Stocks across Latin America were mixed this week, as high oil prices hurt the region's biggest countries, though bargain hunters moved in late to cushion losses.
A United Nation's report released Wednesday indicated that foreign direct investment in Latin America dropped 19 percent on the year in 2003, down to a total of $36.5 billion.
That made the region the only one in the world that had declining FDI in 2003, the UN's Economic Commission on Latin America and the Caribbean said.
The European Union accounted for 34.5 percent of the FDI, while the United States represented 32 percent.
While the FDI environment seems to be improving in 2004, the perception of the region as being risky has continued to make it difficult for both the companies and governments of the region to gain access to credit markets.
Brazil, for instance, was forced to use its foreign currency reserves on Wednesday to make domestic debt payments as sharply rising global interest rates make it nearly impossible to raise money through bond auctions.
Brazil repaid $10.6 billion in debt in the move on Wednesday.
The country has of late not sold any fixed-rate bonds, citing adverse market conditions. In other words, investors are demanding high interest rates to compensate for what they deem a risky investment.
The use of foreign treasury reserves worries investors, as the currency cushion acts as a sort of circuit-breaker in the event of extreme economic volatility. As long as a country has plenty of hard foreign cash on hand, the thought that it will default remains distant.
But with Brazil's more than $400 billion in domestic and foreign debt hanging over its head and not much luck in selling government bonds, the use of foreign reserves is sure to add volatility to the market.
For the week, Brazil's Bovespa stock index gained 363 points to close at 18,688.
Argentine stocks were volatile this week, as high world oil prices hurt the country more than any other in the region.
At the heart of the problem is how to fuel - literally - Argentina's economic recovery. The country, since defaulting in late 2001, has steadily made an economic comeback. But with both rising energy demand and prices, it looks like that recovery is going to be stalled.
Added to the oil concerns are high interest rates and thoughts that China's economy might be cooling.
China has become a big engine for Latin American growth this past year, as that country's hunger for the region's commodities has boosted exports.
On Tuesday, Argentine officials said that industrial production in April declined 3.9 percent, with energy prices being a big reason for the fall. That puts the forecast for 2004's industrial production at 9.4 percent, down from an earlier prediction of 13.5 percent.
In the past two months, the lack of natural gas in the country has been of particular concern. Argentina even took the desperate move of cutting its natural gas exports to Chile in the hopes of staving off a domestic energy crisis.
For the week, Argentina's Merval stock index lost 44 points to close at 896.
Chile saw the biggest corporate action of the week, as Spain's largest telephone company Telefonica said it will take control of its Chilean mobile phone unit for about $1 billion.
The offer for Telefonica Chile was made via the mobile unit of Telefonica - Telefonica Moviles - which will take on some $243 million in debt in the deal.
The move opens the way for Telefonica to merge the unit with BellSouth's unit in Chile, which Telefonica is buying as part of a $5.85 billion region-wide deal to take BellSouth's Latin American wireless units.
If everything goes according to plan, Telefonica will have 44 million users after the deals, which will add 11.6 million new customers. That will be more than twice the customers Telefonica has in its domestic market.
Telefonica is bullish on the prospects for growth in Latin America's cellular market, a region where only 25 percent of the population is using a wireless service.
Telefonica Chile's shareholders will vote on the proposed sale within two months, company officials said.
Chile's IPSA stock index added 8 points on the week to end at 1,423.
Bank of Mexico Governor Guillermo Ortiz told a business conference on Wednesday that there will be more financial market volatility ahead, citing high oil prices, stubbornly high interest rates, and the ongoing war in Iraq as the main culprits.
Ortiz said that investors in emerging market stock portfolios have been reshuffling their holdings of late and that Latin America has been on the losing end.
The volatility has been pronounced in Mexico, which last week saw its biggest single day stock drop since September 2002.
But Ortiz also said that Mexico's strong economic recovery in the first quarter has pushed most forecasts on GDP growth for the year to above 3.5 percent. In the first quarter, GDP jumped by 3.7 percent over the same period the year previous, surprising analysts.
Mexican Bank Banamex on Wednesday raised its forecasts for the country's growth for 2004 to 3.8 percent, up from its earlier forecast of 3.5 percent. The bank said exports were leading the way.
Meanwhile, Mexico's National Statistics Institute added more positive news Wednesday, saying the country's unemployment rate dropped to 3.6 percent in April, down from 3.9 percent the previous month.
The IPC stock index in Mexico gained 78 points on the week to close at 9,768.
The Venezuelan economy leapt forward by 30 percent in the first quarter as compared to the same period the year previous, the central bank said Tuesday.
Analysts say the big jump was largely because of the strike that had paralyzed the country during the first quarter last year, creating a comparative base year that made this year's increase more dramatic than it would normally be.
In the first quarter of 2003, the economy shrank by 28 percent.
The central bank also said that recovery in oil production following the strike has greatly helped the country. Oil revenues account for 40 percent of all government income.
Nice rises in manufacturing and construction are also helping Venezuela's recovery, the bank said.
The high world oil prices are aiding the country as well. Venezuela -- the world's No. 5 exporter of oil -- saw activity in the sector jump more than 70 percent in the quarter, as compared to the year previous.
Venezuela's IBC stock index lost 403 this week to end at 24,479.
United States trade negotiators were in Colombia this week to open trade talks with Colombia, Ecuador and Peru.
The deal would give the nations tariff-free access to the U.S. market.
Colombia, along with the other two nations, decided to embark upon the trade deal with the United States after talks for the hemispheric-wide Free Trade Area of the Americas began hitting snags last year.
There was little equity-market moving news this week in Colombia, as the local IGBC index gained 95 points to close at 2,992.
