SANTIAGO, Chile, June 26 (UPI) -- Equities across Latin America were mixed this week, as both Brazil and Mexico's stock indexes dropped Wednesday over concerns that the interest rate cut implemented by the U.S. Federal Reserve could hinder economic growth.
In Brazil, the government of President Luiz Inacio Lula da Silva seems to be confident nonetheless in the country's economic recovery and has accordingly unveiled a number of small schemes to spur consumption modestly.
Lula announced Wednesday the creation of credit lines for low cost loans of up to $210 as well as a plan for more people to join credit unions. The president highlighted the measure's importance, pointing out how nearly 25 million of Brazil's 170 million citizens can not access the banking system.
The authorities are also relaxing on their zealous control of inflation as Finance Minister Antonio Palocci loosened Tuesday the country's inflation targets for 2004 (4.5 percent) and 2005 (5.5 percent). Palocci stated that the goals would have a so-called tolerance band of 2.5 percent, granting the central bank room to implement other measures to stimulate growth.
The decision signals an important shift in Brazil's policy on inflation considering how the central bank maintains a sky-high benchmark interest rate of 26 percent a year. Even as the exorbitant rate has been blamed by a number of analysts as a cause for economic contraction and low domestic consumption, Brazil's economic authorities have more than their share of reasons to be wary of inflation.
A 35 percent depreciation of the Brazilian real late last year not only made inflation soar but brought yet more fears over the ravaging effects it has had on the economy in recent years.
The country's Bovespa stock index registered an overall loss of 486 points during the week, closing Wednesday at 13,025 points. Early gains were reversed once the news broke that the U.S. Federal Reserve implemented an interest rate cut of a quarter percentage point, less than what the markets expected.
Shares in long-distance company Embratel registered significant gains Wednesday as news surfaced that Mexican telecommunications giant Telmex might be interested in its acquisition. Ordinary shares of Embratel -- a subsidiary of the U.S. company MCI (formnerly WorldCom) -- rose 13 percent following a report in the Mexican business press of a possible buyout.
Embratel's stock has already gained more than 60 percent in the year so far.
Mexico's equities experienced a slight drop Wednesday as investors traded in anticipation of the U.S. Federal Reserve's decision on interest rates. Just as in Brazil, the news led earlier gains to be reversed as investors showed concern over the Mexican economy's inextricable ties to the U.S. market.
Throughout the week, however, the Mexican market had been garnering mixed signals from official economic indicators.
On Monday, the Finance Ministry stated that the country's trade deficit had been significantly reduced as it fell from April's $715 million to $314 million in May. Even as the deficit was lower than industry expected, the figures could not disguise the fact that Mexico's trade account was only propped up by a significant growth in oil exports and a generalized fall in imports.
Economic growth in Mexico nonetheless registered a slight growth in recent months, as government agency INEGI stated Wednesday that economic activity increased by 0.5 percent in April compared to the previous month.
Mexico's IPC index lost 47 points over the week closing Wednesday at 7,078 points.
Polls in Argentina are granting President Nestor Kirchner an approval rate as high as 80 percent, as investors seem to be slowly regaining confidence in the depressed domestic economy. Kirchner's careful fiscal policies and a stabilized local currency have not only garnered kudos from the average Argentine but also from the organization that in recent years has been the country's harshest critic: the International Monetary Fund (IMF).
It was only Tuesday that visiting IMF representatives broke the pattern in their troubled relationship with Argentina's authorities and commended Kirchner's policies for economic recovery.
IMF Managing Director Horst Kohler pointed out how implementing Kirchner's "vision" on how to pull out from more than four years of recession could lead Argentina "to strong growth and social cohesion."
The IMF is thinking of negotiating a three-year recovery plan with Argentina. The deal could also help to put an end to the uncertainty surrounding IMF-Argentina talks, which have made little progress ever since January, when the country signed a $7 billion rollover agreement with the fund.
The agreement, however, is set to expire in August and unless both parties reach a new deal it is highly unlikely that Argentina will be able to meet its nearly $3 billion in debt commitments coming due for September.
In spite of the exchange of pleasantries that characterized Kohler's two-day visit to the capital city of Buenos Aires, the IMF representative reminded local authorities that the fund would not desist in its desire to sponsor further structural reforms to Argentina's collapsed banking system. Kohler was accordingly unequivocal in implying that promoting these reforms would be pivotal for the IMF to come to terms with the Kirchner administration.
For the week, Argentina's Merval index was up 22 points to close Wednesday at 792 points.
Stocks in Chile sustained five consecutive days of moderate losses during the week only to experience a slight recovery Wednesday.
The country is presently mired in a debate over a controversial proposal to raise taxes that is being sponsored by the administration of President Ricardo Lagos. The government's plan is to compensate a projected loss in tax revenues originated by the country's recent signing of free trade agreements with the United States and the European Union and their accompanying slash in custom duties.
The bill was so far approved in the Chamber of Deputies and is presently enduring a heated debate in the Senate, where the Lagos administration does not have enough votes to secure its approval and is consequently negotiating with a number of legislators.
Chile's IPSA stock index fell 40 points for the week to close Wednesday at 1,224.
Investors in Venezuela received good news earlier this week as in spite of the country's economic and political upheavals it was surprisingly granted a credit upgrade from Fitch Ratings.
Given how Venezuela is imposing stringent currency controls in order to protect its reserves, investors have resorted to a number of tricks to acquire more dollars.
Their favored way to do so has been buying shares of the country's biggest stock: telephone company CANTV, which accounts for 40 percent of Venezuela's IBC stock index. Investors then convert their CANTV shares to American Depositary Receipts.
The IBC gained 854 points during the week to close Wednesday at a new record high of 14,207 points.
Investors in Colombia welcomed news Wednesday of the domestic bank industry's recovery. According to Colombia's banking authorities, banks registered a 42.8 percent profits increase during the first five months of the year compared to the same period in 2002.
The industry grossed some $250 million during the period, signaling a slow recovery from a four-year crisis.
Colombia's IGBC stock index gained 56 points this week to close Wednesday at 2,087 points.
