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Latin American Spotlight June 2002 LATIN AMERICA AT A GLANCE DOMESTIC ECONOMY Argentina GDP change Inflation Budget balance in % (real) in % (year-end) in % of GDP 2001 2002f 2003f 2001 2002f 2003f 2001 2002f 2003f -4.5 -13.0 1.0 -1.5 80.0 30.0 -5.6 -2.6 -1.1 Bolivia 0.5 2.5 4.0 0.9 2.8 3.6 -7.0 -5.2 -4.0 Brazil 1.5 2.1 3.7 7.7 5.5 4.2 -3.6 -3.6 -3.6 Chile 2.8 2.8 4.5 2.6 3.6 3.6 -1.5 -1.4 -1.3 Colombia 1.6 1.6 2.5 7.7 6.2 5.9 -3.4 -3.1 -2.9 Costa Rica 0.9 2.0 3.5 11.0 9.0 10.0 -2.9 -3.2 -3.0 Dominican Republic 2.7 3.8 5.5 4.4 4.9 5.7 0.2 -0.3 0.0 Ecuador 5.6 3.5 3.2 22.4 10.0 8.0 1.3 1.2 0.5 El Salvador 1.8 2.5 2.7 1.4 1.8 2.2 -3.5 -3.8 -3.6 Guatemala 2.1 2.3 2.8 8.9 9.0 9.0 -3.0 -2.2 -2.0 Honduras 2.6 3.0 3.4 8.8 9.0 9.0 -2.5 -2.0 -1.0 Jamaica 1.7 2.2 2.6 8.8 7.5 6.0 -5.7 -5.5 -4.0 Mexico -0.3 1.7 4.5 4.4 4.0 3.2 -0.7 -0.7 -0.5 3.0 3.6 4.0 4.8 5.0 5.1 -18.0 -15.0 -10.0 Nicaragua Panama 0.3 1.0 2.0 0.0 0.4 0.8 -1.4 -1.7 -1.5 Paraguay 0.5 0.5 1.5 8.4 7.5 6.8 -1.4 -2.8 -2.6 Peru 0.2 3.0 3.9 -0.1 2.1 2.4 -2.4 -2.9 -2.4 Trinidad & Tobago 3.5 4.0 3.0 3.2 4.0 4.0 -0.5 -0.7 -0.5 -3.1 -3.7 1.8 3.6 11.5 9.0 -4.2 -3.5 -3.8 Venezuela 2.7 -4.3 1.0 12.3 34.0 19.0 -4.4 -4.1 -3.7 Latin America (17 countries) 0.1 -0.6 3.4 5.3 16.1 8.1 Uruguay EXTERNAL SECTOR Current account balance Import cover Gross foreign debt FOREIGN DEBT in % of GDP in months* in % of exports* 2001 2002f 2003f 2002f 2003f 2001 2002f 2003f Argentina -1.6 6.0 8.5 5.7 4.4 4.7 360 371 343 Bolivia -5.9 -4.7 -5.1 3.7 4.2 3.9 219 228 225 Brazil -4.6 -3.9 -3.6 4.5 4.3 4.1 296 291 260 Chile -1.9 -2.5 -1.6 6.8 6.5 6.3 161 155 145 Colombia -2.0 -2.9 -3.6 6.2 6.0 5.5 244 263 263 Costa Rica -4.5 -5.3 -5.5 2.0 1.8 1.4 69 72 71 Dominican Republic -3.8 -4.8 -2.9 1.0 1.1 1.2 62 62 57 Ecuador -4.4 -7.8 -5.7 1.2 1.1 1.2 263 270 262 El Salvador -1.3 -3.7 -5.2 3.3 3.6 3.4 109 124 133 Guatemala -6.1 -5.7 -4.8 4.4 3.9 3.4 144 141 134 Honduras -5.2 -5.7 -4.6 4.5 4.7 4.9 215 210 184 Jamaica -8.6 -7.1 -5.8 4.4 4.1 3.7 142 147 138 Mexico -2.8 -2.9 -2.9 2.6 2.7 2.5 91 94 88 216 Nicaragua -24.1 -25.0 -25.3 2.1 2.4 2.7 741 753 Panama -5.0 -5.6 -5.8 1.3 1.2 1.2 82 74 74 Paraguay -3.1 -4.5 -5.3 2.2 2.2 2.3 112 125 141 Peru -2.0 -1.5 -1.6 8.8 10.2 10.4 351 369 359 3.6 -0.5 0.6 4.9 5.0 5.7 61 64 57 -2.6 -2.1 -1.6 8.2 5.9 6.1 224 259 236 3.3 5.0 5.0 4.2 3.0 2.7 107 114 115 -2.7 -2.3 -2.4 3.9 3.7 3.5 177 182 168 Trinidad & Tobago Uruguay Venezuela Latin America (17 countries) * goods and services 2 2001 f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002, Latin America TABLE OF CONTENTS Latin America at a glance LATIN AMERICA: Overshadowed by political events ________________ 4 Country analyses ARGENTINA: No plan of action __________________________________ 6 BRAZIL: Lula ante portas? _____________________________________ 12 CHILE: EU agreement signed, sealed and delivered _______________ 18 COLOMBIA: New President facing Herculean challenge ____________ 24 COSTA RICA: Advent of structural reforms? ______________________ 30 ECUADOR: IMF takes a hard stance _____________________________ 32 GUATEMALA: Standby facility of IMF ____________________________ 34 HONDURAS: Priority assigned to alleviating poverty ______________ 36 JAMAICA: Dead-end situation __________________________________ 38 MEXICO: Peso ends its rally ____________________________________ 40 PERU: Slow reforms ___________________________________________ 46 URUGUAY: Without investment grade ____________________________ 52 VENEZUELA: Tight budget situation _____________________________ 54 Financial market indicators Latin Amercia Stock market indices __________________________________________ 60 Bond yield spreads ___________________________________________ 61 Global economy - figures and forecasts __________________________ 67 Dresdner Bank Lateinamerika, Spotlight 6/2002, Latin America 3 LATIN AMERICA: OVERSHADOWED BY POLITICAL EVENTS Area Population (2001) 20.5 million sq. km 524 million (+1.6% p.a.) Share of global exports Share of global GDP GDP per capita 5.8% (2000) 6.4% (2000) US$ 3 800 (2001) Exports (2000) Purchasing countries USA 54%, Latin American countries 17%, EU 13%, Japan 3% Imports (2000) Supplier countries USA 47%, Latin American countries 16%, EU 15%, Japan 5% SUMMARY AND OUTLOOK LATIN AMERICA (17 countries) 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % GDP US$ bn Inflation (year-end) % 0.2 3.9 0.1 -0.6 3.4 1722 1909 1845 1738 1781 8.7 7.0 5.3 16.1 8.1 EXTERNAL SECTOR Merchandise exports US$ bn 293.0 351.2 337.2 340.3 372.8 Merchandise imports US$ bn 295.8 343.4 336.1 330.1 360.7 Trade balance US$ bn -2.9 7.8 1.2 10.2 12.1 Current account balance US$ bn -55.4 -45.6 -49.8 -39.4 -43.6 Current account balance % GDP -3.2 -2.4 -2.7 -2.3 -2.4 Net direct investment *** US$ bn 67.0 67.4 62.1 41.7 46.9 Foreign exchange reserves, year-end US$ bn 154 158 156 141 146 Import cover ** months 4.4 3.9 3.9 3.7 3.5 Gross foreign debt US$ bn 742 724 717 738 750 Foreign debt % exports** 209 171 177 182 168 Short-term foreign debt US$ bn 114 118 115 116 122 Foreign debt amortization US$ bn 101 87 88 81 80 Foreign debt service US$ bn 148 140 138 132 132 Foreign debt service % exports** 42 33 34 32 30 275 520 516 518 968 692 823 773 FOREIGN DEBT FINANCIAL MARKETS (year-end) IFCI stock index (US$ based, 2002: 05/27) Bond market yield spread (2002: 05/27)* bps *JPM Latin America-Eurobond-Portfolio **goods & services ***Mexico & Brazil: only foreign direct investment; f=forecast 4 Dresdner Bank Lateinamerika, Spotlight 6/2002, Latin America Current events in Latin America are being dominated by politics. In Colombia the candidate favored by the financial markets, Alvaro Uribe, was elected the new president; with regard to Brazil market participants are worried about the high approval ratings in opinion polls of left-wing candidate Lula; and in Argentina and Ecuador negotiations with the International Monetary Fund for a new agreement are proving extremely difficult due to political disunity. In Venezuela events are being determined by the power politics of president Chávez. Mexico is the exception in that the confrontation between the government and the powerful opposition has not led to adverse macro-economic impacts so far. GDP CHANGE (REAL) % 10 LA Argentina Brazil Mexico 5 0 -5 -10 -15 The political events are having repercussions on the prospects of the individual countries. The new president of Colombia is confronted with the Herculean task of finding ways of bringing internal peace to the country and at the same time bringing the public-sector debt situation under control and creating a basis for economic revival. By strengthening the military and the police force significantly Alvaro Uribe will most probably make an attempt to exert pressure on the rebel organizations to such an extent that these will be prepared to resume negotiations seriously. This process is likely to take years, accompanied by repeated setbacks. Fears that left-wing populist Lula might become the future president of Brazil is another contributory factor for the sustained high level of interest rates. This is impeding consumption and the demand for industrial goods. We have adjusted our growth forecast for this year downward from 2.5% to 2.1%. Instead of successful negotiations with the International Monetary Fund, the news from Argentina is that the crisis is deepening. The peso depreciated further (70% since the beginning of the year). We perceive an increasing likelihood of hyperinflation and have lowered our GDP forecast from –10% to –13%. Ecuador, which is also holding talks with the International Monetary Fund, apparently wants to risk a breakdown of this year’s negotiations. This is a dangerous game because without multilateral funding the country’s debt service could be at risk as early as in the second half of 2003. Following the failed coup attempt in Venezuela, the uncertainty about the country’s governability is reflected in an extremely tense budget situation. The government is currently negotiating with multilateral organizations in order to be able to fill the gaps. Only a change of government would probably brighten up the outlook for the country. 1998 1999 2000 2001 2002f 2003f BOND SPREADS ARGENTINA/BRAZIL EMBI+, bps Argentina Brazil 7000 6000 5000 4000 3000 2000 1000 0 May-00 Nov-00 May-01 Nov-01 May-02 BOND SPREADS ECUADOR EMBI+ bps 1800 1600 1400 1200 All in all, Latin America’s GDP will presumably shrink by 0.6% this year (excluding Argentina, growth would reach 1.5%). 1000 800 Cyrus de la Rubia +49 40 3595 3889 Dresdner Bank Lateinamerika, Spotlight 6/2002, Latin America May-01 Aug-01 Nov-01 Feb-02 May-02 5 ARGENTINA: NO PLAN OF ACTION Area Population 2 736 700 sq. km 36.2 million (+1.1% p.a.) State president Economy minister Central bank president Eduardo Duhalde Roberto Lavagna Mario Blejer Next elections September 2003 GDP per capita US$ 7 450 (2001) Investment Savings 15 % of GDP (2001) 14% of GDP (2001) Exchange rate system Monetary policy Flexible exchange rate monetary expansion target Exports (2001) Purchasing countries Products 10% of GDP Mercosur 28%, EU 17%, NAFTA 14% Primary goods and crude oil 41%, industrial goods 31%, processed agricultural produce 28% Imports (2001) Supplier countries Products 8% of GDP Mercosur 29%, EU 23%, NAFTA 22% Capital goods 37%, intermediate goods 36%, consumer goods 20% Rating: Moody’s: Ca S&P: SD SUMMARY AND OUTLOOK After four months in office, the Duhalde government has not managed to find a solution to the deep-seated economic and financial crisis. What is particularly concerning are the differences of opinion between the ministry for the economy and the central bank regarding the streamlining of the severely ailing banking sector. In addition, it is unclear whether there will be a new IMF agreement. The crucial issue will be whether the provinces will be prepared to accept adequate spending cuts. In the past, they have reacted to the shortfalls in revenues primarily by issuing their own quasi-money. An IMF agreement would be important for Argentina, not so much because of the (most probably restricted) new loans, but as a first, serious sign of a coherent economic policy. Unless economic policy measures are found to point the way ahead soon – with or without the IMF – further violent protests and a slide into hyper-inflation will be difficult to avoid. 6 Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina ANNUAL FIGURES AND FORECASTS ARGENTINA 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % GDP US$ bn -3.4 -0.5 -4.5 -13.0 1.0 283.4 285.2 269.9 99.0 96.0 Inflation (year-end) % -1.8 -0.7 -1.5 80.0 30.0 Inflation (average) % -1.2 -0.9 -0.9 42.0 44.8 PUBLIC SECTOR Budget balance, central government % GDP -2.6 -2.3 -3.7 -1.8 -0.7 Budget balance, public sector % GDP -4.0 -3.5 -5.6 -2.6 -1.1 Public debt* % GDP 43 45 54 146 156 Amortization* US$ bn 11.4 12.2 11.9 15.4 18.4 Gross financing needs US$ bn 19.7 19.8 22.9 18.1 19.9 Merchandise exports US$ bn 23.3 26.4 26.7 27.2 31.3 Merchandise imports US$ bn 24.1 23.9 19.1 11.7 12.8 Trade balance US$ bn -0.8 2.5 7.6 15.5 18.5 Current account balance* US$ bn -12.0 -9.0 -4.4 5.7 8.0 EXTERNAL SECTOR Current account balance* % GDP -4.2 -3.1 -1.6 5.8 8.3 Net direct investment US$ bn 11.1 10.6 4.1 -1.5 -1.0 Foreign exchange reserves, year-end US$ bn 32.2 32.5 19.4 9.0 11.0 Import cover ** months 8.3 8.1 5.7 3.6 4.1 US$ exchange rate, year-end Pesos 1.0 1.0 1.0 4.5 5.5 US$ exchange rate, average Pesos 1.0 1.0 1.0 3.5 5.1 145.3 146.3 139.8 144.3 149.6 429 381 383 407 372 FOREIGN DEBT Gross foreign debt* US$ bn Foreign debt* % exports** Short-term foreign debt* US$ bn 20.0 22.8 16.8 13.4 15.3 Foreign debt amortization* US$ bn 12.9 16.0 17.2 13.0 13.3 Foreign debt service* US$ bn 23.7 28.5 29.3 25.3 26.0 Foreign debt service* % exports** 70 74 80 71 65 11.5 13.8 54.9 60.0 30.0 FINANCIAL MARKETS (year-end) Prime rate (peso 30 days) % Merval stock index (peso based, 2002: 05/27) IFCI stock index (US$ based, 2002: 05/27) Bond market yield spread (2002: 05/27)*** bps 549 417 209 322 1064 797 379 184 533 773 4404 5720 * without rescheduling **goods and services *** EMBI+ Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina f=forecast 7 SHARE OF PUBLIC BUDGET DEFICIT Domestic policy: Duhalde out of his depth President Duhalde, elected by Congress four months ago, thus far other Provinces 17% Province of Buenos Aires 16% has not managed to change course. Absolutely essential measures such as the streamlining of the banking sector and cutting expenditure are being postponed as Duhalde neither has the necessary power base nor the necessary credibility to call for further sacrifices to be made by the population. In addition, Duhalde has obviously still not abandoned his inclination toward dirigisme. In the past, however, his Central Government 67% aides have managed to convince him that the return to a fixed exchange rate, for instance, or the imposition of price controls are not the solution. Whether this will continue to be the case in the future is at least questionable since a further intensification of the crisis is looming, which might induce more substantial dirigistic interventions. On account of the Duhalde government’s lack of success, the likelihood of fresh elections is growing. The fact remains, however, that new elections hold little promise of an improvement. The population EVOLUTION OF TAX REVENUES opposes practically all politicians from the establishment. A limited degree of approval is being received only by protest movements such %, yoy 20 as the ARI (Argentinos por una República de Iguales) led by Elisa Carrio. However, this movement derives its profile primarily from its 10 criticism of the corrupt political system and so far has had little to offer 0 by way of competence in terms of economic policy. -10 Public finance: hard struggle to reach IMF agreement -20 As expected, the negotiations with the IMF are proving to be difficult. Without any advance concessions and binding assurances from the -30 Jan-00 Aug-00 Mar-01 Oct-01 Apr-02 provinces, the IMF will not be prepared to sign a new agreement. The Argentinean government and the provinces, in turn, see little leeway for spending cuts due to the tense social situation. In particular, the province of Buenos Aires, which last year accounted for half of the accumulated financing deficit of the provinces, does not see itself in a position to reduce its budget deficit by the required 60% and to stop its AMORTIZATION TO MULTILATERALS issue of quasi-money. US$ bn 3.0 Even if there should be an agreement in the next months, we do not anticipate that an extensive level of fresh funding will be made available. 2.5 For the time being, the primary likely will be to service loans falling due 2.0 to multilateral financial institutions (2002: US$ 9.4 billion), which are to 1.5 continue to be serviced. In order to avoid a default in the repayment of 1.0 loans to the World Bank, early in May this year Argentina made an amortization payment of US$ 680 million from its foreign currency 0.5 reserves. Presumably to prevent a further meltdown of constantly falling 0.0 Oct-01 Jan-02 Apr-02 Jul-02 Sep-02 currency reserves (see chart), the IMF subsequently, at end-May 2002, prolonged US$ 136 million in debt falling due by one year. 8 Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina CURRENCY RESERVES Monetary policy: on the road to hyperinflation? Consumer prices saw a marked acceleration in April at 10.4% monthon-month (18.5% year-on-year). Since the beginning of the year, the US$ bn 15 cost of living has thus risen by 21%. Prices of basic foodstuffs in the basket of goods rose by as much as 42%. The signs of a further significant price rise are giving cause for concern. The increase in the value of the US$ (250 % since the beginning of the year) is likely to 14 13 12 cause substantial inflationary pressure in months to come even though the strong contraction of imports (first quarter: -64 %, year-on-year) is 11 softening the impact. The wholesale price index, which is more strongly 10 dependent on tradable goods, rose by as much as 19% in April month- World Bank amortization Feb 02 Mar 02 Apr 02 May 02 on month (53% year-on-year). Despite the high level of unemployment, the wage-price spiral is likely to gain momentum soon. In view of a shortfall in real wages of families of just under 50% in the past three years and the current rise in inflation, wage hikes are inevitable, especially since the influence of the trade unions within the government INFLATION has been strengthened by the latest instances of the cabinet being reshuffled. %, yoy CPI WPI 60 The price rise is being fueled by what appears to be uncontrolled issuing activity on the part of the central bank and the provinces (to finance the outflow of deposits and the budget deficits). The central 50 40 bank has issued 5 billion pesos – already 1.5 billion pesos more than 30 planned for the year as a whole. Among other things, this became 20 necessary as the level of “frozen” deposits continues to decline due 10 to court decisions being handed down in favor of savers. In addition, 0 the provinces unabatedly continue to issue numerous quasi- -10 currencies. Assuming that it will be possible to bring the country’s Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 monetary policy back on a sound course in the next few months, we have only raised our forecast for the 2002 inflation rate to 80% (Dec., year-on-year). Financial sector: central bank and the government at loggerheads A solution to the deep-seated crisis in the banking sector continues to be out of sight. In order to prevent a flight into the US$, the lion’s share of bank deposits remains frozen. The plan (which has become known INDUSTRIAL PRODUCTION %, yoy 8 4 as BONEX II) of compulsory swaps of these deposits for government 0 bonds has failed due to resistance from the opposition and the -4 protesting savers. The ministry of economy then proposed a voluntary -8 swap of time deposits for government bonds, accompanied by a -12 simultaneous de-freezing of demand deposits. This was to be financed by 17 billion pesos in issues by the central bank. Owing to the associated risks of inflation, the central bank is correct in rejecting this -16 -20 -24 Feb-00 Sep-00 Apr-01 Nov-01 Apr-02 approach. In the wake of a number of resignations by central bank Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina 9 directors, it was very difficult to persuade central bank president Blejer GDP CHANGE (REAL) (one of the few decision-makers with international recognition) not to %, quarterly, yoy follow suit. We expect that there will be a compromise between the 2 ministry and the central bank; however, this may lead to even more banks having to close down. -3 Economic activity: a long, hard haul -8 The latest information on industrial production continues to reflect (and this is hardly surprising) an extremely negative tendency compared -13 with the previous year (April: -12.4%, year-on-year). We do not perceive -18 I/99 IV/99 III/00 II/01 I/02f IV/02f the seasonally adjusted increase (April: +3.5% month-on-month) as an initial sign of a trend reversal. Instead, we assume that aggregate economic output will remain at its very low level longer than originally anticipated. Factors to support this view in particular have been the uncertainty triggered by the lack of direction in terms of economic policy and the banking crisis that continues to prevail. We have revised EXTERNAL TRADE our growth forecast for 2002 downward from –10% to –13%. %, y-o-y, 3-month moving average 40 External sector: exchange rate remains under pressure Since the beginning of the year, the peso has depreciated by just over exports 20 70%. However, the exchange-rate level of 3.5 pesos/US$ currently 0 reached still does not represent a rate in conformity with the market. -20 Each step in the direction of a partial de-freezing of the 15-20 billion -40 pesos in bank balances would immediately lead to an increase in imports demand for US dollars. To conserve the country’s foreign currency -60 reserves, the central bank is continuing its efforts to reduce the supply -80 Jun-99 Mar-00 Dec-00 Sep-01 Mrz-02 of US dollars available. In mid-May upper limits were imposed on daily forex operations of banks and exchange houses. The system accepted by the majority of commercial banks for several weeks now, in terms of which they guarantee a reference rate fixed by the central bank on a daily basis for public dealings and are supplied with foreign currency by the central bank in return, does not appear to have been feasible in EXCHANGE RATE the long run. What is foreseeable is that the settlement of payment Pesos/US$ commitments abroad will call for even longer processing times and 4.00 the black market will prosper. Export revenues, which in March (+3% year-on-year) rose for the first time again since October 2001, are 3.00 being exchanged too slowly for local currency according to the central bank; thus, it now requires exporters to exchange their foreign-currency 2.00 proceeds within 120 days. 1.00 0.00 Jan 02 10 Feb 02 Mar 02 Apr 02 May 02 Günter Köhne +49 40 3595 3484 Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina MONTHLY AND QUARTERLY FIGURES ARGENTINA: MONTHLY INDICATORS Jan-02 Feb-02 Mar 02 Apr-02 next/latest DOMESTIC ECONOMY Industrial production % yoy -19.0 -15.3 -20.2 -12. 12.4 Construction % yoy -43.8 -42.8 -37.1 - 35. 35.6 25-Jun Supermarket sales % yoy -7 -3 2 -2 -2.5 25-Jun Budget balance 18-Jun US$ mn -439 -654 -1425 Consumer prices % yoy 0.6 4.0 7.9 18. 18.4 5-Jun Consumer prices % mom 2.3 3.1 4.0 10.4 10. 5-Jun 102. 102.5 90.0 Overnight peso rate (month-end; latest: 05/08) 29-May % n.a. n.a. 85.0 Private sector borrowing (month-end) Peso bn 49.2 47.8 46.2 Public sector borrowing (month-end) Peso bn 30.0 29.7 29.4 Peso deposits (month-end; latest: 05/24)* Peso bn 23.0 37.4 49.8 61.0 59. 59.5 US$ bn 37.5 24.8 14.4 2.1 0. 0.9 Merchandise exports US$ mn 1832 1822 2075 31-May Merchandise exports % yoy -11 -1 3 31-May US$ mn 853 627 592 31-May % yoy -56 -64 -7 -71 31-May Trade balance US$ mn 979 1195 1483 31-May Foreign exchange reserves (latest: 05/24)*** US$ bn 19.6 13.9 12.8 12.2 10.5 10. Pesos 1.94 2.11 2.93 2.96 3. 3.42 42 Q1 01 Q2 01 Q3 01 Q4 01 next /latest US$ deposits (latest: 05/24)* EXTERNAL SECTOR Merchandise imports, cif Merchandise imports US$ exchange rate (latest: 05/24) ARGENTINA: QUARTERLY INDICATORS DOMESTIC ECONOMY GDP % yoy -2.0 -0.2 -4.9 -10.7 20-Jun Private consumption % yoy -1.8 -2.1 -6.6 -12.3 20-Jun Public consumption % yoy 0.5 0.4 -2.1 -6.5 20-Jun Private and public investment % yoy -9.5 -6.2 -17.2 -29.4 20-Jun Domestic demand % yoy -2.0 -1.2 -7.8 -14.7 20-Jun Export (goods and services) % yoy 0.7 4.6 5.7 0.1 20-Jun 20-Jun Import (goods and services) % yoy 0.8 -4.2 -17.9 -33.8 Pesos mn -3017 -2189 -802 -2713 -2518 US$ bn 127.4 132.2 141.2 144.5 27-Jun Current account balance US$ bn -3.1 -1.1 -0.7 0.4 27-Jun Net foreign direct investment US$ bn 1.7 1.2 0.8 0.3 27-Jun Net portfolio investment US$ bn 2.2 1.1 -1.5 -1.6 27-Jun Budget balance, central government Public debt EXTERNAL SECTOR Capital account** US$ bn 0.6 0.8 0.2 -5.7 27-Jun Change in foreign reserves US$ bn -3.7 -1.7 -4.0 -4.7 -7.1 Gross foreign debt US$ bn 145.6 142.4 146.9 139.8 27-Jun Short-term foreign debt US$ bn 23.2 21.9 20.9 16.8 27-Jun * bank deposits of private sector; ** incl. residual items; *** new calculation system since Feb02 Dresdner Bank Lateinamerika, Spotlight 6/2002, Argentina 11 BRAZIL: LULA ANTE PORTAS? Area Population 8 511 965 sq. km 172 million (+1.4% p.a.) State president Finance minister Central bank president Fernando Henrique Cardoso Pedro Malan Armínio Fraga Next elections State president: October 2002 Parliament: October 2002 GDP per capita US$ 2 940 (2001) Investment Savings 19% of GDP (2000) 17% of GDP (2000) Exchange rate system Monetary policy Flexible exchange rate Inflation targeting Exports (2001) Purchasing countries Products 12% of GDP EU 26%, USA 25%, ALADI 21%, Asia 12% Manufactured goods 71%, Primary products 26% Imports (2001) Supplier countries Products 11% of GDP EU 27%, USA 24%, ALADI 18%, Asia 16% Primary products 50%, capital goods 27% consumer goods 13%, crude oil 11%, Rating: Moody’s: B1 S&P: BB- SUMMARY AND OUTLOOK The increasing popularity of the left-of-center presidential candidate according to the latest opinion polls on the forthcoming election (over 40%) has dimmed the general sentiment toward Brazil on the financial markets. Many investors fear that in future the previous stability-oriented economic policy might be abandoned in favor of a populist approach. The risk premiums for Brazilian securities increased and the exchange rate weakened, contributing to the currently high level of inflation (approx. 8% year-on-year). Accordingly, in spite of the present decrease in industrial production and domestic demand, the central bank left the basic interest rate (Selic) at 18.5% in May. The slight increase in global trade and the Argentinean crisis, which were detrimental to the expansion of Brazilian exports, as well as the uncertainty in connection with the presidential election scheduled for October led to a GDP decline of 0.7% in the first quarter of this year. For this reason, we have lowered our growth forecast for the year 2002 as a whole from 2.5% to 2.1%. 12 Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil ANNUAL FIGURES AND FORECASTS BRAZIL 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % GDP US$ bn 0.8 4.4 1.5 2.1 3.7 529.4 593.8 505.1 531.2 546.4 Inflation (year-end) Inflation (average) % 8.9 6.0 7.7 5.5 4.2 % 4.9 7.0 6.8 7.0 4.5 -2.7 -1.5 -1.5 -1.5 -1.5 PUBLIC SECTOR Budget balance, central government % GDP Budget balance, public sector % GDP -5.9 -3.7 -3.6 -3.6 -3.6 Public debt % GDP 49.4 49.5 53.3 54.0 53.5 Amortization external debt US$ bn n.v. n.v. n.v. 7.3 7.5 Amortization domestic federal debt* Reais bn n.v. n.v. 197.0 155.0 160.0 EXTERNAL SECTOR Merchandise exports US$ bn 48.0 55.1 58.2 59.1 66.1 Merchandise imports US$ bn 49.3 55.8 55.6 54.9 61.4 Trade balance US$ bn -1.3 -0.7 2.6 4.3 4.7 Current account balance US$ bn -25.3 -24.7 -23.2 -20.5 -19.8 Current account balance % GDP -4.8 -4.1 -4.6 -3.9 -3.6 Net foreign direct investment US$ bn 28.6 32.8 22.6 17.5 18.0 Foreign exchange reserves, year-end US$ bn 34.8 32.5 36.0 34.0 35.0 Import cover ** months 4.8 4.1 4.5 4.3 4.1 US$ exchange rate, year-end Reais 1.84 1.96 2.32 2.50 2.61 US$ exchange rate, average Reais 1.82 1.83 2.33 2.42 2.55 225.6 216.9 209.9 212.6 213.1 382 319 296 291 260 FOREIGN DEBT Gross foreign debt US$ bn Foreign debt % exports** Short-term foreign debt US$ bn 26.6 27.4 27.6 29.0 29.0 Foreign debt amortization US$ bn 44.3 25.8 31.6 32.0 32.0 Foreign debt service US$ bn 59.5 42.9 49.2 50.0 50.0 Foreign debt service % exports** 101 63 70 68 61 % 18.8 15.8 19.0 17.0 15.0 17091 15258 13577 12698 459 411 288 305 636 749 870 982 FINANCIAL MARKETS (year-end) Interbank interest rate, overnight Bovespa stock index (real based, 2002: 05/27) IFCI stock index (US$ based, 2002: 05/27) Bond market yield spread ( 2002: 05/27)*** bp * incl. short term debt ** goods and services *** EMBI+ Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil f=forecast 13 VOTING INTENTIONS Domestic policy: Lula has not won yet Sep-01 Dec-01 Mar-02 Apr-02 May-02 Lula (PT) 30% Serra (PSDB) 31% 24% 35% 38% 6% 5% 16% 18% 16% Garotinho (PSB) 10% 9% 14% 17% 16% Ciro (PPS) 12% 10% 6% 11% 10% Roseana (PFL) 12% 16% 13% 0% 0% Itamar (PMDB) 10% 7% 4% 0% 0% Other / null / undecided 20% 22% 23% 19% 20% Source: Ibope/CNI Candidates Parties´ Alliances Jose Serra PSDB+PMDB Ciro Gomes PPS+PDT+PTB Lula PT Anthony Garoti PSB Others Total % of Total Time 21 8 8 4 9 50 42% 16% 16% 8% 18% 100% US$ fixed rate events and affairs to change the positioning of the individual candidates. Lula’s step forward came about on account of allegations of corruption against a former Serra election aide, among other factors. Moreover, Lula has had a greater presence on the radio and television will mean that Serra will have about 20 minutes of the free minutes available each day for his propaganda, or more than twice as many as Lula. In this decisive phase, therefore, Serra will not only have more time to present his ideas in detail, but will also criticize the programs gradually taking shape among his rivals – with a strong influence on the undecided voters who, according to the Brazilian public opinion research institutes, still represent two-thirds of the electorate. In our view, the election program of the PT (”Ruptura Necessária” = necessary breach) contains several contradictions. The economic policy concept described in it is based on a sharp and speedy interest rate cut intended to relieve public finances and accordingly create additional leeway for raising public spending in the process. In order to achieve this, among other things the party anticipates a just as speedy reduction of the country’s external vulnerability (drastic reduction of the country’s current account deficit) by means of export growth and import INTERNAL DEBT STRUCTURE share in % 80 to emphasize that at this relative early stage of the election campaign, opinion polls can say precious little about the actual outcome of the elections and that the latter have by no means already been decided. In the four months leading up to the elections, there will be many factors, than Serra (candidates are free to spread the advertising minutes allocated to each in commercial television over a fixed period of time). Starting in August, the broadcast time available will be allocated to the candidates in proportion to the distribution of seats in parliament. This BROADCASTING TIME OF CANDIDATES Total Minutes In view of the improved popularity ratings of opposition candidate Lula of the Workers’ Party (PT) in recent opinion polls (a similar situation as prior to previous elections) and the associated deterioration of the Brazilian risk on account of political uncertainty, we consider it appropriate floating rate 60 substitution, but which can only be achieved in the medium to long term. If Lula wins the election, though, the additional uncertainty associated with his victory on the financial markets is more likely to lead to interest rate hikes and, therefore, to more significant economic difficulties. We consider it probable that these contradictions will be more clearly discernible during the decisive phase of the election campaign and that Lula’s approval ratings will decline, which should improve the prospects of the candidate from the ruling coalition. 40 20 0 Oct-99 14 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil PUBLIC SECTOR BALANCE Public finance: target to be maintained despite the risks involved The decline of the primary surplus in the consolidated public-sector budget in March and the further delay in the passage of the financial transactions tax (CPMF; estimated shortfall in revenues in 2002 approx. R$ 5 to 6 billion) raised doubts as to whether the 3.5% primary surplus target agreed with the IMF would be met. As the results for April have shown – record surplus of R$ 9 billion – the lower primary surplus of March was no trend reversal but was largely attributable to temporary losses of the state-owned oil company Petrobrás. The government continues to adhere unabated to its austerity policy. In order to offset the anticipated shortfall of the CPMF tax, the government has already announced tax increases and budget cuts totaling some R$ 5 billion. Despite the primary surplus, the country’s net domestic debt in April % of GDP, moving 12 months period the other hand, the central bank has been successful in recent months in its efforts to improve the structure of the country’s domestic debt. The proportion of total public-sector foreign debt accounted for by fixedincome securities increased substantially from 7.5% in February to just under 10% in April. The average lifetime of public internal debt improved slightly, to 35.6 months (December 2001: 35 months). primary 4 2 0 -2 -4 -6 -8 Apr-99 Oct-99 rose to R$ 685 billion (54.5% of GDP), which is predominantly attributable to the effects of the real’s depreciation on the portfolio of US$denominated securities (R$ 183 billion). In view of the prevailing uncertainty, which is weakening the exchange rate and delaying interest rate cuts, and the temporary high volume of US$-denominated bonds maturing (R$ 27.5 billion in the second quarter) we only anticipate an improvement in the debt situation thanks to GDP growth, lower interest rates and a more stable exchange rate starting in the third quarter. On nominal Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 INDUSTRIAL PRODUCTION %, real 20 12-months accumulated change yoy 15 10 5 0 -5 -10 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Economic activity: GDP decline In the first quarter of 2002, GDP declined 0.7% year-on-year, with the increases in agriculture (+4.4%) and in the services sector (+1.7%) not being enough to offset the reduction in industrial production (-3.9%). The poor figures are also being reflected on the demand side. In our assessment, private consumer demand has only risen slightly, and the level of investment has declined. This is also matched by a decline in lending in real terms, by approx. 8%. The causes of this are likely to be the ongoing high level of interest rates and the uncertainty in the run-up to the presidential election. In mid-2002 we anticipate that the economy will benefit from stronger impetus generated by the combination of domestic and external economic factors, which are likely to cause GDP growth to accelerate in the third quarter. Owing to the weak development in the first semester, we have revised our GDP growth forecast downward from 2.5% to 2.1%. Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil INFLATION % 10 yoy mom 9 8 7 6 5 4 3 2 1 0 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 15 Monetary sector: delay in interest rate cut Despite the current weakness in economic activity, at its monthly ses- INTEREST RATE sion the central bank also left the basic interest rate (Selic) unchanged in May. As a result, since March it has been at 18.5%, or only 0.5 of a percentage point below the level at the beginning of this year. Since the inflation rate (IPCA April 2002: 8% year-on-year) remains signifi- interbank overnight %, annualized rate 50 45 40 35 cantly higher than the target corridor of 1.5% to 5.5% (year-on-year) agreed for end-2002 and as the spreads and exchange rate (depreciation of the real since the beginning of the year to end-May: 9%) have been highly volatile recently, the central bankers have decided 30 25 20 15 10 Nov-98 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 further). Moreover, the current trend of falling food prices is likely to contribute to a decline in monthly inflation rates to approx. 0.4% and the annualized rate to 5.4% in December. Accordingly, we anticipate that there will be room for maneuver again for interest rate cuts in the EXCHANGE RATE Reais/US$ course of the year. A precondition for this is that a devaluation spiral can be avoided, which is what we assume will be the case. At year-end we expect the real to be in the region of 2.50 reais/US$, which is also in line with the level of the past few weeks. We have raised our interest 3.0 2.8 2.6 rate forecast for the end of the year from 16% to 17%. 2.4 External sector: decline in imports resulting in trade surplus Even though Brazil’s exports fell by 11% in the first four months of 2002 2.2 May-01 Aug-01 Nov-01 Feb-02 May-02 US$ bn 36 current account deficit FDI (moving twelve months period) to lowering the current account deficit from US$ 9 billion in the first four months of 2001 to US$ 5.2 billion in the same period this year. The net inflow of direct investment from abroad, which at US$ 6.7 billion was considerably higher, and capital inflows from foreign bond issues in 32 28 24 April reinforced the country’s foreign currency reserves to such an extent that the central bank prematurely repaid US$ 4 billion in IMF credits. 20 16 Apr-00 year-on-year as a result of low commodity prices, the Argentinean crisis (decline in exports to Argentina January-April: 68%) and the slowdown in world trade, the trade balance registered increasing surpluses (January-April: +US$ 1.5 billion). This swing into positive territory occurred on the basis of a sharp fall in imports, which dropped by 21% in the period under review. The sharp decline in imports reflects the low level of industrial production as well as the absence of purchases abroad on account of the exchange-rate related higher prices of imported goods. The trade surplus made a substantial contribution CURRENT ACCOUNT & FDI 16 to opt for a cautious approach. The relatively high monthly inflation rate of April (0.8%) was essentially attributable to fuel price hikes, which will probably turn out significantly lower or fail to eventuate in the course of the year (our view is that international oil prices will not rise any Aug-00 Dec-00 Apr-01 Aug-01 Dec-01 Apr-02 Humberto Santamaria, São Paulo +55 11 5188 6884 Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil MONTHLY AND QUARTERLY FIGURES BRAZIL: MONTHLY INDICATORS Jan-02 Feb-02 Mar 02 Apr-02 next/latest DOMESTIC ECONOMY Public sector primary balance % of GDP 5.3 3.2 3.0 8.6 27-Jun Reais bn 29.7 32.2 15.1 18.0 14-Jun Capacity utilization (CNI) % yoy 78.8 79.1 80.7 7-Jun Industrial production (IBGE) % yoy -1.3 -1.4 -3.8 7-Jun Retail sales (FCESP) % yoy -5.5 -7.2 -1.5 % 6.8 7.0 7.1 Central government tax revenues Unemployment rate (IBGE) 3-Jun 7.6 26-Jun Real wages per working hour (FIESP) % yoy 4.7 5.3 6.2 Consumer prices % yoy 7.6 7.5 7.8 8.0 13-Jun Consumer prices % mom 0.5 0.4 0.6 0.8 13-Jun Money supply M1 % yoy 11.7 8.0 10.4 % 19.1 18.8 18.5 % yoy 4.5 2.1 -0.1 Interbank interest rate (latest: 05/27)* Financial sector lending 3-Jun 28-May 18.1 18.4 28-May EXTERNAL SECTOR Merchandise exports US$ mn 3972 3658 4260 4641 3-Jun Merchandise exports % yoy -12.5 -10.4 -17.6 -1.9 3-Jun Merchandise imports US$ mn 3797 3399 3666 4160 3-Jun Merchandise imports % yoy -24.3 -15.2 -32.7 -9.7 3-Jun Trade balance US$ mn 175 259 594 481 3-Jun Current account balance US$ mn -1144 -1090 -997 -1983 25-Jun Net foreign direct investment US$ mn 1477 856 2366 1964 25-Jun Foreign exchange reserves (latest:05/27)* US$ bn 36.2 35.9 36.7 33.0 32.8 Reais 2.41 2.36 2.33 2.36 2.53 Q2 01 Q3 01 Q4 01 Q1 02 -0.7 US$ exchange rate (latest: 05/27)* BRAZIL: QUARTERLY INDICATORS next/latest DOMESTIC ECONOMY GDP % yoy 2.1 0.5 -0.7 Private consumption % yoy 3.0 -3.3 -3.3 Public consumption % yoy 2.2 1.6 1.4 27-Jun Private and public investment % yoy 2.8 1.7 -7.5 27-Jun Agriculture % yoy 3.2 3.3 9.9 4.4 30-Aug Industry % yoy 0.4 -2.0 -5.5 -3.9 30-Aug Services % yoy 3.1 2.1 1.8 1.7 30-Aug Reais bn 619.4 671.9 660.9 680.7 25-Jul Current account balance US$ bn -6.7 -4.1 -5.8 -3.2 24-Jul Net foreign direct investment US$ bn 5.2 5.4 7.4 4.7 24-Jul Portfolio investment US$ bn -0.7 1.7 3.3 2.9 24-Jul Capital account ** US$ bn 9.6 10.7 3.1 4.4 24-Jul Change in foreign exchange reserves US$ bn 2.9 2.7 -4.2 0.9 Gross foreign debt US$ bn 207.8 216.5 209.9 25-Jun US$ bn 26.9 27.1 27.6 25-Jun Public debt 30-Aug 27-Jun EXTERNAL SECTOR Short-term foreign debt * month-end 24-Jul ** incl. residual items Dresdner Bank Lateinamerika, Spotlight 6/2002, Brazil 17 CHILE: EU AGREEMENT SIGNED, SEALED AND DELIVERED Area Population 756 629 sq. km 15.2 million (+1.2% p.a.) State president Finance minister Central bank president Ricardo Lagos Escobar Nicolás Eyzaguirre Guzmán Carlos Massad Abud Next elections State president: December 2005 Upper House: December 2005 Lower House: December 2005 GDP per capita US$ 4 250 (2001) Investment Savings 22% of GDP (2000) 25% of GDP (2000) Exchange rate system Monetary policy Flexible exchange rate Inflation targeting Exports (2001) Purchasing countries Products 28% of GDP EU 27%, USA 19%, Japan 12% Industry 47%, Mining 46% Fishing, Agriculture, Forestry 9% Imports (2001) Supplier countries Products 25% of GDP EU 20%, Argentina 19%, USA 18% Capital goods 23%, consumer goods 20%, fuel and lubricants 16% Rating: Moody’s: Baa1 S&P: A- SUMMARY AND OUTLOOK In a poor environment on the whole (the Argentinean crisis, low commodity prices and a weak global economy), in the first quarter economic growth in Chile continued to slow down. Production in key sectors (mining, industry, construction) is stagnating or declining. On the other hand, there are some signs of economic revitalization. This applies particularly to sales of industrial consumer goods, which have climbed in recent months thanks to real increases in exports and rising consumer demand. Employment has also grown year-on-year. A further bright spot is the trade agreement with the EU signed in May. Free access for a wide range of goods from the agricultural and fishing sector is likely to give exports to the EU a substantial boost in the next several years. We also expect a boost in the level of direct investment from the EU. 18 Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile ANNUAL FIGURES AND FORECASTS CHILE 1999 2000 2001 2002f 2003f % -1.0 4.4 2.8 2.8 4.5 GDP US$ bn 73.0 74.9 66.4 66.8 71.6 Inflation (year-end) % 2.3 4.5 2.6 3.6 3.6 Inflation (average) % 3.3 3.8 3.6 2.6 3.8 -0.5 DOMESTIC ECONOMY GDP change (real) PUBLIC SECTOR Budget balance, central government % GDP -1.3 0.3 -0.3 -0.7 Budget balance, public sector % GDP -1.6 -0.6 -1.5 -1.4 -1.3 Public debt % GDP 15.0 14.8 13.7 14.0 14,2 Amortization *** US$ bn 0.4 0.6 1.2 0.8 0.9 Merchandise exports US$ bn 17.2 19.2 18.5 19.3 20.8 Merchandise imports US$ bn 14.7 17.1 16.4 17.1 18.4 EXTERNAL SECTOR Trade balance US$ bn 2.5 2.2 2.1 2.2 2.4 Current account balance US$ bn -0.3 -1.1 -1.2 -1.7 -1.1 Current account balance % GDP -0.4 -1.4 -1.9 -2.5 -1.6 Net foreign direct investment US$ bn 4.4 -1.102 0.7 1.5 2.4 Foreign exchange reserves, year-end US$ bn 14.7 14.7 14.2 14.4 14.9 Import cover ** months 7.9 7 6.8 6.5 6.3 US$ exchange rate, year-end Pesos 530 574 661 668 685 US$ exchange rate, average Pesos 509 540 635 667 674 Gross foreign debt US$ bn 34.2 36.8 37.8 38.0 38.5 Foreign debt % exports** 159 152 161 155 145 FOREIGN DEBT Short-term foreign debt US$ bn 1.2 2.5 2.1 2.0 2.5 Foreign debt amortization US$ bn 2.8 2.9 4.4 4.4 4.2 Foreign debt service US$ bn 4.4 4.8 6.2 5.8 6.1 Foreign debt service % exports** 21 20 27 24 24 10.7 8.5 6.2 5.0 6.5 FINANCIAL MARKETS (year-end) Base rate, 90 days (PDBC) % real IPSA stock index (peso based, 2002: 05/27) 100 96 113 95 IFCI stock index (US$ based, 2002: 05/27) 613 520 479 462 152 221 180 144 Bond market yield spread (2002: 05/27)* 7/8 *6 % US$-Bond (2009) bp **goods and services *** excl. domestic debt Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile f=forecast 19 ECONOMIC ACTIVITY Economic policy: social sector reforms In mid-May the government launched a health reform (Plan Auge: IMACEC index, % yoy „Acceso Universal con Garantías explicitas en salud“) and a plan 8 to alleviate poverty („Chile solidario“). Together, both projects are 6 to cost around US$ 350 million. The financing is to be effected 4 following higher growth and increased tax receipts in the years 2 2003 and 2004, by a tobacco and mineral oil tax hike as well as public-sector budget adjustments. Not surprisingly, therefore, the 0 government’s plans are highly controversial. However, in our opinion improved access to health services does not only appear desir- -2 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 able in light of social aspects but is also a key measure in macroeconomic terms, in order to increase the country’s productivity on a long-term basis. Public finance: budget deficit set to rise In the first quarter of this year, revenues fell by 3.4% (year-on-year) LABOR MARKET amid a stagnation in tax receipts in real terms. In contrast, expendi2e Unemployment rate (%) Number of employed (mn) ture rose by 8% in real terms, due among other factors to a substan- 14 5.6 tial increase in public-sector investment (+22% year-on-year). The 12 5.5 budget deficit in this period amounted to 0.9% of GDP. In the inter- 5.4 ests of a structural budget target, the government has embarked on 5.3 an anti-cyclical fiscal policy: within the scope of this concept a 5.2 budget surplus of 1% of GDP has been targeted in case the copper 10 8 6 4 2 5.1 0 5.0 price and the level of growth are within the (estimated) long-term bandwidth. Since growth has turned out significantly lower and the Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Page 1 copper price is below the estimated average, a budget deficit is “permissible”. We assume that this policy will continue in principle in the forthcoming months, but we anticipate that the government will adopt countermeasures once the deficit is likely to turn out substantially higher than 1% of GDP: signals of the country’s hitherto very solid fiscal policy softening could lead to a loss of confi- INFLATION (CPI) % dence among international investors and, accordingly, to higher y-o-y m-o-m financing costs on the international financial markets. Chilean 6 spreads currently are at a low level (approx. 150 basis points). 5 4 Economic activity: passing through the valley 3 In the first quarter, growth of the Chilean economy continued to 2 slow down to 1.5% year-on-year. Even if this modest figure is partly 1 attributable to the effect of the long Easter weekend (fewer working 0 days in the first quarter), the overall picture indicates stagnation. -1 Apr-00 20 Oct-00 Apr-01 Oct-01 Apr-02 The mining sector (9% of GDP) made a major contribution to this Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile INTEREST RATES poor result with a production shortfall of 0.5%. In the industrial sector (16% of GDP), it was possible to generate a growth rate of only 0.4%. Growth rates were also very low in commerce and in the financial sector. Viewed from the demand side, however, there are signs pointing in the direction of a slight revitalization. For instance, sales of industrial consumer goods as well as new automobiles have risen in recent months. This is likely to be attributable to higher % 16 14 12 10 8 6 employment figures (+2.3% for January-March compared with 4 December-February) as well as real wage increases. Moreover, 2 since end- 2001 various indices of consumer confidence (e.g. 0 ADIMARK and the Index of the Universidad de Chile) point to en- PDBC, 90 days Jan-00 Oct-00 Jul-01 Apr-02 hanced optimism. This is matched by the observation that the average duration of unemployment has decreased. In addition, sales of goods have been observed to be stimulated above all by demand from abroad (exports in the first quarter: +6% in real terms). On the whole, we assume that the economy is likely to have bot- EXTERNAL SECTOR tomed out in the second quarter, followed by a moderate recovery, which means that a growth rate of 2.8% (previously: 3.4%) might be US$ mn exports imports balance 2000 achievable. This forecast is based on expectations of a slight revitalization of global economic activity and an ongoing expansion- 1500 ary fiscal policy. 1000 Monetary sector: further interest rate cut 500 In mid-May the central bank lowered its key interest rate yet again, 0 namely from 4.75% to 4% (early 2002: 6.5%). This occurred against -500 the backdrop of an ongoing low inflation rate (CPI April: 2.5% year- Oct-00 Apr-01 Oct-01 Apr-02 on-year) and weak domestic demand. At the same time, the domestic level of interest rates will tend to be adjusted to the substantially lower spreads on foreign bonds. In the past several months, the lower level of interest rates has not resulted in improved lending terms for the corporate sector. However, we anticipate that the policy CURRENT ACCOUNT BALANCE of low interest rates will take effect in the second half of the year in terms of the volume of lending, which has still been stagnating up US$ mn 800 until now. 400 External sector: current account deficit widening In the first quarter the current account was influenced by a sharp increase in the trade surplus along with a slight increase in the deficit in the services account. The higher trade surplus year-on- 0 -400 -800 year is based on a reduction of imports (-16% year-on-year), which more than offset the decline in exports (-11% year-on-year). This -1200 I/99 III/99 I/00 III/00 I/01 III/01 I/02 trend is a reflection of the poor level of domestic demand as well as Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile 21 lower prices, on the whole, of Chilean exports (export merchandise REGIONAL EXPORT STRUCTURE index: -16.4% year-on-year). The Argentinean crisis, which is im- (% of total exports 2001) pacting only to a limited degree on exports (fewer than 3% of exAsia 26.5% Europe 28.2% ports went to Argentina in 2001) is noticeably above all in the services account. For the year as a whole, we anticipate a marked reduction of revenues from tourism and dividend and profit transfers from Argentina, where Chilean companies traditionally have Argentina 3.1% Others 2.6% substantial interests. In total, the current account this year is likely to register a slightly higher deficit of 2.5% of GDP compared with 2001 (1.9% of GDP). Latin America excl. Argentina 19.6% North America 20.0% External trade policy: trade agreement signed with the EU The association agreement under discussion for some time now between Chile and the EU was signed at the EU-Latin America summit meeting in Madrid. Apart from introducing a free trade zone for goods and services, this agreement comprises the foundations COPPER PRICE for political dialog along with institutional and economic cooperation. Moreover, arrangements are also being made on human rights 8e c/lb LME, forward 3 months 100 and foreign policy, including security issues. For the time being, however, the agreement will need to be ratified by the national par- 90 liaments. The economic effects will therefore take several months 80 to materialize. The EU is the principal trading partner for Chile (26% of exports, 70 25% of imports). What is noteworthy is that the agreement also com60 prehensively provides for free trade for products from the agricultural and fishing sector. 50 Nov-98 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 Page 1 For Chile, this agreement, which will effect a relatively far-reaching liberalization of merchandise trade, will open up the opportunity to reduce the weight of copper exports and enhance the balance of the country’s range of exports as a whole. In addition, we anticipate that Chile will become more attractive as an investment location for EXCHANGE RATE the EU countries and that the level of direct investment in Chile from Europe will increase. Already today, with an investment portfolio of Pesos/US$ 750 US$ 10.4 billion the EU is the second only to the U.S. as a key investor in Chile. 700 This agreement may also act as a catalyst for the free trade agree650 ment being negotiated at present with the U.S. In this regard, we expect president Bush to receive the “fast track” mandate (which 600 will facilitate speedier negotiations) from Congress this year. 550 500 May-01 22 Sep-01 Jan-02 May-02 Cyrus de la Rubia +49 40 3595 3889 Thomas Pohl +49 40 3595 3481 Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile MONTHLY AND QUARTERLY FIGURES CHILE: MONTHLY INDICATORS Jan-02 Feb-02 Mar-02 Apr-02 next/latest DOMESTIC ECONOMY IMACEC % yoy 3.0 1.3 0. 0.4 17-Jun Industrial production (INE) % yoy 4.5 0.9 6.6 6. 30-May Mining production % yoy -1.7 -5.0 -0 -0.3 Retail sales % yoy 1.6 2.1 1.2 % 8.0 8.3 8. 8.8 mn 5.5 5.4 5. 5.4 27-Jun Labour cost index % yoy 0.6 0.3 -0.1 -0 27-Jun Consumer prices % yoy 2.2 2.5 2.6 Consumer prices % mom -0.1 0.0 Wholesale prices % yoy 3.9 4.6 Wholesale prices % mom 0.4 0.5 Money supply M1 % yoy 20.0 Base rate, 90 days PDBC (month-avrg., latest: 05/28) % Loan rate (average) % Unemployment rate Employment 30-May 0.8 0. 22-Jun 27-Jun 2. 2.5 4-Jun 0.5 0.4 0. 4-Jun 6.1 6. 6.5 4-Jun 1.3 2.3 2. 4-Jun 18.0 11.4 10. 10.0 7-Jun 6.0 5.6 4.7 4. 4.4 4.1 16.3 16.2 15.6 16. 16.2 7-Jun % 6.2 5.8 5.0 4.7 4. 7-Jun Lending to private sector % mom 0.5 0.7 0.7 -3 -3.6 24-Jun Total financial savings (M7) % mom -0.8 0.5 0.4 0.3 0. 7-Jun Deposit rate (average) EXTERNAL SECTOR Merchandise exports US$ mn 1547 1338 1403 1639 17-Jun Merchandise exports % yoy -11.9 -5.6 -18.0 -2 -2.5 17-Jun Merchandise imports US$ mn 1433 965 1199 1241 17-Jun Merchandise imports % yoy -5.5 -24.0 -19.8 -3.0 -3 17-Jun 398 17-Jun Trade balance US$ mn 115 373 204 Net foreign direct investment US$ mn 91.0 106.9 49.5 49. 24-Jun Portfolio investment (net) US$ c/lb -147.7 97.5 - 730. 730.4 24-Jun Mrd. US$ 68.2 70.8 72.8 72.1 72. 73.5 73. US$ bn 14.2 14.1 14.1 15.4 15. 7-Jun CLP 667 679 663 651 656 Q2 01 Q3 01 Q4 01 Q1 02 next/latest Copper price (monthly average, latest: 05/27) Foreign exchange reserves* US$ exchange rate (latest: 05/28) CHILE: QUARTERLY INDICATORS DOMESTIC ECONOMY GDP % yoy 3.8 2.7 1.7 1.5 23-Aug Total consumption + change in stocks % yoy -2.0 -1.3 -4.5 -2.6 23-Aug Private and public investment % yoy 3.4 3.7 -6.2 -2.0 23-Aug Domestic demand % yoy -0.7 -0.2 -4.9 -2.5 23-Aug Exports (goods and services) % yoy 13.6 7.2 12.5 6.0 23-Aug Imports (goods and services) % yoy -1.1 -2.0 -8.9 -5.5 23-Aug Pesos bn -4.0 -10.8 -274.5 -96.8 20-Aug Current account balance US$ bn -0.20 -0.78 -0.25 0.25 23-Aug Net foreign direct investment US$ bn 0.65 0.75 -0.19 0.25 23-Aug Portfolio investment US$ bn 1.16 0.72 0.18 -0.78 23-Aug Capital account** US$ bn -0.04 1.61 0.47 -0.47 23-Aug Change in foreign exchange reserves US$ bn -0.15 -0.29 -0.06 -0.16 23-Aug Gross foreign debt US$ bn 37.0 37.1 37.80 37.40 7-Aug Short-term foreign debt US$ bn 1.99 1.85 2.06 2.02 7-Aug Budget balance, public sector EXTERNAL SECTOR * month-end ** incl. residual items Dresdner Bank Lateinamerika, Spotlight 6/2002, Chile 23 COLOMBIA: NEW PRESIDENT FACING HERCULEAN CHALLENGE Area Population 1 141 748 sq. km 43.1 million (+1.9% p.a.) State president Finance minister Central bank president Andrés Pastrana Arango Juan Manuel Santos Calderón Miguel Urrutia Montoya Next elections State president: May 26, 2002 Parliament: March 10, 2002 GDP per capita US$ 1 900 (2001) Investment Savings 10% of GDP (2000) 12% of GDP (2000) Exchange rate system Monetary policy Flexible exchange rate (floating) Inflation targeting Exports (2001) Purchasing countries Products 15% of GDP USA 43%, EU 14%, Venezuela 14% Manufactured goods 45%, Crude oil and derivatives 26%, Coffee 6% Imports (2001) Supplier countries Products 16% of GDP USA 34%, EU 17%, Venezuela 6% Primary and intermediate products 45%, capital goods 35%, consumer goods 20% Rating: Moody’s: Ba2 S&P:BB SUMMARY AND OUTLOOK On May 26, Alvaro Uribe Velez was elected the new president in the first round of voting, winning 53% of all votes cast. The challenges for the new government are immense. The conflicts with the guerrilla movement are escalating sharply, the economy is extremely sluggish and public debt is burgeoning, giving rise for concern. We expect that once the new president takes office at the beginning of August, he will tackle essential reforms (among other things the pension reform) without delay. In addition he will start implementing the plans with regard to the reinforcement of the military and the police force in order to improve the country’s security position and to gain the confidence of the population and business community. While such measures could rapidly brighten up the mood in the country at least for a short while, the effective results of combating the guerrilla movement with added force will only become apparent in a couple of years’ time. 24 Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia ANNUAL FIGURES AND FORECASTS COLOMBIA 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % -4.2 2.7 1.6 1.6 2.5 GDP US$ bn 86.3 83.2 83.4 90.8 87.8 Inflation (year-end) % 9.2 8.8 7.7 6.2 5.9 Inflation (average) % 10.9 9.2 8.0 6.1 6.0 PUBLIC SECTOR Budget balance, central government % GDP -7.5 -5.9 -4.7 -4.6 -4.5 Budget balance, public sector % GDP -6.5 -3.6 -3.4 -3.1 -2.9 Public debt % GDP 38 54 60 62 64 Amortization US$ bn 6.1 5.7 6.5 n.a. n.a. Gross financing needs US$ bn 11.0 8.2 9.3 n.a. n.a. EXTERNAL SECTOR Merchandise exports US$ bn 12.0 13.6 12.8 12.8 13.4 Merchandise imports US$ bn 10.2 11.1 12.3 12.1 13.8 Trade balance US$ bn 1.8 2.5 0.5 0.7 -0.4 Current account balance US$ bn 0.3 0.4 -1.7 -2.6 -3.2 Current account balance % GDP 0.3 0.5 -2.0 -2.9 -3.6 Net direct investment US$ bn 1.4 2.1 2.1 1.7 2.3 Foreign exchange reserves, year-end US$ bn 8.0 8.9 10.2 9.8 9.4 Import cover *** months 6.1 6.0 6.2 6.0 5.5 US$ exchange rate, year-end Pesos 1874 2229 2291 2550 2775 US$ exchange rate, average Pesos 1756 2088 2300 2400 2656 Gross foreign debt US$ bn 36.0 35.9 38.5 40.8 42.3 Foreign debt % exports*** 245 218 244 263 263 Short-term foreign debt US$ bn 5.5 4.2 4.3 4.7 5.0 FOREIGN DEBT Foreign debt amortization US$ bn 4.9 5.6 5.7 5.5 6.5 Foreign debt service US$ bn 7.5 8.3 8.3 8.2 9.3 Foreign debt service % exports*** 51 50 53 53 58 15.8 13.4 11.4 11.2 12.5 998 713 1071* 1176 813 448 561 588 423 755 516 574 FINANCIAL MARKETS (year-end) Deposit rate (DTF, 90 days) % IBB stock index (peso based, 2002: 05/27)* IFCG stock index (US$ based, 2002: 05/27) Bond market yield spread (2002: 05/27)** * as of July 2001: IGBC ** EMBI+ bp ***goods and services Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia f=forecast 25 PRESIDENTIAL ELECTION Domestic policy: Uribe becomes new president On May 26, Alvaro Uribe Velez was elected the new president of % of votes 60 Colombia for the 2002-2006 term of office, securing 53% of all votes 50 cast. He is scheduled to take office on August 7, 2002. His main 40 rival, Horacio Serpa (from the Liberal Party) won 32% of the vote. The election itself proceeded relatively smoothly. Only 6 out of 1098 30 municipalities were unable to cast their votes. We – along with the 20 financial markets – consider the election of Uribe, former governor 10 of Antioquia (1995-1997) and senator from 1986 to 1994 as positive. The fact that he won an outright victory in the first round of 0 Uribe Serpa Garzon Sanin Betancourt Others voting gives him a high degree of legitimacy. This gives him a good basis in order to implement the planned reforms. What can be expected from the new government and from Uribe? His election campaign (“firm hand, big heart”) can be characterized e.g. by such points of emphasis as national security, political reforms, fighting corruption, and judicial and pension reforms. Na- PUBLIC DEBT tional security and a harder stance against guerrilla organizations % of GDP are to be supported by boosting the number of professional soldiers 70 from 55,000 to 100,000 as well as by doubling the size of the police 60 force. In addition, Uribe is seeking to establish civil defense groups. In our view there is a wide political consensus that only a sustained 50 military weakening of the rebel organizations (FARC, ELN as well as 40 the paramilitary) and the establishment of an increased military threat 30 potential will galvanize these groups into making genuine concessions toward peace. Should renegotiations take place at some point 20 1998 1999 2000 2001 2002f 2003f in time, the UN could act as an intermediary with the aim of achieving a cease-fire. Uribe indicated as much shortly after his election. All in all, bringing peace to the country should take several years, accompanied by repeated setbacks. GDP CHANGE (REAL) Public finances: critical dynamics of debt The Uribe government is likely to boost military spending signifi- % yoy 4 cantly (year 2000: 1.89% of GDP), which is very low compared to 2 other countries. In our view, however, Uribe is taking the problem of increasing public-sector debt very seriously and will make an at- 0 tempt to offset the increased level of spending. Accordingly, a project -2 aimed at increasing the efficiency of the tax collection system as -4 well as a pension reform (focusing on special pensions for civil -6 servants) should be on the agenda very soon. However, these measures – provided they can be adopted – can only improve the bud- -8 I/99 III/99 I/00 III/00 I/01 III/01 I/02f III/02f I/03f III/03f get situation in the medium to long term. Consequently, the new government will hardly be able to avoid spending cuts in other sec- 26 Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia LABOR MARKET tors. In this connection, Uribe aims at decreasing administration costs. The combination of high financing costs (spread EMBI+ at around mn 570 bp) and weak growth as well as a pension system which will 10.0 employed unemployed unemployment rate % 24 soon be sliding into deficit on a cash basis is leading to a very difficult situation that requires a pressing need for action. At the same time it is uncertain whether the low level of interest rates on the local 22 7.5 20 5.0 18 capital market (with correspondingly low financing costs) will be sustained. The debt swaps carried out by the government in the 16 2.5 14 preceding and current year can be seen as an indication of the tense situation. In this context we expect swap transactions to con- 12 0.0 Mar-00 tinue with the objective of increasing the average term of indebted- Sep-00 Mar-01 Sep-01 Mar-02 ness. However, the Argentinean crisis has shown that debt swaps are not a sustainable solution without implementing drastic changes in the structure of spending and revenues. An extension of the term of the IMF agreement (scheduled to expire at the end of the year), which Uribe is aiming at, should help to implement the reforms with STOCK MARKET increased impetus. IBB/ IGBC (Peso) IFCG 800 1200 Economy: no revitalization in sight Last year’s weak economic growth (1.6%) continued in the first quar- 1100 ter of 2002 (1.5% year-on-year). This is attributable among other things to the decrease in industrial production (-0.7% year-on-year, 800 GDP). In addition, the marked decline in imports (especially capital 700 goods and inputs) is an indicator of the weak level of domestic de- 600 mand. At the same time, however, the general sentiment in the coun- IBB 900 15% of GDP) and in the oil/coal sector (-2% year-on-year, 5% of 700 IGBC 1000 600 500 May-00 400 Nov-00 May-01 Nov-01 May-02 try seems to be cautiously optimistic (stable deposits, rising stock market index). Nevertheless, for the year as a whole we expect the low level of economic growth to persist: the low level of interest rates – the central bank has cut interest rates again – has hardly provided any significant impetus for domestic demand; in spite of the recent EXTERNAL SECTOR depreciation the peso remains relatively strong and impedes the competitiveness of non-traditional exports, with the depreciation and US$ mn 1400 simultaneous recession in Venezuela resulting in lower demand for 1200 industrial goods. After all, the future government has hardly any bud- 1000 getary leeway to present a package of economic measures. All in 800 all, therefore, we expect a growth rate of as little as 1.6% in the 600 current year, which will mean a decline in per-capita income. 400 exports imports balance 200 Exchange rate: upside tendency comes to an end Following a long phase of stability, the peso has depreciated to a 0 -200 Feb-99 Aug-99 Feb-00 Aug-00 Feb-01 Aug-01 Feb-02 marked degree over the last few weeks. We anticipate that the de- Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia 27 preciation will continue – if more gradually – over the next several EXPORTS BY REGION months. The inflows of U.S. dollars derived from public-sector bond issues, which had contributed to a nominal appreciation in the preceding months, are most likely to decrease in the second half of this EU year. In addition, the policy of low interest rates will support the ten- USA Mercosur dency toward depreciation. It remains unclear whether further currency inflows can be anticipated in the forthcoming months from accounts containing illegal funds, which presumably have increas- Venezuela ingly been closed due to tightened control mechanisms after the others Japan events of September 11, 2001. In any event, we expect calm to return to the forex market once the government is inaugurated on August 7. Ecuador We assume that the exchange rate at the end of the year will be 2550 pesos/US$. External sector: Extension of Preference Agreement delayed The preference agreement between Colombia and the U.S. expired OIL PRICE on May 16 following a provisional extension. This means a setback US$/barrel 40 for the export industry since customs duties now ranging from 7% to Cusiana 30% are proving to be a burden on the export sector. The govern- 35 ment estimates that thanks to the ATPA agreement (in force since 30 1990) around 140,000 new jobs have been created. Negotiations in 25 the U.S. Congress regarding a further extension are relatively diffi- 20 cult on account of as yet unresolved legal disputes relating to com- 15 pliance with contracts between Colombia and U.S. enterprises. A 10 further problem is that the legislative package provides for a “fast- 5 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 track” mandate for free-trade negotiations with Latin American countries, which is a particularly controversial issue. Nevertheless, one hurdle (the vote in the U.S. Congress) has been overcome. All that is still needed now is a vote in the U.S. Senate; however, this will most probably not take place before the summer recess. We expect the ATPA to be extended by the end of this year because U.S. interna- EXCHANGE RATE tional trade policy is closely linked to combating drug cultivation. At the same time, the U.S. Congress is considering granting US$ 98 Pesos/US$ 2400 million in military aid specifically to protect the Caño Limon pipeline. This would mean a positive signal for Colombia’s war against the 2300 guerrillas: Until now U.S. military aid has always focused on combating the cultivation of drugs. The U.S. Congress has always taken a 2200 negative stance toward extending aid to include combating the guer2100 rilla organizations. One of the reasons cited is the violation of human rights, which the Colombian military has been accused of. 2000 May-00 28 Nov-00 May-01 Nov-01 May-02 Cyrus de la Rubia +49 40 3593 3889 Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia MONTHLY AND QUARTERLY FIGURES COLOMBIA: MONTHLY INDICATORS Jan-02 Feb-02 Mar 02 Apr-02 next/latest DOMESTIC ECONOMY Industrial production % yoy 0.1 -0.5 -0 30-May Retail sales % yoy 1.9 1. 2.6 30-May % 20.4 18.8 17.7 17. Unemployment rate (urban) 31-May Active labour force (urban) % yoy 1.7 1.3 3. 3.6 Consumer prices % yoy 7.4 6.7 5.9 5. 5.6 5-Jun Consumer prices % mom 0.8 1.3 0.7 0. 0.9 5-Jun Producer prices % yoy 5.5 4.0 3.6 3. Producer prices 31-May 5-Jun % mom 0.4 0.3 0. 0.5 Money supply M1 (latest: 05/22)* % yoy 7.8 13.0 13.1 16.1 16. Money supply M3 (latest: 05/10)* % yoy 8.1 8.0 8.1 8.6 8. 8.9 % 18.5 18.0 18.6 16.7 16. 15. 15.4 9. 9.8 9.0 Lending rate (latest: 05/10) 5-Jun 20. 20.6 Deposit rate (DTF, 90 days, latest: 05/25)* % 11.2 10.7 10.6 Treasury bills (TES, 1 year, latest: 05/24)* % 11.8 11.8 11.5 Interbank interest rate (latest: 05/24) % 7.9 7.8 7.3 6.1 6. 5.5 % yoy -1.7 -1.6 -1.9 -3.0 -3 -3.3 Credit volume (latest: 05/10)* 9.5 9. EXTERNAL SECTOR Merchandise exports US$ mn 941 945 5-Jun Merchandise exports % yoy -7.5 -1.7 -1 5-Jun Merchandise imports US$ mn 902 830 846 25-Jun Merchandise imports % yoy 0.6 -19.3 -19.5 25-Jun Trade balance US$ mn 39 115 Foreign exchange reserves (latest: 05/22)* US$ mn 10069 10438 10135 pesos 2265 2310 2261 Q1 01 Q2 01 Q3 01 Q4 01 1.8 1.0 1.7 US$ exchange rate (latest: 05/27)* COLOMBIA: QUARTERLY INDICATORS 5-Jun 10499 10566 2267 next/latest DOMESTIC ECONOMY GDP % yoy 1.8 GDP % qoq -0.1 0.5 0.6 0.7 28-Jun Domestic consumption % yoy 1.2 1.0 1.0 2.2 28-Jun Domestic investment % yoy 12.3 20.4 4.4 2.7 28-Jun Domestic demand % yoy 2.7 3.6 1.5 2.3 28-Jun Exports (goods and services) % yoy 6.0 8.9 5.1 1.5 28-Jun Imports (goods and services) % yoy 11.4 20.4 8.2 4.7 28-Jun Manufacturing industry % yoy 2.8 1.3 -3.3 -3.0 28-Jun 28-Jun Financial sector and real estate 28-Jun % yoy 1.2 0.1 1.2 -6.3 Pesos bn -1351 -2384 -1114 -4204 Merchandise exports US$ bn 3.09 3.25 3.36 3.06 28-Jun Merchandise imports US$ bn 3.05 3.22 3.04 2.96 28-Jun Trade balance US$ bn 0.04 0.03 0.32 0.10 28-Jun Current account balance US$ bn -0.66 -0.44 -0.21 -0.38 28-Jun Net foreign direct investment US$ bn 0.48 0.78 0.40 0.42 28-Jun Portfolio investment US$ bn 0.71 1.81 0.11 0.76 28-Jun Capital account** US$ bn 0.98 0.52 0.40 1.00 28-Jun US$ bn 0.28 -0.01 0.49 0.48 Budget balance, central government EXTERNAL SECTOR Change in foreign exchange reserves * month-end ** incl. residual items Dresdner Bank Lateinamerika, Spotlight 6/2002, Colombia 29 COSTA RICA: ADVENT OF STRUCTURAL REFORMS? Area Population 51 100 sq. km 3.7 million (+1.7% p.a.) State president Finance minister Central bank president Abel Pacheco de la Espriella Jorge Walter Bolaños Eduardo Lizano Fait Next elections State president: February 2006 Parliament: February 2006 GDP per capita US$ 4 520 (2001) Rating Moody’s: Ba1 S&P: BB ANNUAL FIGURES AND FORECASTS COSTA RICA 1999 2000 2001 2002f 2003f 8.2 2.2 0.9 2.0 3.5 DOMESTIC ECONOMY GDP change (real) % GDP US$ bn 15.2 16.0 16.8 17.4 18.0 Inflation (year-end) % 10.1 10.2 11.0 9.0 10.0 Inflation (year-average) % 10.0 11.0 11.3 10.0 9.5 Budget balance, public sector % GDP -3.2 -3.7 -2.9 -3.2 -3.0 Merchandise exports US$ mn 6611 5861 5030 5130 5550 Merchandise imports US$ mn 5996 6072 6254 6350 6600 Trade balance US$ mn 615 -211 -1224 -1220 -1050 Current account balance US$ mn -697 -757 -750 -923 -998 Current account balance % GDP -4.6 -4.7 -4.5 -5.3 -5.5 Net foreign direct investment US$ mn 615 404 447 450 470 Foreign exchange reserves, year-end US$ mn 1460 1291 1330 1250 1050 Import cover * months 1.9 1.8 2.0 1.8 1.4 US$ exchange rate, year-end Colones 298 318 342 373 408 US$ exchange rate, average Colones 286 308 329 357 391 Gross foreign debt US$ bn 4.2 4.5 4.9 5.2 5.6 Foreign debt % exports* 50 58 69 72 71 Short-term foreign debt US$ bn 0.8 0.9 1.0 1.1 1.3 8167 10891 12028 11851 EXTERNAL SECTOR FOREIGN DEBT FINANCIAL MARKETS (year-end) BCT stock index (colon based, 2002:05/27) *goods and services 30 f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002, Costa Rica SUMMARY AND OUTLOOK Domestic policy: Christian democrat minority government? The country’s state president, Abel Pacheco of the Christian democrats, in office since early May this year, wants to introduce key structural reforms such as the modernization of the country’s infrastructure and the consolidation of public finances. In a run-off ballot held in April, Pacheco had gained 58% of all votes. It is questionable, however, whether he can push through his concept in parliament. At the parliamentary elections of February, his party only managed to secure a third of all seats. Far-reaching reforms are likely to meet with resistance among the social democrats (30%) and the deputies of the strengthened Partido Acción Ciudadana, which won 25% of the seats under Ottón Solís, who opposes the traditional two-party system. However, we expect the government to be able to continue its liberal course in exter- Following the presidential election, the Christian democrats continue to rule; however, parliament is dominated by other parties. It is questionable, therefore, whether progress is being made with the necessary structural reforms. The objectives of reducing the budget deficit (forecast for 2002: 3%) and domestic debt (40% of GDP) remain a challenge. Since the economic recovery is only taking shape very gradually, the current account deficit is likely to widen only slightly, to 5% of GDP, and should largely be offset by private capital inflows. nal economic policy. Domestic economy: interest payments constituting a burden on the treasury Due to a further increase in interest payments on the state’s high INDICES OF ECONOMIC ACTIVITY domestic debt (40% of GDP) the Costa Rican budget deficit will probably 1e swell to just over 3% of GDP, even if the government has planned to %, y-o-y 9 total excl. electronic industry implement taxation reforms and spending cuts. In 2003 Costa Rica will probably issue a higher volume of eurobonds than usual in the past (in 7 2002 the figure stood at US$ 250 million) in order to finance the temporarily 5 growing amortization payments. In the medium term, the government 3 will need to be stricter in pushing through the fiscal policy adjustment to limit the debt burden on the public sector. This year the economy should 1 reach a growth rate of 2% (2001: +0.9%) since production levels of the -1 microchip industry will rise slightly following sharp production shortfalls, Mar-00 and other industries as well as the tourism sector should recover in the Sep-00 Mar-01 Sep-01 Mar-02 Page 1 wake of the anticipated upturn in the U.S. The upward tendency should continue in all sectors in 2003. External sector: exports lackluster, scarce reserves This year the country’s exports will hardly grow since the sales price FISCAL DEFICIT AND INFLATION trends for microchips remain weak. The current account deficit should widen only slightly – from 4.5% to just over 5% of GDP: the demand for % of GDP 4 Budget Deficit Inflation, % y-o-y 14 imports will increase, but profit remittances to foreign countries, which last year saw a dramatic drop due to shortfalls in sales in the electronics 12 3 10 industry, are likely to remain relatively low for the time being. In the year 2002, Costa Rica can count on sufficient capital inflows in the form of 8 2 6 investments and credits, which means that the country will only have to resort to its scare foreign currency reserves (import cover: 1.8 months) to a limited degree. 4 1 2 0 Ingrid Grünewald +49 40 3595 3487 Dresdner Bank Lateinamerika, Spotlight 6/2002, Costa Rica 0 1997 1999 2001 2003f 31 ECUADOR: IMF TAKES A HARD STANCE Area Population 270 190 sq. km 12.7 million (+ 2.1% p.a.) State president Economic and Finance minister Central bank president Gustavo Noboa Bejarano Carlos Julio Emanuel Mauricio Yépez Next elections State president: October 2002 Parliament: October 2002 GDP per capita US$ 1 350 (2001) Rating Moody’s: Caa 2 S&P: CCC+ ANNUAL FIGURES AND FORECASTS ECUADOR 1999 2000 2001e 2002f 2003f DOMESTIC ECONOMY GDP change (real) % -7.3 2.3 5.6 3.5 3.2 GDP US$ bn 13.7 13.6 18.0 20.5 22.8 Inflation (year-end) % 60.7 91.0 22.4 10.0 8.0 Budget balance, public sector % GDP -5.9 1.7 1.3 1.2 0.5 Merchandise exports US$ bn 4.5 5.0 4.7 4.7 5.0 Merchandise imports US$ bn 2.9 3.6 5.2 6.1 6.3 Trade balance US$ bn 1.6 1.4 -0.5 -1.4 -1.3 Current account balance US$ bn 0.9 0.9 -0.8 -1.6 -1.3 Current account balance % GDP 6.6 6.6 -4.4 -7.8 -5.7 Net direct investment US$ bn 0.6 0.7 1.3 1.4 1.3 Foreign exchange reserves, year-end US$ bn 0.6 0.9 0.8 0.8 0.9 Import cover * months 1.3 1.7 1.2 1.1 1.2 Gross foreign debt US$ bn 17.0 13.9 14.7 15.4 16.0 Foreign debt % exports** 321 232 263 270 262 Short-term foreign debt US$ bn 1.2 1.2 1.3 1.4 1.5 Foreign debt amortization US$ bn 0.8 1.0 0.9 1.0 1.0 Foreign debt service US$ bn 1.9 2.0 1.9 2.0 2.1 Foreign debt service % exports** 36 33 34 35 34 4.8 EXTERNAL SECTOR FOREIGN DEBT FINANCIAL MARKETS (year-end) Interbanking rate (average rate) % IFCF stock index (US$ based, 2001: 05/27) Bond market yield (2001: 05/27)** *goods and services **EMBI+ 32 % 152.4 4.5 2.5 3.5 11.2 28.9 27.5 39.9 6277 1414 1254 1216 e=estimate f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002, Ecuador SUMMARY AND OUTLOOK Domestic economy: public finances hanging by a single thread Since Ecuador pulled the emergency break in abolishing its own currency and opting for the US dollar in the year 2000, the advances made in terms of the macro-economic stabilization of the country have been notable. Whereas public debt still amounted to 120% of GDP in the year 1999, this year it will probably drop to about 70% of GDP. However, since the public sector remains cut off both from the international capital market and from national sources of finance, the government must not only generate budget surpluses – which it should manage to accomplish once again this year thanks to the above-average oil prices; it will also be dependent on multilateral capital inflows in the Surprising change of direction by the IMF: this time the Fund was uncompromisingly strict in light of high discretionary spending rules concerning the use of OCP revenues, refusing to agree to a new standby agreement. Whether it will be possible to reach an agreement with the IMF before the presidential elections in October is questionable. Without multilateral financial assistance, the public sector will inevitably slide toward a renewed default in the year 2003. foreseeable future in order to meet its amortization payments. In the past, the IMF had been accommodating to this small country and confined itself to compliance with quantitative parameters, whereas the qualitative targets (e.g. privatizations) were largely neglected. Now the IMF has changed its course, refusing to sign a fresh standby agreement with the country after the rules concerning the use of publicsector revenues generated by the new oil pipeline (OCP) as of end- GDP CHANGE (REAL) & INFLATION 2003 leave the government with too much discretionary spending power. While this can still be remedied, the forthcoming presidential elections scheduled for October 20 will not make matters any easier. If no agree- GDP, % inflation, 100 10 ment is reached, this will mean that the budget will lack about US$ 370 80 5 million in multilateral funding. In the short term, liquidity bottlenecks 60 could be bridged e.g. by delaying payments to suppliers or to the Paris 0 Club, for instance – which already is common practice. In view of the 40 negative dynamics an ensuing loss of confidence would trigger, the -5 20 question as to whether the country will have to default on its debt yet again may recur in the second half of 2003. 0 -10 1999 2000 2001 2002f 2003f External sector: sustainability of dollarization There are good reasons why the IMF is pushing for a sustained consolidation of public finances. The more austere the country’s fiscal policy, the lower the upward pressure on the inflation and exchange rates in real terms. Today the real exchange rate already is higher than CURRENT ACCOUNT & EXCHANGE RATE it was throughout the 1990s. And the inflation rate remains above international levels. While the current account deficit of about 8% of GDP US$ bn 3 current account balance real FX rate 160 anticipated for 2002 should not be overrated in light of the special effects of the pipeline construction, the structural deficit is likely to April have already reached an alarming height. This applies in particular 1 against the backdrop of the already high level of Ecuador’s foreign 0 debt. In view of the lack of dynamics of structural reforms, in the medium -1 term we consider the feasibility of the dollarization to be in severe 140 2 100 80 60 40 -2 20 danger. 0 -3 Thorsten Rülle, Miami + 1 305 810 3855 Dresdner Bank Lateinamerika, Spotlight 6/2002, Ecuador 120 1997 1998 1999 2000 2001 2002f 33 GUATEMALA: STAND-BY FACILITY OF IMF Area Population 109 000 sq. km 11.7 million (+ 2.7% p.a.) State president Finance minister Central bank president Alfonso Portillo Cabrera Eduardo Weymann Fuentes Lizardo Sosa López Next elections State president: November 2003 Parliament: November 2003 GDP per capita US$ 1 780 (2001) Rating Moody’s: Ba2 S&P: BB ANNUAL FIGURES AND FORECASTS GUATEMALA 1999 2000 2001e 2002f 2003f 3.5 3.3 2.1 2.3 2.8 24.2 DOMESTIC ECONOMY GDP change (real) % GDP US$ bn 18.3 19.1 20.7 22.4 Inflation (year-end) % 4.9 5.1 8.9 9.0 9.0 Inflation (year-average) % 4.9 6.0 7.6 9.0 9.0 Budget balance, public sector % GDP -2.9 -2.0 -3.0 -2.2 -2.0 Merchandise exports* US$ mn 2488 2708 2412 2484 2695 Merchandise imports* US$ mn 4176 4750 5000 5200 5400 EXTERNAL SECTOR Trade balance* US$ mn -1688 -2042 -2588 -2716 -2705 Current account balance US$ mn -1026 -1050 -1260 -1270 -1150 Current account balance % GDP -5.6 -5.5 -6.1 -5.7 -4.8 Net foreign direct investment US$ mn 155 227 500 150 200 Foreign exchange reserves, year-end US$ mn 1189 1746 2292 2100 1900 Import cover ** months 2.7 3.5 4.4 3.9 3.4 US$ exchange rate, year-end Quetzales 7.73 7.70 7.95 8.20 8.60 us$ exchange rate, average Quetzales 7.39 7.76 7.86 8.08 8.40 US$ bn 4.7 5.2 5.5 5.7 6.0 Foreign debt % exports** 131 128 144 141 134 Short-term foreign debt US$ bn 1.3 1.3 1.4 1.4 1.6 FOREIGN DEBT Gross foreign debt *excl.products of the in-bond processing industry 34 **goods and services e=estimate f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002 Guatemala Economic policy: return to macro-economic stability Foreign governments and multilateral financial institutions will continue to support the development of the Guatemalan economy: in February this year they agreed to provide US$ 1.3 billion in financial aid to enable the government to come closer to achieving the many and various economic targets agreed with the guerrillas within the scope of the peace treaty of 1996 (including high growth and the alleviation of poverty). This also includes loans for the starting modernization and reinforcement of the fragile financial sector (US$ 0.4 billion) expected to be cleared by the World Bank and the Inter-American Development Bank soon, now that the IMF has already granted a one-year standby facility to Guatemala (US$ 105 million) for fiscal adjustment and to reform the financial market. Only in the medium term will Guatemala probably be able to comply with the official lenders’ demand to increase the tax rate to 12% of GDP. However, tax revenue should already rise this year thanks to a value added tax hike. Since the interest expenses incurred by the central bank’s open market operations to neutralize liquidity continue to cause a deficit amounting to almost 1% of GDP, but it remains questionable whether the public sector will already be able to reduce the overall budget deficit from 3% to 1.5% of GDP – as agreed with the IMF. We anticipate a 2% deficit of GDP, which will be financed with the proceeds of earlier privatizations as well as internal and external loans, with access to the bond market remaining unproblematic. In the year 2002, economic growth should only accelerate slightly: while the in-bond industry and the tourism sector should gradually recover as the upturn in the U.S. starts to gain momentum, in the coffee sector the price slump will continue. For the year 2003 we anticipate a GDP growth rate of almost 3% as the upward trend in the case of non-traditional exports is likely to strengthen and the state should launch infrastructure-related projects. External sector: reserves remaining at a high level We estimate that the country’s current account deficit will remain at almost 6% of GDP due to the only slight improvement in export prospects and as import demand continues to rise. Guatemala will hardly need to touch its cushion of reserves amounting to approx. US$ 2 billion (which the country managed to accumulate in the previous year through capital inflows derived from a final installment for privatizations and a eurobond issue) until the end of the year. Whereas investments from abroad should cover only a tenth of the deficit, the close cooperation with multilateral financial institutions is reinforcing the country’s credibility, which means we can assume that the foreign private sector will provide sufficient credit commitments. Ingrid Grünewald +49 40 3595 3487 Dresdner Bank Lateinamerika, Spotlight 6/2002, Guatemala SUMMARY AND OUTLOOK Guatemala recently received commitments of further international financial aid in order to return to macro-economic stability. Under the current monitoring program of the IMF, the state should be able to reduce the budget deficit to 2% of GDP. As multilateral credit funding is now being freed, Guatemala also retains access to the bond market, which means that no difficulties should be encountered in financing the publicsector shortfall and the high current account deficit. FISCAL DEFICIT % of GDP 4 government consolidated public sector forecast 3 2 1 0 1997 1999 2001 2003f EXTERNAL SECTOR US$ mn 6000 exports imports balance 4000 2000 0 -2000 -4000 1997 1998 1999 2000 2001 2002f 2003f 35 HONDURAS: PRIORITY ASSIGNED TO ALLEVIATING POVERTY Aera Population 112 000 sq. km 6.8 million (+ 3.4% p.a.) State president Finance minister Central bank president Ricardo Maduro Joest Arturo Alvarado Maria Elena Mondragón Next elections State president: November, 2005 Parliament: November 25, 2005 GDP per capita US$ 920 (2001) Rating Moody’s: B2 ANNUAL FIGURES AND FORECASTS HONDURAS 1999 2000 2001 2002f 2003f -1.9 4.8 2.6 3.0 3.4 5.4 5.9 6.3 6.7 7.1 DOMESTIC ECONOMY GDP change (real) % GDP US$ bn Inflation (year-end) % 10.9 10.1 8.8 9.0 9.0 Inflation (year-average) % 11.7 11.1 9.7 8.9 9.0 Budget balance, public sector* % GDP 1.4 1.0 -2.5 -2.0 -1.0 Merchandise exports US$ mn 1164 1370 1311 1330 1380 Merchandise imports US$ mn 2510 2670 2814 2840 2900 Trade balance US$ mn -1346 -1300 -1503 -1510 -1520 Current account balance US$ mn -241 -257 -326 -381 -328 Current account balance % GDP -4.4 -4.4 -5.2 -5.7 -4.6 EXTERNAL SECTOR Net foreign direct investment US$ mn 237 262 195 240 280 Foreign exchange reserves, year-end US$ mn 1258 1313 1416 1450 1570 Import cover ** months 4.6 4.4 4.5 4.7 4.9 US$ exchange rate, year-end Lempiras 14.6 15.2 16.0 16.9 17.8 US$ exchange rate, average Lempiras 14.2 14.8 15.7 16.5 17.4 US$ bn 5.33 5.33 5.48 5.61 5.23 Foreign debt % exports** 227 208 215 210 184 Short-term foreign debt US$ bn 0.4 0.4 0.4 0.4 0.4 *after grants **goods and services FOREIGN DEBT Gross foreign debt 36 f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002, Honduras SUMMARY AND OUTLOOK Domestic policy: new government likewise eligible for debt relief Under the conservative state president in office since January this year, Ricardo Maduro of the Partido Nacional (PN), the country’s economic opening should continue. Not only the smaller parties but also liberal politicians will support key structural reforms in parliament (in which the PN has a simple majority of 48% of all seats) as part of the long-term program to alleviate poverty currently being coordinated by the government with the IMF. In essential points – such as privatizations in infrastructure – the government’s policies are meeting with a broad political consensus. The IMF is likely to take into account in this year’s adjustment of the Honduran development planning that the state will only manage to In our assessment, the new conservative Maduro government will be able to push through key reforms within the scope of its program for poverty reduction and high economic growth with the support of other parties in parliament. The HIPC debt relief for Honduras is moving within reach thanks to „soft“ objectives laid down by the IMF, which this highly indebted country will probably be able to meet even if the government’s budget deficit remains high and the current account deficit is likely to rise to 6% of GDP. reduce the government’s budget deficit very gradually, by means of taxation reforms and spending cuts. Due to the faltering economy last year and the decline in assistance from abroad, this deficit widened to roughly 7% of GDP in 2001 (public-sector companies continue to register surpluses). Ultimately, GDP should grow by only 3% (2001: 2.6%) despite the recovery starting to take shape in FOREIGN DEBT the U.S. Without the price slump on the coffee market, a significantly higher growth rate would have been manageable. By continuing to endorse the program to reduce poverty, the IMF 1e US$ bn % of exports 6 350 5 300 will create a favorable framework to enable Honduras to meet the economic policy parameters to qualify for approx. US$ 0.9 billion 250 4 200 in HIPC debt relief; this could enter into force starting in the year 3 2003. 2 150 100 1 Current account: gap continues to widen The declining trend in visible and invisible exports is likely to be 50 0 0 1993 1995 1997 1999 2001 2003f Page 1 reversed in the course of this year. In particular, we anticipate double-digit growth rates in the in-bond industry and the return to higher revenues from tourism. In addition, as in the previous year Honduras can expect foreign currency receipts from private transfer payments amounting to well over US$ 0.5 billion. Nevertheless, the CURRENT ACCOUNT current account deficit should widen from 5% to about 6% of GDP as merchandise imports will increase in light of higher oil prices and rising demand in the course of the economic upturn, and transfer payments of foreign governments should decline. We expect that Honduras will be able to absorb the deficit thanks to a rising inflow of foreign investment and loans from multilateral financial institutions. Indications are that the country’s foreign currency reserves will likewise see a further slight increase to US$ 1.5 billion. US$ mn 1000 Transfers Current account balance forecast 800 600 400 200 0 -200 -400 Ingrid Grünewald +49 40 3595 3487 Dresdner Bank Lateinamerika, Spotlight 6/2002, Honduras 1994 1996 1998 2000 2002f 37 JAMAICA: DEAD-END SITUATION Aera Population 11 425 sq.km 2.7 million (+ 0.9% p.a.) State president Finance minister Central bank president P.J. Patterson Omar Davies Derick Latibeadiere Next elections early in 2003 GDP per capita US$ 2 840 (2001) Rating Moody’s: Ba3 S&P:B+ ANNUAL FIGURES AND FORECASTS JAMAICA 1999 2000 2001e 2002f 2003f -0.4 0.8 1.7 2.2 2.6 7.4 7.5 7.6 7.8 7.9 DOMESTIC ECONOMY GDP change (real) % GDP US$ bn Inflation (year-end) % 6.9 6.0 8.8 7.5 6.0 Inflation (year-average) % 6.0 8.2 6.9 8.0 6.8 Budget balance, public sector* % GDP -4.3 -1.0 -5.7 -5.5 -4.0 Merchandise exports* US$ mn 1499 1555 1452 1600 1700 Merchandise imports* US$ mn 2686 2908 3032 3100 3250 Trade balance* US$ mn -1187 -1353 -1580 -1500 -1550 Current account balance US$ mn -211 -275 -650 -550 -450 Current account balance % GDP -2.9 -3.7 -8.6 -7.1 -5.8 EXTERNAL SECTOR Net foreign direct investment US$ mn 429 382 380 250 350 Foreign exchange reserves, year-end US$ mn 555 1054 1901 1750 1650 Import cover ** months 1.5 2.6 4.4 4.1 3.7 US$ exchange rate, year-end J$ 41.30 45.40 47.40 52.50 56.00 US$ exchange rate, average J$ 39.04 42.70 46.00 50.00 54.00 US$ mn 3921 4287 5180 5400 5500 FOREIGN DEBT Gross foreign debt Foreign debt % exports** 108 114 142 147 138 Short-term foreign debt US$ mn 760 750 750 650 650 *incl. foreign assistance 38 ** goods and services e=estimate f=forecast Dresdner Bank Lateinamerika, Spotlight 6/2002, Jamaica Domestic sector: heavy public-sector debt burden A fundamental improvement in the economic situation is not in sight, even though GDP is likely to grow by slightly more than 2.4% this year thanks to more favorable trends in bauxite production and tourism (2001: + 1.7%). The high level of public-sector debt (end-2001 roughly 140% of GDP) remains the country’s biggest problem – an opinion shared by the IMF engaged by Jamaica for consultancy purposes; the interest burden generated by this debt is responsible for the major budget deficits, among other things. The fiscal year April 2001/March 2002 is expected to have closed with a deficit of almost 6% of GDP; for the 2002/03 budget year we anticipate a similar negative balance owing to additional spending occasioned by the elections. Action also needs to be taken to combat inflation, which reached a new alltime high of 9.4% in January. As long as the dismal economic situation continues, compounded by uncertainties due to the forthcoming elections, the Jamaican dollar will tend to remain under pressure. The central bank, which perceives a devaluation of the national currency as the biggest danger to price stability, will therefore hardly contribute proactively toward a reduction of the persistent, high level of interest rates in real terms, which is proving to be a burden on the budget situation and economic growth. This year’s public financing requirements should not be easy to cover since more than US$ 0.5 billion in amortization payments is to be made on public-sector foreign debt (2001: US$ 350 million) and since borrowing on the international capital market could be prohibitively expensive due to the forthcoming elections. SUMMARY AND OUTLOOK General elections are to be held by early 2003 at the latest. Since prime minister Patterson has not managed to even begin to resolve the country’s major social problems, the outcome of the election is completely open. Accordingly, the government will avoid unpopular measures this year wherever possible. The high publicsector debt of approx. 140% of GDP thus continues to exert a massive adverse impact on the country’s economic development. The external sector is still not helping to ease the situation either. INTEREST RATE & INFLATION credit interest rates, % inflation % yoy 40 35 30 25 20 15 External sector: high capital inflows In the year 2001 the current account deficit more than doubled, to reach US$ 650 million (8.6% of GDP). Contributory factors in this regard were the deterioration of the trade balance due to external shocks, the overvalued Jamaican dollar and home-made problems in the export sector (strike in the bauxite industry). However, the shortfall in tourism already mentioned as well as increased interest payments abroad following massive foreign-currency denominated bond issues (2001: US$ 441 million in total) have had a negative impact. These issues, which were partly already effected to cover the amortization requirements of the year 2002, caused the surplus on capital account to grow so strongly that the country’s foreign-currency reserves rose to US$ 1.9 billion (import cover: 4 months) by end-2001. However, we assume that it will not be possible to defend this favorable foreign currency position in spite of a slight reduction of the current account deficit to a probable 7% of GDP this year due to the high amortization commitments of the public sector and as foreign investors are expected to be sidelined in the run-up to the elections. 10 5 0 Mar-00 Jul-00 Nov-00 Mar-01 Jul-01 Nov-01 Mar-02 CURRENT ACCOUNT US$ mn 0 current account balance trade balance -400 -800 -1200 -1600 -2000 Bolko Schwanecke + 49 40 3595 3605 Dresdner Bank Lateinamerika, Spotlight 6/2002, Jamaica 1999 2000 2001 2002f 2003f 39 MEXIKO: PESO ENDS ITS RALLY Area Population 1 967 183 sq. km 101 million (+1.6% p.a.) State president Finance minister Central bank president Vicente Fox Quesada Francisco Gil Diaz Guillermo Ortiz Martínez Next elections State president: July 2006 Parliament: July 2003 GDP per capita US$ 6 100 (2001) Investment Savings 23% of GDP (2000) 21% of GDP (2000) Exchange rate system Monetary policy Flexible exchange rate Inflation targeting Exports (2000) Purchasing countries Products 29% of GDP USA 89%, EU 3%, Canada 2% Maquiladora 45%, rest of industry 40% crude oil and derivatives 10% Imports (2000) Supplier countries Products 30% of GDP USA 73%, EU 9%, Japan 3%, Canada 2% Intermediate goods for the maquiladora 35 %, intermediate goods for the rest of the economy 41%, capital goods 14%, consumer goods 10% Rating: Moody’s: Baa2 S&P: BBB- SUMMARY AND OUTLOOK Economic activity in Mexico lags behind that of its NAFTA partner, the U.S., by about one quarter. Essentially, this is due to the automatic time lags arising from the primary transmission channel, exports. In addition, the forthcoming economic upturn will in its first stage proceed a great deal more moderately than that of the U.S. This is not surprising since Mexico’s monetary and fiscal policies are quite the opposite. While the U.S. saw one of the most expansive phases of their monetary policy history, which already started at end-2000, the Mexican central bank is in the difficult end phase of a disinflation process and should be able to reach its inflation target of 4.5% for end-2002 thanks to its consistent, restrictive monetary policy. Unlike the U.S., Mexico has to keep expenditure in check in its public-sector budget since the country thus far has not managed to reduce the structural deficit of the public sector to an extent that would create any leeway in fiscal policy terms. However, as the latest depreciation of the peso has shown, structural reforms will be inevitable in the medium term if the country wants to maintain the macro-economic stability it has gained. 40 Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico ANNUAL FIGURES AND FORECASTS MEXICO 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % GDP US$ bn 3.7 6.6 -0.3 1.7 4.5 481.4 580.7 618.2 674.0 706.1 Inflation (year-end) Inflation (average) % 12.3 9.0 4.4 4.0 3.2 % 16.6 9.5 6.4 4.7 3.3 % GDP -1.7 -1.5 -1.0 -1.0 -0.8 Budget balance, public sector % GDP -1.1 -1.1 -0.7 -0.7 -0.5 Public debt % GDP 43 39 40 42 43 PUBLIC SECTOR Budget balance, central government Amortization (not incl. Cetes)*** US$ bn n.a. 44.3 23.7 20.1 n.v. Gross financing needs*** US$ bn n.a. 52.9 31.2 26.6 n.v. US$ bn 136.4 166.5 158.5 159.7 176.0 Merchandise imports US$ bn 142.0 174.5 168.3 170.8 188.1 Trade balance US$ bn -5.6 -8.0 -9.7 -11.1 -12.2 Current account balance US$ bn -14.4 -17.7 -17.5 -19.3 -20.4 Current account balance % GDP -3.0 -3.1 -2.8 -2.9 -2.9 Net foreign direct investment US$ bn 12.5 14.2 24.7 13.0 14.0 Foreign exchange reserves, year-end US$ bn 31.8 35.5 44.7 45.7 47.2 Import cover ** months 2.2 2.0 2.6 2.7 2.5 US$ exchange rate, year-end Pesos 9.5 9.6 9.2 9.3 9.6 US$ exchange rate, average Pesos 9.6 9.5 9.3 9.2 9.4 167.5 158.6 160.0 166.0 172.0 110 85 91 94 88 38 40 43 44 46 EXTERNAL SECTOR Merchandise exports FOREIGN DEBT Gross foreign debt US$ bn Foreign debt % exports** Short-term foreign debt US$ bn Foreign debt amortization US$ bn 23 25 18 14 13 Foreign debt service US$ bn 36 39 29 25 24 Foreign debt service % exports** 24 21 17 14 12 6.2 FINANCIAL MARKETS (year-end) Interest rates (Cetes, 28 days) 16.3 17.6 7.4 7.0 IPC stock index (peso based, 2002: 05/27) % 7130 5652 6372 7357 IFCI stock index (US$ based, 2002: 05/27) 859 675 761 837 363 392 308 258 Bond market yield spread (2002: 05/27)* * EMBI+ ** goods and services bp *** central government Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico f=forecast 41 Economic policy: energy sector reforms not in sight GDP CHANGE (REAL) Outside the country, president Fox is spreading optimism in light of % J/J 9 future investment opportunities for international corporations in the Mexican energy sector. And the amount of investment required actually 7 is quite substantial: according to specialists in this sector, US$ 5 billion 5 p.a. in capital spending will be required for the next ten years to be 3 able to meet the increasing level of energy consumption. In other 1 words, if the amount of investment required had to be covered by -1 domestic savings alone, the savings rate would have to increase by almost a full percentage point. And in spite of these undeniable facts, -3 I/99 III/99 I/00 III/00 I/01 III/01 I/02 III/02p I/03p III/03p the passage of an energy reform bill that provides for private investment in that sector appears to have become increasingly remote. On this occasion, neither the Fox government nor the ruling PAN can be blamed, both of which are bending over backwards to negotiate with the PRI after the lessons learnt from the failure of the fiscal reform. Apart from the resistance in principle from the PRI, the approaching INDUSTRIAL PRODUCTION %, yoy industry elections to the House of Deputies in July 2003 are posing a problem manufacturing in that bipartisan acts of parliament are becoming even more difficult 20 to realize. This applies in particular if a broad majority of the population 15 opposes privatizations in the energy sector, as indicated by the outcome of a recent opinion poll. 10 5 Economic activity: return to growth in the second quarter In the first quarter, Gross Domestic Product fell by 2.0% year-on-year, 0 thus developing significantly worse than we had anticipated (estimate: -5 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 0.1%). However, a significant share of this difference is based on statistical reasons: unlike the preceding year, the Easter holidays this time fell into the first quarter, reducing the number of working days by four. Compared to the previous quarter, the Mexican economy, seasonally adjusted, only contracted by 0.25% after the GDP decline in the previous quarter had amounted to 0.61%. The latest indicators, AUTOMOTIVE INDUSTRY 1000 units production domestic sales such as export growth in April and the substantial increase in automotive exports 200 production, likewise in April, also show that the economy has bottomed out by now. We believe it will be possible to achieve a GDP increase 175 of 1.9% in the second quarter, in the early phase of the export-driven 150 upturn. 125 100 75 Monetary sector: trend reversal in monetary policy? 50 Contrary to the trend prevailing in the NAFTA partner country, the U.S., 25 and in all other major industrialized nations, the Mexican central bank 0 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 has tightened its monetary policy to date. The reason for this is that Banxico is in the midst of the predominantly difficult phase of an 42 Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico MONETARY POLICY (CORTO) ambitious disinflation process, in which even the latest recession left absolutely no room for maneuver for a monetary policy designed to boost economic activity. However, in April the central bank decided to pesos mn 450 add 60 million pesos in liquidity to the banking system by lowering the 400 „Corto“, the principal instrument of Mexican monetary policy, from 350 360 million pesos to 300 million pesos. In our opinion this is merely a correction of the Corto increase of February, which came in response 300 to the inflation-fueling discontinuation of the subsidization of electricity 250 rates. We do not believe that this step has led to a fundamental trend 200 reversal in monetary policy. The increase in consumer prices, at 4.7% year-on-year in April, was still 0.2 of a percentage point above the 150 May-00 Nov-00 May-01 Nov-01 May-02 central bank’s inflation target for end-2002. On the one hand, the disinflation process remains intact as reflected by the low rise in the core inflation rate in the first two weeks of May, and the inflation target is also likely to be undercut within the next several months. On the other, Banxico will probably prefer to enter another difficult year (2003) INFLATION (CPI) with an appropriate „cushion“, in which 3% inflation is being targeted rather than aggressively lowering the Corto in an economy that is % yoy % mom 2.8 20 already picking up momentum. This would mean that the short-term interest rates (Cetes, 28 days), which have advanced since the 2.4 15 2 1.6 correction of the exchange rate from their all-time low (5.3% endApril), are likely to hover around their present level of 7% in the next 10 1.2 0.8 several months. 5 0.4 0 Foreign trade: exports picking up In April Mexico’s exports rose by 8.7% after having fallen for eleven 0 Apr-99 -0.4 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 months in succession. Although the „Easter effect“ was also quite noticeable in these figures, the seasonally adjusted trend nevertheless clearly points upward. Not only the higher oil prices in comparison with the previous year, but also a marked increase in demand (from which at present the in-bond industry, or maquiladora, is benefiting in INTEREST RATE particular) is responsible for this development. The increase in imports Interest rates (CETES 28d) % by 6.4% shows that domestic demand has been stabilizing as well. 40 The higher oil prices ensured that the trade deficit in April, at US$ 557 35 million, was substantially lower than in the previous year. 30 In view of the ongoing economic recovery in the U.S., the outlook for 25 Mexican exports remains positive. In the year 2002 we anticipate a 20 slight increase on the previous year, which should then accelerate in 15 the year 2003. On the other hand, in the medium term a return to the growth rates of the boom years (second half of the 1990s), when Mexican exports grew by an average of 15 % annually, cannot be real nominal 10 5 0 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 expected. Competition from neighboring Central American states has Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico 43 EXTERNAL TRADE US$ bn meanwhile increased substantially and China has become an even exports more attractive location for in-bond industries since that country joined imports 18.0 the WTO. Without structural reforms on the labor market, the Mexican 16.0 export industry will soon reach its growth limits on account of the 14.0 potential lack of skilled workers. 12.0 Exchange rate: correction ñ no sustained depreciation! 10.0 In April the peso’s rally against the dollar in evidence since October 8.0 2001 came to an end; in previous weeks, on several occasions the 6.0 exchange rate had reached the mark of 9 pesos to the US$. Since Sep-98 Mar-99 Sep-99 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 then the Mexican currency has lost approximately 7% of its value. We believe that this is not the beginning of a sustained depreciation but merely a correction. For instance, expectations of a sustained level of capital inflows in the year 2002 had caused residents on the Mexican forex market to establish speculative positions in favor of the peso. FOREIGN DIRECT INVESTMENT These were closed in April when disappointing trends in public finances in the first quarter, a further escalation of the economic crisis in Argen- US$ bn tina and the increasing volatility on the international financial markets 16.0 brought about increased uncertainty. In addition, capital inflows in the first quarter may have been slightly lower than expected. The position 12.0 will be clarified once the balance-of-payments data are released at 8.0 end-May. The figures announced in advance on direct investments, at US$ 2.7 billion in the first quarter of 2002, represent a decline of 4.0 31% year-on-year. However, there are several arguments to indicate that both direct 0.0 I/98 III/98 I/99 III/99 I/00 III/00 I/01 III/01 I/02 investments and inflows in the stock market will turn out relatively high in the course of the year and a sustained devaluation of the peso therefore is not on the agenda. Accordingly, as the U.S. economy gains momentum, U.S. corporations should become interested in direct investments in Mexico once again. An indicator for this was the sale at the end of May of the state-owned insurer Ahisa to the U.S. company EXCHANGE RATE MetLife, which paid price significantly higher than the minimum bid. 10.2 Pesos/US$ As in the past, the valuation levels of Mexican stocks remain attractive. 10.0 And finally, the Mexican central bank would not permit a possible 9.8 exchange-rate related increase in inflationary expectations and would 9.6 consistently endeavor to reverse the tide of capital flows in Mexico’s 9.4 favor by tightening monetary policy. Accordingly, we maintain our 9.2 exchange-rate forecast of 9.30 pesos per US dollar for the end of the 9.0 year 2002. 8.8 May-00 44 Nov-00 May-01 Nov-01 May-02 Thorsten Rülle, Miami +1 305 810 3855 Bolko Schwanecke +49 40 3595 3605 Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico MONTHLY AND QUARTERLY FIGURES MEXICO: MONTHLY INDICATORS Jan-02 Feb-02 Mar-02 Apr-02 next/latest DOMESTIC ECONOMY Economic activity index (IGAE) % yoy -2.0 -0.4 -3.5 25-Jun % mom 0.8 0.5 -0.3 25-Jun Industrial production % yoy -3.5 -1.8 -7.6 11-Jun Manufacturing, in-bond industry % yoy -18.5 -17.3 -21.4 11-Jun Manufacturing (excluding in-bond industry) % yoy -3.5 -1.2 -8.0 11-Jun Construction % yoy -0.3 -0.2 -4.0 11-Jun Gross fixed capital formation % yoy -4.1 -4.0 Retail sales % yoy 0.4 -1.7 -2.2 20-Jun Wholesale sales % yoy -10.1 -7.9 -13.7 20-Jun IGAE index (seasonally adjusted) Unemployment rate Employees (social insurance) Real wages per employee, manufacturing 7-Jun % 3.0 2.7 2.8 % yoy -0.7 -0.4 -0.2 2.2 2.8 19-Jun 21-Jun % yoy 5.4 3.5 Budget balance, public sector Pesos bn 1.9 -6.4 Public domestic debt Pesos bn 783.5 803.6 30-May US$ bn 82.7 82.3 30-May Public external debt 26-Jun 30-May Consumer prices % yoy 4.8 4.8 4.7 4.7 7-Jun Consumer prices % mom 0.9 -0.1 0.5 0.6 7-Jun Producer prices (excl. Services) % yoy 2.1 1.8 1.7 2.0 7-Jun Producer prices (excl. Services) % mom 0.6 -0.1 0.7 0.4 7-Jun % yoy 21.7 22.3 26.5 23.4 25-Jun 7.0 Money supply M1a Treasury bills, Cetes 28d (latest: 05/21) % 7.9 7.3 7.5 5.7 % yoy 1.8 1.7 1.1 1.3 Merchandise exports US$ mn 11587 11925 13013 14456 24-Jun Merchandise exports % yoy -9.9 -5.0 -8.5 8.9 24-Jun Merchandise imports US$ mn 12309 12665 13416 15014 24-Jun Merchandise imports % yoy -10.8 -3.5 -10.2 6.4 24-Jun Trade balance US$ mn -722 -741 -402 -557 24-Jun Foreign exchange reserves (latest: 05/21) US$ bn 47.2 47.1 46.2 45.2 45.1 Pesos 9.16 9.13 9.01 9.4 9.55 Q2 01 Q3 01 Q4 01 Q1 02 next/latest -2.0 Comercial bank lending (excl. restructuring) EXTERNAL SECTOR US$ exchange rate (latest: 05/27) MEXICO: QUARTERLY INDICATORS DOMESTIC ECONOMY GDP % yoy 0.1 -1.5 -1.6 Private consumption % yoy 4.1 1.6 1.5 15-Aug 14-Jun Public consumption % yoy -3.2 -3.5 3.3 14-Jun Private and public investment % yoy -6.9 -8.5 -9.8 14-Jun Domestic demand % yoy 0.3 -1.7 -0.4 14-Jun Exports (goods and services) % yoy -1.7 -9.5 -10.9 14-Jun Imports (goods and services) % yoy 0.6 -8.0 -7.7 14-Jun Current account balance US$ bn -3.7 -3.3 -5.8 Net foreign direct investment US$ bn 4.3 14.6 2.4 Net foreign portfolio investment (incl. bonds) US$ bn 0.6 0.3 -0.5 30-May Capital account ** US$ bn 4.3 4.0 7.3 30-May Change in foreign exchange reserves* US$ bn 0.7 0.7 1.5 30-May EXTERNAL SECTOR 30-May 2.7 26-Aug * balance of payments ** incl. residual items Dresdner Bank Lateinamerika, Spotlight 6/2002, Mexico 45 PERU: DELAYED REFORMS Area Population 1 285 215 sq. km 25.7 million (+ 2% p.a.) State president Finance minister Central bank president Alejandro Toledo Maurique Pedro Pablo Kuczynski Richard Duarte Webb Next elections State president: 2006 Parliament: 2006 GDP per capita US$ 2 132 (2001) Investment Savings 18% of GDP (2000) 18% of GDP (2001) Exchange rate system Monetary policy Flexible echange rate Inflation targeting Exports (2001) Purchasing countries Products 13% of GDP USA 28%, EU 21%, Switzerland 8% Gold 17%, fishing products 14%, copper 14% Imports (2001) Supplier countries Products 13% of GDP USA 23%, EU 14%, Japan 6%, Colombia 6% Capital goods 30%, consumer goods 20%, energy sources 16% Rating: Moody’s: Ba3 S&P: BB- SUMMARY AND OUTLOOK The beginning of the year saw good signs for Peru. By strengthening democratic structures, the country managed to harness widespread support from both multilateral institutions and various governments of industrial countries. The prospects of speedy reforms of the taxation system, the resumption of the privatization program as well as an international bond issue boosted the inflow of private capital to Peru. However, in recent months the government has failed to convince the majority of the country’s political forces of the benefits of an orthodox economic policy. Opposition to the government’s policy is growing, which is delaying important reforms and increasingly casting doubt on the implementation of several privatization projects.This year the weak trend in the private sector should partly be offset by an expansionary fiscal policy. The delay of important reforms holds the risk, however, that Peru will not be able to exploit its high growth potential in the next several years. 46 Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru ANNUAL FIGURES AND FORECASTS PERU 1999 2000 2001 2002f 2003f 0.9 3.1 0.2 3.0 3.9 DOMESTIC ECONOMY GDP change (real) % GDP US$ bn 51.7 53.5 54.8 56.3 58.3 Inflation (year-end) % 3.7 3.7 -0.1 2.1 2.4 Inflation (average) % 3.5 3.8 2.0 0.5 2.3 PUBLIC SECTOR Budget balance, central government % GDP -2.7 -3.1 -2.3 -2.7 -2.4 Budget balance, public sector % GDP -3.1 -3.2 -2.4 -2.9 -2.4 Public debt % GDP 44 42 42 43 42 Amortization US$ bn 0.87 1.26 1.10 1.17 1.10 Gross financing needs US$ bn 2.47 2.98 2.42 2.80 2.50 Merchandise exports US$ bn 6.1 7.0 7.1 7.3 7.9 Merchandise imports US$ bn 6.7 7.3 7.2 7.0 7.4 Trade balance US$ bn -0.6 -0.3 -0.1 0.2 0.6 Current account balance US$ bn -1.9 -1.6 -1.1 -0.8 -0.9 Current account balance % GDP -3.7 -3.1 -2.0 -1.5 -1.6 Net foreign direct investment US$ bn 2.3 0.7 1.1 1.5 1.7 Foreign exchange reserves, year-end US$ bn 8.4 8.2 8.6 9.7 10.4 Import cover months** 9.0 8.2 8.8 10.2 10.4 US$ exchange rate, year-end Soles 3.51 3.52 3.44 3.58 3.62 US$ exchange rate, average Soles 3.38 3.49 3.48 3.51 3.60 Gross foreign debt US$ bn 30.9 31.8 33.1 34.0 34.5 Foreign debt % exports** 325 330 351 369 359 Short-term foreign debt US$ bn 4.6 4.0 4.2 4.5 4.3 EXTERNAL SECTOR FOREIGN DEBT Foreign debt amortization US$ bn 2.3 2.2 2.3 2.3 2.3 Foreign debt service US$ bn 4.1 4.0 4.2 4.3 4.5 Foreign debt service % exports** 46 42 45 46 47 9.0 FINANCIAL MARKETS (year-end) Interbank interest rate (av) % IGBVL stock index (sol based, 2002: 05/27) IFCI stock index (US$ based, 2002: 05/27) Bond market yield spread (2002: 05/27)* *EMBI+ bp 16.9 11.4 3.1 6.0 1836 1208 1163 1234 161 116 128 155 443 687 520 513 **goods and services Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru f=forecast 47 TOLEDO´S POPULARITY Domestic policy: increasing resistance The orthodox forces in the government, first and foremost finance %, monthly poll taken by APOYO (August 01 until Mai 02) minister Kucyznski, has met with increased criticism over the past 100 few months. Three factors motivated the opposition in Congress 80 55 65 60 59 69 and the representatives of the rural regions to do so. Firstly, a revi- 57 talization of the domestic economy has failed to materialize so far. 42 40 30 The official unemployment rate remained at a high level of 11% in 36 33 27 25 22 16 20 April and dissatisfaction with the economic situation is growing, 22 13 8 12 9 particularly among the poorer population. Secondly, by criticizing the government’s policy more sharply the opposition is trying to 0 approve disapprove no opinion improve its own chances of winning the forthcoming regional elections scheduled for November 17. And finally, the regional interest groups are using the already strong disapproval of the government’s privatization plans among the population for their own agenda. The regional representatives hope that the regions could benefit directly from a portion of the proceeds if privatizations are postponed PUBLIC BUDGET BALANCE until after the elections. At present the total proceeds go to the % of GDP consolidated public sector central government 2 central government. While finance minister Kuczynski – the liberal force in the cabinet 1 in economic policy terms – ultimately managed to successfully 0 ward off impeachment proceedings and denied rumors of his forthcoming resignation, we nevertheless expect the influence of the -1 orthodox forces to subside in the course of the year and populist measures will gain the upper hand in the run-up to the elections. -2 -3 I/96 I/97 I/98 I/99 I/00 I/01 I/02 Fiscal policy: budget deficit higher than expected In view of the high public sector debt (42% of GDP) and the expansionary fiscal policy in the last years of the Fujimori government, the speedy reduction of the budget deficits is one of the central agreements of the current IMF program. The agreement with the Monetary Fund calls for a reduction of the deficit from 2.5% of GDP BUDGET OF CENTRAL GOVERNMENT %, J/J 20 current revenues last year to 1.9% - 2.2% in 2002. This target should be attainable in current expenditures particular by raising the tax rate, but also by imposing budget cuts. While the budget deficit of the consolidated state sector in the first 15 quarter was still within the agreed targets at 1.5% of GDP, the pub- 10 lic-sector budget traditionally balances at the beginning of the year. 5 In view of the weak economic development the government should 0 find it difficult to improve the revenue situation in the near future. On the spending side, the strong opposition as well as last year’s elec- -5 tion campaign promises are making drastic measures more diffi-10 I/99 III/99 I/00 III/00 I/01 III/01 I/02 cult. This is substantiated by an ongoing debate for some months now concerning the tax legislation reform and the increase in teach- 48 Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru GDP CHANGE (REAL) ers’ salaries under discussion right now. The forthcoming visit of an IMF delegation (the mission begins on June 10) could accelerate the reform process; we have nevertheless increased our forecast for this year’s budget deficit from 2.4% to 2.9% of GDP. %, yoy 6 5 4 3 Economic policy: Privatizations in jeopardy 2 Officially, the government anticipates revenues from privatizations 1 to run into US$ 700 million this year. The lion’s share of these revenues (approx. US$ 500 million) should be generated from sales of energy utilities and providers. In view of heavy protests and cancel- 0 -1 -2 -3 II/99 IV/99 II/00 IV/00 II/01 IV/01f II/02f IV/02f II/03f IV/03f lations by some bidders, the auctions of these enterprises originally scheduled to take place between April and June have been postponed several times. While the likelihood of a partial implementation of privatizations has increased after the central government made concessions toward representatives of the provinces, and although the government has announced that it would give DEMAND COMPONENTS privatizations in the mining industry priority to counteract possible shortfalls or postponements in the energy sector, we now assume nevertheless that the privatization proceeds will only reach US$ 500 million (previously US$ 800 million) this year. %, yoy 15 priv. consumption priv. investment exports 10 5 Economy: pessimism was justified 0 The economic figures in the first quarter were disappointing. Only the mining and construction sectors recorded substantial growth, with GDP increasing by 3% year-on-year. The construction industry -5 -10 continues to be stimulated by repairs of earthquake damage as I/01 II/01 IIII/01 IV/01 I/02 II/02p IIII/02p IV/02p well as public infrastructural measures, while growth in the mining industry continues to be supported by the mega project Antamina. Both non-recurring effects will recede at the end of the year, which means that only a revitalization of the domestic economy on a broader scale could contribute to a further increase in growth. INFLATION However, signs of this happening are bleak. While growth in private consumption in the first quarter, at 2% year-on-year, exceeded our %, yoy 4 Core Inflation CPI expectations (1.0%), investments simultaneously decreased by 5.7% year-on-year, thus falling more sharply than we had predicted. 3 Restoring investor confidence, however, is exactly the precondi- 2 tion for the accelerated upturn anticipated by government – which 1 forecast a growth rate of 3.5% to 4% this year. However, we assume that the level of investment year-on-year will only increase in the fourth quarter. The trend in the private sector, which is slightly weaker than expected, should be evened out by an expansionary fiscal policy, Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru 0 -1 -2 Apr-01 Aug-01 Dec-01 Apr-02 49 TERMS OF TRADE Index (Jan 2000 = 100) 105 which means that our forecast for this year remains unchanged at export prices 3.0%. import prices Inflation: risk of deflation averted? 100 Following a decrease in year-on-year consumer prices by more 95 than 1 percentage point each month since the beginning of 2002, 90 the inflation rate turned positive again in April for the first time (+0.1%). Prices of non-tradable goods in particular saw a substan- 85 tial increase again year-on-year (0.7%). We continue to believe that the inflation rate – fueled by a more expansionary orientation in 80 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 terms of both fiscal and monetary policy – will increase in the course of this year and reach a level of 2.1% year-on-year at end-2002. Current account: preference agreement expired The reduced customs duties agreed within the scope of the ATPA (trade agreement between the U.S. and the Andean states of Peru, EXTERNAL SECTOR Ecuador, Bolivia and Colombia) expired on May 16 after resistance US$ mn 2500 exports imports balance in the U.S. Congress had rendered an extension impossible. While an extension of the agreement is likely toward the end of the year, 2000 there will probably be a short-term impact on Peru’s exports, seeing 1500 as 28% of Peru’s total exports go to the U.S. This negative influence 1000 is being offset by the recent noticeable surge in gold prices (gold 500 exports account for approx. 16% of total exports). We anticipate a 0 slight improvement in the terms of trade in the course of the year -500 and continue to assume – to some extent, on account of the weak -1000 II/98 IV/98 II/99 IV/99 II/00 IV/00 II/01 IV/01 import trend – that the trade balance will even out for the year as a whole. In the first quarter, exports declined by 5.3% year-on-year, while imports were 12.5% below the previous year’s level. The current account deficit should decrease to US$ 800 million. Capital account: expected decline in capital inflows BOND YIELD SPREAD Significant expectations associated with the new government’s ecoEMBI+ bps nomic policy and prospects of affirming the economic upturn re- 890 sulted in increased capital inflows in the first quarter. This contrib- 790 uted to a marked reduction of risk premiums on Peruvian bonds. This development was accompanied by a high inflow of direct in- 690 vestments. We fear, however, that the stagnating reforms and the absence of the expected upturn already reflected in increased bond 590 spreads will result in lower capital inflows. 490 390 May-01 50 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Kai Stefani +49 40 3595 3486 Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru MONTHLY AND QUARTERLY FIGURES PERU: MONTHLY INDICATORS Jan-02 Feb-02 Mar-02 % yoy 3.9 3.4 1.6 Apr-02 next/latest DOMESTIC ECONOMY Economic activity index Economic activity index (s.a.) 12-Jun % mom -0.4 0.4 1.2 14-Jun Industrial production % yoy 1.5 0.3 -4.3 14-Jun Tax revenues (central government)* % yoy 4.3 -14.1 -9.6 Cement Sales (ASOCEM)* % yoy 14.0 11.6 23.7 Construction sector % yoy 15.6 13.0 2.6 14-Jun Fishing sector % yoy -6.0 -22.3 -23.9 14-Jun 12-Jun 15.3 17-Apr Trade index* % yoy 1.9 0.3 -0.9 14-Jun Employment index (1994=100) % yoy 1.5 1.9 2.0 14-Jun Consumer prices % yoy -0.8 -1.1 -1.1 0.1 2-Jun Consumer prices % mom -0.5 -0.6 0.0 0.0 2-Jun Core inflation % yoy 0.5 0.5 0.4 0.1 3-Jun Core inflation % mom -0.1 -0.1 0.0 0.2 3-Jun Money supply M1 % yoy 10.3 11.0 12.9 7.4 14-Jun Loan rates in US$ (TAMEX, latest: 05/21) % 9.9 9.9 10.1 10.1 10.0 Deposit rates in US$ (TIPMEX, latest: 05/21) % 2.0 1.8 1.7 1.6 1.6 Net credit of the Financial sector US$ bn 8.0 7.9 8.0 7.9 3-Jun Deposits in foreign currencies US$ bn 6.0 6.0 5.9 5.8 3-Jun % 70.2 50.0 50.0 50.0 3-Jun US$ mn 519.6 500.4 554.6 512.4 12-Jun 12-Jun Share of Deposits in foreign currency EXTERNAL SECTOR Merchandise exports Merchandise exports % yoy -7.3 -9.5 1.0 -5.0 Merchandise imports US$ mn 580.7 528.1 507.8 514.7 12-Jun Merchandise imports % yoy -2.4 -18.7 -16.0 -12.0 12-Jun Trade balance US$ mn -61.1 -27.7 46.8 Foreign exchange reserves (latest: 05/15) US$ bn 8.67 9.03 8.79 9.10 9.27 Soles 3.47 3.46 3.44 3.43 3.46 Q2 01 Q3 01 Q4 01 Q1 02 -0.8 1.2 3.0 3.0 7-Aug 16-Aug US$ exchange rate (latest: 05/27) PERU: QUARTERLY INDICATORS 12-Jun next/latest DOMESTIC ECONOMY GDP % yoy Private consumption % yoy 1.5 1.2 1.4 2.0 Public consumption % yoy -3.0 0.5 7.1 3.7 16-Aug Private and public investment % yoy -10.4 -6.9 -6.3 -3.5 16-Aug Domestic demand % yoy -1.2 -0.3 0.6 1.0 16-Aug Exports (goods and services)* % yoy 3.0 13.2 8.7 5.4 16-Aug Imports (goods and services)* % yoy 0.7 4.7 -4.7 -5.9 16-Aug Budget balance, public sector % of GDP -2.4 -2.8 -5.6 -1.5 16-Aug US$ bn 18.9 19.4 19.0 19.1 16-Aug Current account balance US$ mn -308 -144 -223 -343 16-Aug Net foreign direct investment US$ mn 82 313 430 224 16-Aug Portfolio investment US$ mn 7 -4 -190 -311 16-Aug Capital account** US$ mn 530 444 180 445 16-Aug Change in foreign exchange reserves US$ mn 230 338 -66 174 16-Aug Gross foreign debt US$ bn 27.7 27.9 27.4 27.5 16-Aug Short-term foreign debt US$ bn 3.4 3.1 3.1 3.1 16-Aug Public foreign debt EXTERNAL SECTOR *real ** incl. residual items Dresdner Bank Lateinamerika, Spotlight 6/2002, Peru 51 URUGUAY: WITHOUT INVESTMENT GRADE Aera Population 174 800 sq.km 3.4 million (+ 0.7% p.a.) State president Finance minister Central bank president Jorge Batlle Alberto Bensión César Rodríguez Batlle Next elections State president: May 2004 Parliament: May 2004 GDP per capita US$ 5 585 (2001) Rating Moody’s: Ba2 S&P: BB- ANNUAL FIGURES AND FORECASTS URUGUAY 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % -2.8 -1.4 -3.1 -3.7 1.8 GDP US$ bn 20.9 20.1 18.7 14.0 11.8 Inflation (year-end) % 4.2 5.1 3.6 11.5 9.0 Inflation (year-average) % 5.7 4.8 4.4 7.7 10.0 Budget balance, public sector % GDP -4.1 -4.0 -4.2 -3.5 -3.8 Merchandise exports US$ mn 2291 2384 2140 2210 2470 Merchandise imports US$ mn 3186 3312 2910 2630 2760 Trade balance US$ mn -895 -928 -770 -420 -290 Current account balance US$ mn -507 -523 -480 -300 -190 Current account balance % GDP -2.4 -2.6 -2.6 -2.1 -1.6 Net foreign direct investment US$ mn 238 285 319 150 350 Foreign exchange reserves, year-end US$ mn 2081 2479 3097 2000 2200 Import cover * months 5.1 5.8 8.2 5.9 6.1 US$ exchange rate, year-end Pesos 11.6 12.5 14.1 22.9 25.5 US$ exchange rate, average Pesos 11.3 12.1 13.3 18.4 24.5 EXTERNAL SECTOR FOREIGN DEBT 52 Gross foreign debt** US$ bn 8.2 8.6 9.0 9.7 9.7 Foreign debt** % exports* 191 192 224 259 236 Short-term foreign debt** US$ bn 3.8 3.3 3.2 3.7 3.5 Foreign debt service US$ bn 0.9 0.9 0.9 0.9 1.1 Foreign debt service % exports* 21 20 23 24 * goods and services ** excl. deposits of foreigners Dresdner Bank Lateinamerika, Spotlight 6/2002, Uruguay 27 f=forecast SUMMARY AND OUTLOOK Domestic policy: increased risk of contagion from Argentina In line with the ongoing crisis in Argentina, the macro-economic situation in Uruguay has deteriorated significantly over the past several months. After GDP had declined by 3.1% in 2001, at present the economy continues to be sluggish, and we anticipate a further drop of around 3.7% this year. In reaction to the stronger devaluation trend, the inflation rate has increased substantially following a low in 2001 (year-end: 3.6%) and will presumably finish the year 2002 at 11.5%. Against the backdrop of the recession phase under way for more than three years now and the rigid spending structure of the state sector, which resulted in a budget deficit of 4.2% of GDP in 2001, the debt ratio reached about 54% of GDP at the end of last year (1998: approx. 35%). Assuming that the government will once again fail to meet the budget deficit limit of In the wake of the Argentinean crisis the economic situation has deteriorated significantly since the beginning of the year and resulted in the loss of the country’s „investment grade“ status. Against the backdrop of the continuous reduction of foreign currency reserves, the approval of multilateral loans minimizes the risk of the country’s insolvency in the short term. The question remains, however, whether renewed financial aid from the IMF will be able to stop or curb the outflow of deposits and thus avert a banking crisis. 2.5% of GDP agreed with the IMF (forecast 2001: -3.5%) in spite of the austerity and tax measures announced since the beginning of the year, the international rating agencies revoked the country’s investment grade status. Further downgrades might follow. In the short term the financing requirements of the public sector (amortization of debt + budget deficit) DEPOSITS & FOREIGN EXCH. RESERVES should be met without any major problems following the approval of an IMF facility of US$ 742 million in March and additional funds promised by the IMF and other multilateral lenders (totaling US$ 3 billion according to the local media). The medium-term consolidation of the public finances continues to pose a challenge, however. Deposits, US$ bn Forex reserves, US$ 16 4 12 3 8 2 4 1 External sector: tense foreign exchange situation Following the free float of the Argentine peso and the downgrading of Uruguayan foreign debt, the Uruguayan peso has come under increasing pressure over the past few months. The average risk premium on 0 Uruguayan government bonds has increased accordingly, from 200 Jan-00 0 Oct-00 Jul-01 Apr-02 bp at the beginning of the year to almost 1300 bp at times. Increasing liquidity squeezes in the banking system also contributed to these developments after a continuous outflow of savings deposits (JanuaryApril 2002: -30%), of Argentinean investors in particular, was recorded and the country’s largest private bank, Banco Comercial, made head- EXCHANGE RATE AND BOND SPREAD lines because of its involvement in a fraud scandal. Due to the drain on deposits, the country’s foreign currency reserves decreased by half, to Pesos/US$ yield spread (República AFAP), bps 1400 18 US$ 1.57 billion in the first four months. Despite the increased speed of 1200 devaluation to 33% p.a. and the expanded bandwidths from 6% to 12%, since April the peso has been testing the ceiling of the foreign 1000 16 800 exchange band (depreciation from the beginning of the year to May 21: 15%) and indicates that a further acceleration in depreciation or a 600 14 400 change in the country’s exchange-rate regime may be on the cards. 200 12 Christine Thomas do Prado + 55 11 5188 6968 Dresdner Bank Lateinamerika, Spotlight 6/2002, Uruguay Jan-02 0 Mar-02 May-02 53 VENEZUELA: TIGHT BUDGET SITUATION Area Population 912 050 sq. km 24.7 million (+ 2.2% p.a.) State president Finance minister Central bank president Hugo Chávez Frías Tobías Nóbrega Diego Luis Castellanos Escalona Next elections State president: 2006 Parliament: 2006 GDP per capita US$ 5 320 (2001) Investment Savings 18% of GDP (2000) 30% of GDP (2000) Exchange rate system Monetary policy Flexible exchange rate Inflation targeting Exports (2000) 28% of GDP Purchasing countries (1999) USA 51%, Brazil 5%, Colombia 4% Products Crude Oil and derivatives 84%, metals and metal goods 5% Imports (2000) Supplier countries Products (1999) 13% of GDP USA 39%, Colombia 7%, Brazil 5% Raw materials 54%, machinery and equipment 26% Rating: Moody’s: B2 S&P: B SUMMARY AND OUTLOOK The failed coup in April that saw president Chávez stripped of his power for 48 hours should have convinced the opposition that it is still too divided and too weak to oust Chávez from office prematurely. On the other hand, the president will have realized that he can only remain in power if the economy does not slide downhill any further. By manning the economic ministry with experts approved by the business community, a course of greater consistency in economic policy is more likely to result. Concrete measures are still lacking, however, and the starting position is unfavorable. For instance, GDP unexpectedly saw a marked decline by 4.2% year-on-year in the first quarter. We have revised our growth forecast for 2002 downward from –3.3% to –4.3%. A matter of concern is the ongoing capital exodus, which contributed to the decline in international reserves by more than US$ 3 billion in the first quarter. This year capital flight most probably will exceed double the amount of the surplus of US$ 4.9 billion that we expect to be recorded in the current account. 54 Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela ANNUAL FIGURES AND FORECASTS VENEZUELA 1999 2000 2001 2002f 2003f DOMESTIC ECONOMY GDP change (real) % GDP US$ bn -6.1 3.2 2.7 -4.3 1.0 103.3 121.3 124.9 98.4 89.5 Inflation (year-end) % 20.0 13.4 12.3 34.0 19.0 Inflation (average) % 23.6 16.2 12.5 25.7 23.8 % GDP -1.6 -1.6 -4.3 -4.5 -4.2 Budget balance, public sector % GDP 0.7 4.3 -4.4 -4.1 -3.7 Public debt % GDP 26 25 28 32 37 Amortization US$ bn 6.0 5.9 6.8 n.a. n.a. Gross financing needs US$ bn 5.0 0.7 12.3 n.a. n.a. US$ bn 20.8 33.0 26.8 25.6 25.9 Merchandise imports US$ bn 13.2 15.5 17.4 15.6 16.0 Trade balance US$ bn 7.6 17.5 9.4 10.0 9.9 Current account balance US$ bn 3.6 13.1 4.1 4.9 4.5 Current account balance % GDP 3.5 10.8 3.3 5.0 5.0 Net direct investment US$ bn 2.8 4.4 2.6 1.0 2.0 Foreign exchange reserves, year-end ** US$ bn 12.3 13.1 9.2 5.9 5.6 Import cover **) ***) months 7.2 6.6 4.2 3.0 2.7 PUBLIC SECTOR Budget balance, central government EXTERNAL SECTOR Merchandise exports US$ exchange rate, year-end Bolívares 648 700 763 1160 1400 US$ exchange rate, average Bolívares 606 680 724 1020 1285 Gross foreign debt US$ bn 37.0 34.1 33.0 34.0 34.8 Foreign debt % exports *** 152 92 107 114 115 Short-term foreign debt US$ bn 7.5 7.1 6.7 7.0 7.4 Foreign debt amortization US$ bn 3.7 3.4 2.8 3.1 3.3 Foreign debt service US$ bn 6.4 6.1 4.9 5.1 5.5 Foreign debt service % exports *** 26 16 16 17 18 17.3 13.5 19.5 35.0 20.0 ICB stock index (bolívar based, 2002: 05/27) 5418 6825 6570 7369 IFCG stock index (US$ based, 2002: 05/27) 243 308 246 203 844 958 1128 858 FOREIGN DEBT FINANCIAL MARKETS (year-end) Deposit rate, 90 days Bond market yield spread (2002: 05/27)* * EMBI+ ** Central bank only, without FIEM % bp *** goods and services Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela f=forecast 55 GDP CHANGE (REAL) Domestic policy: political crisis continues to smolder In April the dissatisfaction with President Chávez escalated when proChávez-supporters took over the management of the oil company PDVSA. A general strike was followed by riots claiming at least 17 lives. Ultimately, military units removed President Chávez from office for about %, yoy 10 8 6 4 48 hours. The power situation has not become any clearer. The opposition, which was unable to take advantage of its unique opportunity, emerged debilitated from this encounter and can only try – in particular since the military continues to be divided – to remove the president from 2 0 -2 -4 -6 -8 -10 II/98 I/99 IV/99 III/00 II/01 I/02 IV/02f III/03 ers. According to Datanálisis the approval ratings for Chávez’ policy barely reached 34% in February 2002. This could have been one of the reasons for the initial willingness he indicated after his return to office to be more accommodating toward the country’s opposition. He launched BUDGET BALANCE % of GDP public sector central government 5 4 3 2 1 a committee for national dialog and appointed the incumbent OPEC Secretary-General Ali Rodriguez, a well-respected personality, to the board of PDVSA. Chávez has also reshuffled his Cabinet, with marketoriented economic experts (who are also accepted by the business community since they can be expected to deliver greater consistency with regard to economic measures) being placed in the three economic ministries (finance, planning as well as trade and industry). Diosdado Cabello, a loyal Chávez supporter, was appointed minister of 0 -1 -2 -3 -4 -5 1999 2000 2001 2002f 2003f % the interior and justice. He is also in charge of the Bolivarian circles, which support the Bolivarian revolution of the president. In the wake of the incidents of April they have gained new followers and now account for 130,000 (formerly 80,000) members. We are under the impression that the president is pursuing the announced reconciliation with the opposition only half-heartedly and that strengthening his power base still remains his primary objective. The INTEREST RATE deposits credits National Dialog is not making any headway because numerous important interest groups – among them the trade union umbrella organization CTV and the trade association Fedecámaras - are not represented on the committee. The military saw a substantial number of its leaders 80 70 60 50 being replaced by lower-ranking Chávez supporters. Conclusion: President Chávez largely continues to adhere to the existing policy. However, his replacements in the economic ministries indicate that at this stage he is prepared to make concessions at least in terms of eco- 40 30 20 10 0 nomic policy. Jan-01 56 office by legal means. It seeks a reduced presidential term of office from 6 to 4 years or to vote him out of office mid-term. President Chávez had to realize that the discrepancy between his promises and the actual economic situation has drastically reduced the number of his support- Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela INFLATION Fiscal policy: rapidly growing budget deficit The high oil prices – at US$ 19.2/b they have markedly exceeded the revised budget estimate of US$ 16 per barrel in the course of the year – have softened the budgetary crisis of the public sector. The liquidity situation is so tense that the government increasingly fails to meet its payment obligations. Contributory factors are the failure to implement the 7% expenditure cut announced in February and the fact that oil exports saw a temporary setback due to the disputes arising in connection with the PDVSA leadership. A 20% wage increase constitutes an additional burden on the budget. Finance minister Nobrega was correct in realizing that countermeasures can no longer be put off if an increase in the central government’s deficit to more than US$ 7 billion is to be averted. Financing the deficit is also becoming more and more % retail prices wholesale prices 30 25 20 15 10 5 Jan-01 Apr-01 Jul-01 difficult for Venezuela. Due to the high country risk, international bond markets call for risk spreads of about 850 bp, and on the domestic market it has virtually become impossible to place government bonds despite the high interest rates (the last time still in the region of 33% for 3-month instruments). This is because, due to the decline in deposits (April: -12% compared to the beginning of the year) and the increasing share of bad debts (March 2002: 7.5% of receivables), as a result of the long phase of high interest rates the liquidity of banks is decreasing steadily. Due to the fact that the central government has already made full use of its share it is denied renewed access to the reserves of the FIEM stabilization fund. For this reason finance minister Nobrega plans to also approach multilateral banks such as the World Bank, the InterAmerican Development Bank (IDB) and the Andean Development Corporation (CAF) to secure US$ 3 – 3.5 billion in financing. The procurement of capital is to be facilitated by negotiating a new consultation agreement with the International Monetary Fund. In order to boost Oct-01 Jan-02 BOND YIELD SPREAD EMBI+ bps 1400 1200 1000 800 600 May-00 Nov-00 May-01 Nov-01 state revenues, the government is considering an increase in valueadded tax (currently 14.5%) by 2 percentage points, an increase in the subsidized petrol prices and a gradual phase-out of various tax benefits. Since we are not convinced yet that Nobrega will also be able to implement his measures, we maintain our forecast of the central government’s deficit of 4.4% of GDP based on the assumption of an average oil price of US$ 20 per barrel and a 4.3% contraction in GDP. Apr-02 May-02 OIL PRICE US$/b Venezuela oil basket WTI 30 26 Economy: still no light at the end of the tunnel The anti-investment economic policy, reduced oil production, high interest rates as well as heavy price hikes of inputs and increased foreign debt service due to the depreciation of the bolívar (more than 20% by the end of May since going into free float in February) have severely 22 18 14 May-01 Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela Aug-01 Nov-01 Feb-02 May-02 57 FOREIGN EXCHANGE RESERVES US$ bn total central bank hampered the economy. Nevertheless, the GDP shrinkage in the first quarter of this year by 4.2% year-on-year came as a negative surprise stabilization fund 14 for us. Since the April incidents will most probably have repercussions on the investment climate in the second and third quarters, an increase in minimum wages by 20% has to be absorbed and the state will presumably raise the tax burden accordingly, we now anticipate a 12 decrease in GDP by 4.3% (previously 3.3%). (gold incl.) 20 18 16 10 8 Inflation: rate continues to rise The annual inflation rate rose to 18.7% in April as a result of the strength- 6 4 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 est rates. In return it accepts that the bolívar continues to depreciate steadily in real terms and only intervenes in a targeted support of the exchange rate when the domestic currency comes under massive pressure from private capital outflows, which in light of the uncertain CURRENT ACCOUNT BALANCE US$ bn ening of the dollar by more than 30% in the course of the year and the step-by-step relaxation of the restrictive monetary policy, which is supposed to reduce interest rates. In view of the poor economy, the central bank will most probably continue to work towards a reduction of inter- % of GDP 14 12 12 10 10 8 political outlook and the absence of a fundamental reorientation of economic policy will continue to be the case in future. Our assumption that the inflation rate will exceed 30% by year-end remains unchanged. 8 6 6 4 4 2 2 0 0 1999 2000 2001 2002f 2003f External sector: recession diminishes import requirements The decline in import demand is likely to continue due to cyclical and exchange-rate related factors and the outlook for oil prices has markedly improved again – the average price for the year should, as in 2001, be in the region of US$ 20 per barrel. We expect the current account to reflect a surplus of US$ 4.9 billion (previously US$ 5.6 billion) for 2002 as a whole, following the disappointing results in the first quarter of this year (+ US$ 0.1 billion compared to +US$ 2.4 billion in the first quarter of 2001). EXCHANGE RATE 1100 Exchange rate: central bank saves its foreign currency reserves In the aftermath of the incidents of April, which reignited capital flight, Bolivares/US$ the bolívar has come under sustained pressure once again. As the central bank is now reluctant to intervene, the US$ exchange rate has risen again to more than 1000 bolívares. The central bank’s reserves have been spared, however. In spite of the negative effects of the coup 1000 900 800 attempt, they still remain at their level of end-March. Reserves, including those of the FIEM stabilization fund (incl. gold) currently add up to US$ 15.2 billion. 700 600 May-00 58 Nov-00 May-01 Nov-01 May-02 Bolko Schwanecke +49 40 3595 3605 Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela MONTHLY AND QUARTERLY FIGURES VENEZUELA: MONTHLY INDICATORS Jan-02 Feb-02 Mar-02 Apr-02 -30.3 19.2 next/latest DOMESTIC ECONOMY Industrial production (private sector) % yoy Car sales % yoy 55.3 20.2 % 16.4 15.0 Consumer prices % yoy 12.3 13.7 17.6 18.7 3-Jun Consumer prices % mom 0.9 1.8 4.2 2.1 3-Jun Producer prices % yoy 6.3 9.9 19.0 20.2 Producer prices % mom 0.4 3.5 8.9 1.6 Money supply M2 (latest: 05/03)* Bolívar bn 16107 15026 14721 14521 Money supply M2 (latest: 05/03)* % yoy 3.1 -2.9 -3.6 -4.2 -3.0 Lending rate (latest: 05/13)* % 35.2 60.9 50.9 48.5 38.0 Deposit rate (latest: 05/13)* % 24.3 26.4 52.7 38.7 33.0 Unemployment rate Interbank interest rate (latest: 05/27)* Credit volume (latest: 05/03)* Credit volume (latest: 05/03)* 8-Jun 14736 % 26.0 51.4 50.7 22.1 16.4 Bolívar bn 9128 8789 8282 8231 8198 % yoy 18.0 9.8 6.1 2.8 2.5 Deposits (latest: 05/03)* Bolívar bn 14257 13513 12678 12912 12999 Deposits (latest: 05/03)* % yoy 5.7 -3.9 -8.1 -4.8 -4.4 Oil price (Venezuelan exports, latest: 05/24) US$/barrel 15.82 16.31 20.25 21.34 23.52 Oil price (Venezuelan exports, latest: 05/24) % yoy -31.8 -27.4 0.2 -4.3 4.0 6.58 EXTERNAL SECTOR Foreign exchange reserves (CB, latest: 05/27)* US$ bn 7.58 6.63 6.16 6.63 Forex reserves (FIEM***, latest: 05/27)* US$ bn 6.20 5.70 5.73 5.30 5.30 Bolívares 764 1060 891 843 1010 Q2 01 Q3 01 Q4 01 Q1 02 next/latest 3.1 3.3 0.9 -4.2 31-Aug US$ exchange rate (latest: 05/27)* VENEZUELA: QUARTERLY INDICATORS DOMESTIC ECONOMY GDP % yoy GDP, private sector % yoy 6.2 6.1 3.5 -3.2 31-Aug GDP, public sector % yoy -1.9 -1.1 -3.5 -5.9 31-Aug Oil sector % yoy -1.3 -0.5 -5.0 -7.6 31-Aug Manufacturing industry % yoy 5.1 2.7 0.1 -6.3 31-Aug Financial services and real estate % yoy -0.1 1.4 -1.8 -7.3 31-Aug Commerce % yoy 4.9 5.3 1.8 -5.7 31-Aug Bolívares bn -550 -859 -3423 Budget balance, public sector 14-Jun EXTERNAL SECTOR Merchandise exports US$ bn 7.12 7.02 5.31 5.52 31-Aug Exports of oil and derivatives US$ bn 5.82 5.70 4.03 4.36 31-Aug Merchandise imports US$ bn 4.44 4.70 4.29 3.57 31-Aug Trade balance US$ bn 2.68 2.33 1.02 1.95 31-Aug 31-Aug Current account balance balance US$ bn 1.55 0.74 -0.62 0.11 Net foreign direct investment US$ bn 0.45 1.43 1.43 0.20 31-Aug Portfolio investment US$ bn 0.34 0.33 0.30 -0.46 31-Aug 31-Aug Capital account** US$ bn -1.78 -1.84 0.78 -3.81 Change in foreign exchange reserves (Centr. B.) US$ bn -1.41 -1.60 0.26 -3.07 US$ bn 0.53 0.51 -0.85 -0.64 Change in foreign exchange reserves (FIEM)*** *month-end ** incl. residual items ***macroeconomic stabilization fund Dresdner Bank Lateinamerika, Spotlight 6/2002, Venezuela 59 FINANCIAL MARKETS: LATIN AMERICAN STOCK MARKET INDICES ARGENTINA BRAZIL Merval (Peso) IFCI (US$) 400 1400 20000 IFCI (US$) 600 200 1200 18000 500 000 1000 16000 400 800 800 14000 300 600 600 12000 200 10000 100 400 Bovespa (Reais) 400 200 200 0 0 May-00 Nov-00 May-01 Nov-01 8000 May-02 0 May-00 Nov-00 May-01 Nov-01 May-02 COLOMBIA CHILE IPSA (Peso) IFCI (US$) IBB/ IGBC (Peso) 120 800 1200 110 700 1100 100 600 90 500 IFCG 800 700 IGBC 1000 IBB 900 600 800 80 400 70 300 May-00 Nov-00 May-01 Nov-01 500 700 600 May-02 400 May-00 Nov-00 May-01 Nov-01 May-02 PERU MEXICO IFC (Peso) IGBVL (Sol) IFCI (US$) 1000 9000 IFCI (US$) 1800 180 1600 160 1400 140 1200 120 950 900 8000 850 800 7000 750 700 6000 650 5000 600 May-00 Nov-00 May-01 Nov-01 1000 100 May-00 May-02 Nov-00 May-01 Nov-01 May-02 LATIN AMERICA VENEZUELA ICB (Bolivar) IFCI Emerging markets IFCG 9000 500 IFCI Latin America 800 700 8000 400 600 500 7000 300 400 6000 300 200 5000 200 4000 May-00 60 100 Nov-00 May-01 Nov-01 May-02 100 May-00 Nov-00 May-01 Dresdner Bank Lateinamerika, Spotlight 6/2002 Nov-01 May-02 FINANCIAL MARKETS: LATIN AMERICAN BOND YIELD SPREADS ARGENTINA BRAZIL EMBI+ bps 7000 EMBI+ bps 1300 6000 1100 5000 4000 900 3000 2000 700 1000 0 May-00 500 Nov-00 May-01 Nov-01 May-02 May-00 Nov-00 May-01 Nov-01 May-02 COLOMBIA CHILE 6 7/8 % US$ bond (2009) bps 260 EMBI+ bps 1000 900 220 800 180 700 600 140 500 100 400 May-00 Nov-00 May-01 Nov-01 May-00 May-02 Nov-00 May-01 Nov-01 May-02 PERU MEXICO EMBI+ bps 1100 EMBI+ bps 500 450 900 400 700 350 300 500 250 300 200 May-00 Nov-00 May-01 Nov-01 May-02 Nov-00 May-01 Nov-01 May-02 LATIN AMERICA VENEZUELA EMBI+ bps 1400 bps 1200 1200 JP Morgan Latin America Eurobond Portfolio (LEI) 1000 1000 800 800 600 600 May-00 May-00 Nov-00 May-01 Nov-01 May-02 Dresdner Bank Lateinamerika, Spotlight 6/2002 400 May-00 Nov-00 May-01 Nov-01 May-02 61 DBLA - AN OVERVIEW Head Office: Chairman of the Supervisory Board: Heinrich Linz Neuer Jungfernstieg 16, 20354 Hamburg Postfach 30 12 46, 20305 Hamburg Tel.: (+49 40) 3595-0 Fax: (+49 40) 3595 3314 Telex: 214 236-0 dl d S.W.I.F.T. DRES DE HL http://www.dbla.com Board of Managing Directors: Holger F. Sommer, Chairman Horst Herrmann Richard Voswinckel Regional Managers: Argentina: Horst Tiedemann, Miami Torre Alem Plaza Avenida Leandro N. Alem 855, piso 23 1001 Buenos Aires Casilla 574, 1000 Buenos Aires Tel.: (+54 11) 4590 7900 Fax: (+54 11) 4590 7910 E-Mail: [email protected] Central America and Caribbean, Colombia, Ecuador, Venezuela Tel.: (+1 305) 810 3118 Fax: (+1 305) 810 3117 Luis Niño de Rivera, Mexico City Senior Country Manager and Representative: Juan G. Gruben Senior Country Manager: Marcelo Imhoff Country Manager and Assistant Representative: Rodolfo G. Kempter Country Managers: Juan E. Koch Martín Montoya Dolores Pérez del Cerro Mathias Pfaeffli Christian Wentzel (CCB) CTF: Eva Göb-Cribb Mexico Tel.: (+52 5) 258 3004 Fax: (+52 5) 258 3010 Prof. Dr. Winston Fritsch, Rio de Janeiro Brazil Tel.: (+55 21) 3824 3500 Fax: (+55 21) 3824 3501 Pedro R. Nowald, Buenos Aires Argentina, Paraguay and Uruguay Tel.: (+54 11) 4590 7900 Fax: (+54 11) 4590 7910 Ewald Doerner, Santiago de Chile Bolivia, Chile, Peru Tel.: (+56 2) 731 4444 Fax: (+56 2) 731 3307 Representative Office Buenos Aires Bolivia: Representative Office La Paz o Calle Rosendo Gutiérrez N 136 esq. Av. Arce Edificio Multicentro, Torre B, Piso 8 Casilla 1077, La Paz Tel.: (+591 2) 24 32 14 Fax: (+591 2) 24 32 15 E-Mail: [email protected] Dresdner Private Banking - The Americas: Andreas Ehlebracht, Miami Tel.: (+1 305) 810 3735 Fax: (+1 305) 810 3737 oder 4050 Country Manager and Representative: Catrin Pietsch (based in Lima) Hans-Georg Martens, Hamburg Tel.: (+49 40) 3595 3531 Fax: (+49 40) 3595 3868 David W. Roda, Miami Tel.: (+1 305) 810 3739 Fax: (+1 305) 810 4053 Special Finance: Special Finance Northern Cone, Caracas Dr. Jerzy Majewski Tel.: (+58 212) 263 4963 Fax: (+58 212) 263 4086 Special Finance Southern Cone, Buenos Aires Klaus Kathmann Brazil: Dresdner Bank Brasil Dresdner Bank Lateinamerika AG São Paulo Branch Dresdner Bank Brasil S.A. Banco Múltiplo Management: Prof. Dr. Winston Fritsch Martin Duisberg Rolf-Otto Ladde Corporate Banking: Ricardo Cohen Tel.: (+54 11) 4590 7950 Fax: (+54 11) 4590 7959 62 Dresdner Bank Lateinamerika, Spotlight 6/2002 Brazil: Dresdner Brasil Representações Ltda. São Paulo: (formerly Sudamero Consultoria Ltda.) Centro Empresarial Transatlântico Rua Verbo Divino, 1488 - 2° andar 04719-904 São Paulo-SP Caixa Postal 1665 01064-970 São Paulo-SP Tel.: (+55 11) 5188 6700 Fax: (+55 11) 5188 6980 E-Mail: [email protected] Centro Empresarial Transatlântico Rua Verbo Divino, 1488 - 1° e 2° andares Chácara Santo Antônio 04719-904 São Paulo-SP Caixa Postal 3641, 01060-970 São Paulo-SP Tel.: (+55 11) 5188 6700 Fax: (+55 11) 5188 6900 Telex:11 53 207 dbla br, 11 53 208 dbla br S.W.I.F.T. DRES BR SP, DBBM BR SP E-Mail: [email protected] Rolf-Rainer Tessmer Corporate Banking: María do Carmo C.A. Silva Rio de Janeiro: Cayman Islands: Grand Cayman Branch Anderson Square Building P.O. Box 714 GT Grand Cayman, Cayman Is., B.W.I. Tel.: (+1 345) 949 8888 Fax: (+1 345) 949 8899 Telex: 4 285 dl cp S.W.I.F.T. DRES KY KX E-Mail: [email protected] Av. Presidente Wilson, 231-17° andar, Centro 20030-021 Rio de Janeiro-RJ Tel.: (+55 21) 3824 3500 Fax: (+55 21) 3824 3501 E-Mail: [email protected] Corporate Banking: Michael Magrath Management: Bor Alexander van der Weerden Carsten Oergel Senior Trust Manager: Roy Towne Belo Horizonte Rua Paraíba, 1000 - 6° andar Edifício Asamar 30130-141 Belo Horizonte-MG Tel.: (+55 31) 3261 7737 Fax: (+55 31) 3261 3667 E-Mail: [email protected] Corporate Banking: Lúcio Antônio Vieira Campinas Rua Sacramento, 126 - 5° andar, Centro 13010-210 Campinas-SP Tel.: (+55 19) 3234 3414 Fax: (+55 19) 3234 3745 Telex: 1 93 013 dbla br E-Mail: [email protected] Corporate Banking: Nelson Torres Curitiba Edifício Curitiba Trade Av. Dr. Carlos de Carvalho, 417 - 13° andar, sala 1303, Centro 80410-180 Curitiba-PR Tel.: (+55 41) 324 4221 Fax: (+55 41) 324 4697 E-Mail: [email protected] Corporate Banking: Raul Ribas Chile: Dresdner Bank Lateinamerika Huérfanos 1219 Casilla 10492 Santiago de Chile Tel.: (+56 2) 731 4444 Fax: (+56 2) 671 3307 Telex: 64 53 47 dres bk cl S.W.I.F.T: DRES CL RM E-Mail: [email protected] Management: Ewald Doerner Roland Jacob Firmenkundengeschäft: Miguel Ángel Delpín Alfonso Píriz Representative Office Santiago de Chile Huérfanos 1219, Entrepiso Casilla 9972 Santiago de Chile Tel.: (+56 2) 688 0411 Fax: (+56 2) 688 0422 E-Mail: [email protected] Country Manager and Assistant Representative: Jan von Dobbeler Dresdner Lateinamerika S.A. Corredores de Bolsa Huérfanos 1219, 5° piso Santiago de Chile Tel.: (+56 2) 696 0096 Fax: (+56 2) 699 5083 E-Mail: [email protected] General Manager: Sergio Anguita G. Dresdner Bank Lateinamerika, Spotlight 62002 63 Colombia: Representative Office Bogotá, D.C. El Salvador: Representative Office San Salvador er Edificio ConstruMarket 3 nivel Av. Albert Einstein 17C Lomas de San Francisco Antiguo Cuscatlán La Libertad, San Salvador Tel.: (+503) 273 4738 Fax: (+503) 273 4765 E-Mail: [email protected] Calle 100 No. 7-33, oficina 1802 Edificio Capital Tower, Torre 1 Bogotá, D.C. Apartado Aéreo 59303 Bogotá, D.C. 2 Tel.: (+57 1) 655 6990, 524 7868 Fax: (+57 1) 524 7881, 524 7907 E-Mail: [email protected] Country Manager and Representative: Jörg Dittmer Country Manager Jesús A. Vaca Murcia Costa Rica: Representative Office San José (Costa Rica and Nicaragua) Guatemala: Representative Office Guatemala (Guatemala, Honduras and Belize) a 5 Avenida 15-45, Zona 10 Edificio Centro Empresarial Torre II, 10° piso, Of. 1001-8 01010 Guatemala Apartado 57-F, 01901 Guatemala Tel.: (+502) 333 7205-07, 363 2550,363 2553, 363 2560 Fax: (+502)333 7208, 363 2556 E-Mail: [email protected] Edificio Torre Mercedes, 8° piso Calle 24, Paseo Colón Apartado 162, 1007 Centro Colón San José, Costa Rica Tel.: (+506) 295 6790 Fax: (+506) 295 6880 E-Mail: [email protected] Country Manager and Representative: Claus Elsner Country Manager and Assistant Representative: Horacio Vivas (CCB) Ecuador: Senior Country Manager and Representative: Bernd Kleinworth Country Managers and Assistant Representatives: Bertram Heyd Sören Kruse (CCB) Country Managers: Carlos Lemos David Silvester Representative Office Quito Avda. Naciones Unidas y República de El Salvador Edificio Citiplaza, piso 11 Casilla 17-01-2179 Quito Tel.: (+593 2) 2970 747/48/49/50 Fax: (+593 2) 2970 753 E-Mail: [email protected] Country Manager and Assistant Representative: John Viault Senior Country Manager / Investment Management: Wolfgang Leander México: Representative Office México, D.F. Bosque de Alisos 47-A, 4° piso Col. Bosques de las Lomas 05120 México, D.F. Tel.: (+52 55) 5258 3170 Fax: (+52 55) 5258 3199 E-Mail: [email protected] Senior Country Manager and Representative: Stephen Lloyd Country Manager and Assistant Representative: Michael Kromm Country Manager: Rainer Hensel Dresdner Bank México, S.A. Bosque de Alisos No. 47-B, 4° piso Col. Bosques de las Lomas 05120 México, D.F. Tel.: (+52 5) 258 3000 Fax: (+52 5) 258 3100 S.W.I.F.T. DRES MX MX E-Mail: [email protected] Management: Luis Niño de Rivera 64 Dresdner Bank Lateinamerika, Spotlight 6/2002 Panama: Panama Branch U.S.A.: Representative Office Asunción 14 de Mayo 337 Edificio Asubank, 10° piso Asunción 1215 Casilla 196 Asunción 1209 Tel.: (+595 21) 49 47 10 Fax: (+595 21) 44 12 68 E-Mail: [email protected] Country Managers: Gloria de Grau Christian Wentzel (CCB, based in Buenos Aires) Peru: Representative Office Lima Av. Rivera Navarrete 620, Piso 9 San Isidro, Lima 27 Apartado 18-0624 Miraflores 18, Lima Tel.: (+51 1) 212 5060 Fax: (+51 1) 212 5165 E-Mail: [email protected] Country Manager and Representative: Catrin Pietsch Country Manager: Volker Werner th Management: Thomas Spang Carl Wolf Corporate Banking: Sergio Goloubeff (Commodity Trade Finance) Robert Barthelmess (CCB-Central/South America & Caribbean) Frank Huthnance (CCB-North America) Christian Novy (CCB-South America & Mexico) Private Banking: Nicolás Bergengruen Thomas Goessele Investments: Hans Abate Management: Klaus Müller Henning Hoffmeyer Corporate Banking: Zenobia de Fuentes Personal Banking: Sören Sammann Paraguay: Miami Agency 801 Brickell Avenue, 6 floor Miami, Florida 33131/USA P.O. Box 01-6039 Miami, Florida 33101/USA Tel.: (+1 305) 373 0000 Fax: (+1 305) 374 6912 Telex: 4961 7905 dl us S.W.I.F.T. DRES US 3M E-Mail: [email protected] Torre Dresdner Bank Calle 50 y Calle 55 Este Panamá 7, R.P. Apartado 5400, Panamá 5, R.P. Tel.: (+507) 206 8100 Fax: (+507) 206 8109 Telex: 3 106 dl pg, 2 244 dl pg, 2 420 dl pg S.W.I.F.T. DRES PA PA E-Mail: [email protected] Venezuela: Representative Office Caracas (Venezuela and Trinidad & Tobago) Centro Gerencial Mohedano, 9° piso, Of. A y B Calle Los Chaguaramos, La Castellana Apartado 61 379 Caracas 1060-A Tel.: (+58 212) 261 4097, 261 7425 Fax: (+58 212) 264 6429 E-Mail: [email protected] Senior Country Manager and Representative: Christian Sommerhalder Country Manager: Marc Czabanski (CCB) Glossary of Acronyms: Uruguay: Representative Office Montevideo CCB = Corporate and Correspondent Banking CTF = Commodity & Trade Finance Misiones 1372, Esc. 502 Casilla 1333 11.000 Montevideo Tel.: (+598 2) 916 0152, 916 0718 Fax: (+598 2) 915 1283 E-Mail: [email protected] Maria del Rosario Ambrosini Dresdner Bank Lateinamerika, Spotlight 6/2002 65 PUBLISHED BY: Dresdner Bank Lateinamerika AG Neuer Jungfernstieg 16 20354 Hamburg Germany Economics/Public Relations Dept. Chief economist: Dr. Heinz Mewes Editor: Cyrus de la Rubia, Thorsten Rülle (Miami), Walter Schäfer Tel.: (+49 40) 3595 3494 Fax: (+49 40) 3595 3497 E-Mail: [email protected] http://www.dbla.com Coordination: Kai Stefani Translation: bromberg & friends GbR, Hamburg Data sources, among others: Thomson Financial Datastream and Bloomberg Layout: Friederike Niemeyer, Hamburg Closing date: May 28, 2002 “Latin American Spotlight“ is published on a quarterly basis in German and English. Without any liability on our part. Reprints - in part or in whole - must mention source. 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 of 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. 66 Dresdner Bank Lateinamerika, Spotlight 6/2002 GLOBAL ECONOMY - FIGURES AND FORECASTS 2000 2001 27/05/02 2002f 2003f REAL GDP CHANGE * Industrial countries % yoy 3.5 1.1 1.7 2.4 USA % yoy 4.1 1.2 2.7 2.7 Euro area % yoy 3.4 1.5 1.6 2.6 Germany % yoy 3.0 0.6 1.3 2.3 Japan % yoy 1.5 -0.5 -0.7 1.1 USA, 3m money market rate % 6.5 3.3 1.9 2.3 3.5 USA, 10yr government bond yield % 6.0 5.0 5.1 5.5 5.6 Euro area, 3m money market rate % 4.4 4.3 3.5 3.5 3.9 Euro area, 10yr gov. bond yield % 5.3 4.8 5.2 5.1 5.3 INTEREST RATES, YEARLY AVERAGE* Japan, 3m money market rate % 0.3 0.2 0.1 0.1 0.1 Japan, 10yr government bond yield % 1.8 1.3 1.4 1.5 1.7 EXCHANGE RATES, YEARLY AVERAGE * US$/ Euro US$ 0.9 0.9 0.9 0.9 1.0 Yen/ US$ YEN 108 122 125 131 129 Yen/ Euro YEN 100 109 115 120 124 c/lb, NY 85.0 61.9 58.8 60.0 60.0 COMMODITY PRICES, YEARLY AVERAGE Coffee (other milds) c/lb, LME 84.0 73.0 73.0 74.0 76.0 Crude oil (WTI) US$/b 30.3 25.9 26.7 25.6 24.5 Crude oil (Brent) US$/b 28.9 24.7 24.5 24.8 23.5 US$/ounce 279 271 320 305 295 Copper Gold * Source: Dresdner Bank AG Dresdner Bank Lateinamerika, Spotlight 6/2002 f=forecast 67