Latin American markets roundup

RIO DE JANEIRO, Dec. 31 (UPI) -- Stocks across Latin America remained at record highs this week to close out a year that saw some markets double in value.

In Brazil, the central bank said that it was raising its forecast for inflation next year, which analysts said could pave the way for more cuts to the key Selic interest rate soon.

Central bank officials said they forecast inflation to come in at 4.5 percent next year, as opposed to the 3.9 percent they were earlier forecasting.

While the forecast is higher, it still remains below the bank's 5.5 percent consumer price target for next year, reinforcing analyst sentiment that cuts in the interest rate are coming.

The business community and many economists alike have said repeatedly this year that Brazil's key interest rate -- now at 16.5 percent -- has to come down sharply if the country hopes to grow as much as many predict.

The central bank forecasts Brazil's gross domestic product to expand 3.5 percent next year, in line with market forecasts that range from 3 to 4 percent.

It was only last June that Brazil's interest rate was at a sky-high 26.5 percent, as central bank authorities worked to keep a lid on inflation. Brazil underwent tremendous economic stress in the wake of the election of President Luiz Inacio Lula da Silva, a politician who frightened markets with his earlier leftist talk.

While the macroeconomic angle remains complicated for Brazil, stocks have been nothing but up this year, as the country's main stock index jumped about 140 percent in value. That coming off a decline of more than 45 percent in 2002.

For the week, the country's Bovespa stock index closed up 543 points at 22,231 on a holiday shortened week Tuesday.

Argentina saw its main stock index double in value this year and the country's economy is showing signs of rebounding faster than anyone thought possible in the wake of its 2001 default.

This week saw former Argentine President Eduardo Duhalde -- who is now the president of the committee of permanent representatives for the Mercosur trade bloc -- propose a new trade bloc that will include every country in the region.

Duhalde said he wants a new bloc to strengthen political and economic ties between every country in South America. Duhalde serves as the representative for Mercosur -- made up of Brazil, Argentina, Uruguay and Paraguay -- in its dealings with other countries and trade blocs.

Increased South American integration has been a key topic of discussion for the leaders of both Argentina and Brazil, in part to strengthen the continent's stance in the ongoing discussions about the Free Trade Area of the Americas, the Washington-backed deal that would create a free trade zone stretching from Alaska to the southern tip of South America.

Duhalde told reporters earlier this week that he wants the new trade bloc to be formed by the end of 2005. The FTAA is slated to begin on Jan. 1 of that same year.

Also this week, Argentine President Nestor Kirchner finalized presidential decrees that extend until March a doubling in severance wages, as well as orders to increase the minimum wage and private sector salaries.

The moves have long been expected but they play somewhat into investors' fears about how heavy-handed Kirchner may turn out to be when it comes to economic matters.

Despite the recent presidential decrees, top officials in the Kirchner government say they want to work with congress to get legislation passed, and not rely on the president's power to sign into law his desires.

For example, Labor Minister Carlos Tomada said Monday that presidential decrees "won't be the most appropriate way" of making reforms to the country's labor laws.

This is both good and bad: it is obviously good for those that believe in some semblance of democracy, but bad in the sense that it is quite hard to get anything passed through Argentina's cantankerous congress, especially hot-button reforms that the International Monetary Fund is demanding Argentina embark upon.

For the week, Argentina's Merval stock index closed up 36 points at 1,072 on Wednesday.

In Mexico, the congress passed this week an austere budget -- coming in at just over 23 percent of the forecast for gross domestic product.

Like other oil exporting nations, though, Mexico is betting that the price of a barrel of oil will remain above $20 for its projections on revenues from that sector.

Government officials say that if they earn more than expected from oil sales, 25 percent will go to an oil stabilization fund that protects the country from unexpected drops in the future price of oil. Another 25 percent would go to reworking the structure of the state-run oil company Pemex, while 50 percent of extra revenue will go directly to state governments.

As for stocks, Mexico's main index has gained a respectable 30 percent this year, but it pales in comparison with the turnaround of its Latin American neighbors.

In fact, Mexico's performance was the worst this year for a major Latin American market, and its gains come in below the worldwide MSCI emerging market index, which added nearly 50 percent in 2003.

Part of the problem is President Vicente Fox and his inability to get any economic reforms passed through an opposition congress.

Another is the business the country is losing to China.

Brazil, on the other hand, is gaining sharply from China's growth, as the country happens to be a big exporter of the products -- mostly commodities -- that China needs.

For the week, Mexico's IPC index finished 159 points up at 8,795 Wednesday.

In Chile, the main stock index ended its best year in a decade on a high note, as investors continue to be bullish on the country's economic future.

Continuing on the good-news front, the central bank said this week it forecasts the country's GDP to jump 3.2 percent in 2003, as compared to a 2.1 percent increase in 2002.

The bank said it is expecting growth of up to 5 percent for the GDP in 2004.

Leading the way next year should be electric utilities and telecoms, analysts say, as the two sectors will benefit from government allowances on rate increases.

For the week, the IPSA index inched up 16 points to 1,485 on Tuesday.

In Venezuela the central bank warned of that the country cannot be reliant on domestically issued debt to fill a fiscal gap if it wants to remain in macroeconomic health.

A report by the bank noted that the country's deficit hit 5.1 percent of GDP this year, an increase from 4.8 percent in 2002.

If Venezuela continues to issue domestic debt, it will dig its own grave by creating a short-term debt profile that will be extremely difficult to manage.

For the week, the country's IBC index lost 19 points to end at 22,204 Wednesday.

It was a quiet, holiday-shortened week for trading in Colombia. The IGBC index closed the week up 5 points at 2,334 Wednesday.