in VEB (4 to 7 years), one third will be denominated in US$ (180 days). Abbreviations: mom = month-on-month qoq = quarter-on-quarter yoy = year-on-year s.a. = seasonally adjusted n.s.a. = not seasonally adjusted “Latin American Weekly Spotlight“ is published in addition to our “Latin American Spotlight” and our “Latin American Spotlight Update“. All three are published in English and in German. The information contained in this issue has been carefully researched and examined by Dresdner Bank Lateinamerika AG or reliable third parties.But neither Dresdner Bank Lateinamerika AG nor such third parties can assume any liability for the accuracy, completeness and up-to-datedness of this information.The authors’ opinions are not necessarily those of Dresdner Bank Lateinamerika. Statements do not constitute any offer or recommendation of certain investments, even if individual issuers and securities are mentioned. Information given in this issue is no substitute for specific investment advice based on the situation of the individual investor.For personalized investment advice please contact your Dresdner Bank Lateinamerika branch. page 3 of 4 [email protected] ######### March 8, 2004 Latin American Weekly Spotlights date Exchange rate Argentina Brazil Mexico Chile Colombia Peru Venezuela 5.3.2004 5.3.2004 8.3.2004 5.3.2004 5.3.2004 5.3.2004 5.3.2004 EMBI+ Spread bps Argentina Brazil Mexico Colombia Ecuador Peru Venezuela 8.3.2004 8.3.2004 8.3.2004 8.3.2004 8.3.2004 8.3.2004 8.3.2004 date Benchmark interest rates % Argentina, Peso 7 days Brazil Selic Mexico Cetes 28 days Chile 90 days, PDBC Colombia Prime Rate Peru Overnight Venezuela Prime Rate 5.3.2004 5.3.2004 5.3.2004 4.3.2004 13.2.2004 4.3.2004 31.12.2003 Foreign exchange reserves US$, bn Argentina Brazil Mexico Chile Colombia Peru Venezuela (FEM&Gold incl.) 3.3.2004 4.3.2004 27.2.2004 31.1.2004 31.1.2004 31.12.2003 4.3.2004 Economic activity GDP, %-chang 2003e Argentina 8.4 Brazil -0.2 Mexico 1.3 Chile 3.2 Colombia 3.6 Ecuador 2.4 Peru 4.0 Venezuela -9.2 Public sector last one week one month one year end 2003 ytd-change, % end 2004f 2.93 2.87 10.95 593 2670 3.47 1918 2.92 2.90 10.97 586 2654 3.47 1918 2.93 2.93 11.12 587 2740 3.49 1918 3.14 3.52 11.05 757 2780 3.48 1598 2.93 2.89 11.23 593 2780 3.46 1598 0.0 0.8 2.6 0.0 4.1 -0.3 -16.7 3.1 3.1 11.9 600 2900 3.5 2400 last one week one month one year end 2003 ytd-change, bps 5953 534 187 417 738 341 721 5720 562 184 408 737 344 753 5824 532 201 443 766 348 634 6941 1119 314 658 1510 338 1368 5739 463 199 431 799 312 593 214 71 -12 -14 -61 29 128 last one week one month one year end 2003 %-points end 2004f 1.75 16.27 6.16 1.45 #N/A N.A. 2.80 10.26 1.75 16.28 6.32 1.45 #N/A N.A. 2.80 15.96 1.75 16.31 6.46 1.63 11.17 2.80 18.12 8.13 26.29 9.26 2.80 11.89 3.70 37.77 1.81 16.33 6.01 2.29 11.32 2.50 37.77 -0.1 -0.1 0.1 -0.8 #WERT! 0.3 -27.5 4.0 14.0 6.5 2.8 8.0 2.6 15.0 ytd-change date date last one week one month one year end 2003 ytd-change end 2004f 15.0 52.5 69.8 16.0 11.24 10.2 22.7 15.0 52.9 68.9 #N/A N.A. #N/A N.A. #N/A N.A. 22.546 15.0 53.4 66.6 15.98 10.92 10.3 22.41 10.3 38.5 56.5 16.43 11.07 9.6 22.55 14.1 49.3 65.8 16.43 11.07 9.6 21.30 0.9 3.2 4.0 -0.4 0.2 0.6 1.4 17.0 52.3 65.0 16.0 10.5 10.9 22.4 2004f 2005f Q303 Q403e Q104f Q204f GDP 2003e, US$ bn 5.5 3.5 2.8 4.8 3.8 3.7 3.8 6.0 3.0 3.5 2.6 4.5 3.5 1.6 3.7 5.0 9.8 -1.5 0.6 3.0 4.2 10.2 -0.1 2.0 3.4 3.1 7.5 2.4 1.8 4.4 4.7 5.4 5.2 3.7 4.8 3.8 3.5 -7.1 2.8 3.3 2.9 26.3 2.3 3.4 125 492 614 72 77 27 61 82 Budget balance, % of GDP Argentina Brazil* Mexico** Chile*** Colombia Peru Venezuela Public debt, % of GDP Amortization, US$ bn Gr. financing needs, US$ bn 2003e 2004f 2003e 2004f 2003e 2004f 2003e 2004f 1.1 -5.2 -0.6 -1.0 -3.0 -1.9 -3.6 1.6 -2.6 -0.3 0.2 -2.8 -1.8 -4.4 138 83 28 16 63 39 42 137 79 28 14 61 40 46 19.8 94.2 23 0.8 5.5 1.1 4.7 19.8 83.0 29 0.8 5.3 1.5 6.1 19.1 72.1 26 1.4 7.8 2.3 7.7 18.4 67.2 31 0.8 7.9 2.7 10.0 * Amortisations only federal debt, including short term debt ** Amortisations without Cetes *** debt, amortization and financing needs: central government only External Sector 2004f External debt % of exports s.t., % of total Argentina Brazil Mexico Chile Colombia Ecuador Peru Venezuela 364 233 83 148 246 223 238 122 24 12 28 18 11 14 10 6 Debt service US$ bn % of exports 32.8 64.0 33.3 6.9 9.1 2.6 3.6 5.0 83 68 17 23 56 34 28 18 Current account % of GDP US$ bn 4.4 0.2 -1.8 0.4 -1.7 -2.0 0.0 7.1 6.1 1.3 -11.0 0.3 -1.6 -0.6 0.0 6.3 Trade Balance US$ bn FDI (net) US$ bn Import cover months 14.1 24.4 -7.8 4.4 0.1 0.2 1.7 11.6 0.0 13.0 14.0 1.5 2.0 1.2 1.1 1.0 6.1 6.6 3.5 6.3 6.2 1.4 9.4 10.0