SANTIAGO, Chile, June 17 (UPI) -- Markets in Latin America have been swinging this week to the tune of speculation over the United States Federal Reserve's expected interest rate hike.
The Argentinean government is slowly making strides towards meeting the demands of the International Monetary Fund (IMF) for its continued disbursement of a three-year, $13 billion assistance loan to the beleaguered nation.
Key among the structural reforms being demanded by the IMF are the passing of a so-called fiscal responsibility bill as well as a law to regulate the distribution of funds among the country's different provinces. The latter initiative has been the subject of a bitter controversy between the administration of President Nestor Kirchner and Argentina's most powerful province: Buenos Aires.
The province's governor Felipe Sola stated Wednesday that he was approaching an "integral accord" with the government that would speed up the bill's eventual approval in Congress. Sola's main point of contention against the bill is his fear that it will grant Buenos Aires an excessively small amount of the annual revenue collected by the Argentinean government Buenos Aires, however, is the country's most populous province, boasting a significant impact on the country's gross domestic product.
Both the revenue sharing law and the fiscal responsibility bill -- which aims to limit debt issuance by individual provinces- were supposed to be forwarded to Congress by May. Ironing out differences with Buenos Aires, however, is putting further pressure on the Kirchner administration and its pledge to the IMF to keep an eye on its provinces' fiscal conduct.
Sola has already met with Finance Minister Alberto Fernandez and is likewise expected to get together with Kirchner in incoming days. Although the government has already acquiesced to Sola's demand that it finance Buenos Aires' budget deficit for the next three years, the governor is still pushing for more benefits for his province, including more money to implement social programs.
For the week, Argentina's Merval stock index gained five points to close Wednesday at 909.
Brazil's central bank decided Wednesday to maintain its benchmark lending rate at 16 percent for the second straight month amid concerns over inflationary pressures. The bank is trying to keep inflation under control as rising oil prices in the international markets have depreciated the Brazilian real in recent weeks. An additional source of concern has been the growing speculation over the U.S. Federal Reserve's eventual decision to implement an interest rate hike.
The real has already lost almost 8 percent to the U.S. dollar in what goes of the year and inflationary forecasts for 2004 are exceeding the government's own goal of 5.5 percent. To further put pressure on the central bank's efforts to control inflation, the state-controlled Petrobras oil company raised prices for the first time in over a year by a whooping 11 percent.
Although the central bank has cut the overnight rate by 10.5 percent over the last year, its president Henrique Meirelles remains overtly concerned about the Brazilian economy's inflationary weakness. These problems could well exert a toll on the country's economic growth goal of 3.5 percent in 2004.
On the international trade front, Brazil is waging a protracted battle with China, reaching a high point Monday when Beijing extended a temporary ban on Brazilian soybean imports. Invoking sanitary grounds, China decided to forbid 15 soybean suppliers from importing Brazilian beans, reaching a total of 23 companies affected by the measure. According to the country's agricultural authorities, the move has stopped most of Brazil's soybean exports to the Chinese market. Only in 2003, Brazil exported over $1 billion in soybeans to China.
For the week, Brazil's Bovespa stock index gained 596 points to close Wednesday at 20,460.
Mexico's markets have similarly been affected as of late by the looming fear of an interest rate hike by the U.S. Federal Reserve. The concerns were partially ameliorated, however, after Federal Reserve Chairman stated Tuesday that interest rates would be risen at a gradual pace. Speculation is now ripe that the Fed will implement a moderate increase of 25 base points on overnight interest rates upon its highly anticipated June 29-30 meeting.
Greenspan's remarks have accordingly led Mexican stocks to make slight gains as well as mildly strengthen the domestic currency, the peso. According to the Morgan Stanley Capital International index, Mexican equities have gained nearly 14 percent in dollar terms in what goes of the year.
Market expectations of a stronger U.S. economic performance have had a positive impact on Mexico's economic growth forecasts. Merrill Lynch increased Monday the country's GDP growth projections from 3.5 percent to 3.9 percent in 2004 citing strong U.S. growth as the main reason behind its assessment. More than 80 percent of Mexico's exports are sold in the U.S. market.
The figures are in line with those of Mexico's central bank as well as the country's economic performance during the year's first quarter, in which it registered a 3.7 percent GDP growth compared to the same period last year.
The IPC stock index in Mexico lost 68 points to close Wednesday at 10,151.
The Chilean economy continues strong as it rides on a wave of boosted export volumes and revenues. Shipments abroad have been benefited by high international prices for some of the country's premium commodities, including copper.
Mining exports expanded the country's trade surplus in May as it reached $966 million, a $288 million increase compared to the same month in 2003. May mining exports reached $1.5 billion of which copper comprised $1.34 billion. Mining exports overall grew by $110 million compared to April.
In spite of its robust economic signals, Chile is presently in the midst of an energy crisis that might well affect GDP growth in 2004. According to the central bank's monthly monetary policy report, should export restrictions of natural gas from Argentina persist until September their impact on the country's GDP would amount to nearly 0.1 percent.
Argentina has been implementing since early April drastic export cutbacks of natural gas to Chile. Argentinean natural gas accounts for nearly a third of Chile's electricity generation as well as over 90 percent of its overall natural gas demand. The dire scenario has led the government to launch a $500 million project to build a terminal aimed at importing liquefied natural gas. The initiative made significant progress Monday as state-owned oil company Enap hired Citigroup to carry out a tender for international energy companies interested in developing the project.
Chile's IPSA stock index added 25 points on the week to end Wednesday at 1,460.
The Venezuelan economy continues to show signs of improvement after a depressed 2003, as domestic banks increased their loan portfolios by 3 percent in May. The performance marks a 3 percent increase from the previous month as well as 70 percent more than May 2003.
While the economy marches ahead, the political situation continues in its rocky path towards the august 15 referendum to decide the continuity of President Hugo Chavez. Should the opposition garner more than the 3.7 million votes that secured Chavez's election in 2000, the Venezuelan leader will be forced to call for new elections within the next 30 days. The winner would serve the remainder of Chavez's six-year term.
Venezuela's IBC stock index lost 844 points this week to close Wednesday at 24,647.
In Colombia, the lower house's economic committee approved Wednesday a so-called budget flexibility bill that will allow the government to adjust its expenses in accordance to economic growth and fund availability.
The bill, which is expected to be approved by Congress before December, is seen by the government as a key element in its plans to lower its fiscal deficit this year by 2.5 percent of the GDP. In accordance to IMF recommendations, the Colombian government is expecting a primary surplus of 2.8 percent of the GDP in 2004 as well as 3 percent the following year.
For the week, Colombia's IGBC stock index gained 20 points to close Wednesday at 3,079.
