Latin American markets roundup

SANTIAGO, Chile, Aug. 12 (UPI) -- Latin American markets were mostly down this week as surging oil prices weighed in stronger than the gains brought by the United States Federal Reserve decision to raise interest rates.

Brazilian Central Bank President Henrique Meirelles is sustaining a wave of accusations of financial wrongdoings, triggering moderate volatility on the domestic markets. Meirelles' name has been seen by both investors and analysts as a guarantee of monetary stability in the country ever since his appointment at the Central Bank by Brazilian President Luiz Inacio Lula da Silva.

Tax evasion allegations against Central Bank officers have already generated victims as monetary policy director Luiz Candiota was forced to resign a few weeks ago after a local weekly stated that he held undeclared bank accounts abroad.

Meirelles, on the other hand, is being accused of not declaring all his personal assets during his run for Congress in 2002. The beleaguered banker is likewise said to have allegedly transferred that same year some $50,000 to black market currency exchange operators.

Two Senate committees have already voted to call Meirelles to testify in a move that has provided ammunition to his detractors at the leftist government Workers Party (PT), many of which have opposed his nomination by Lula from day one. Although he is not legally obliged to show up, Meirelles is expected to appear before the Senate in September.

The allegations have similarly sparked concerns among investors of an eventual replacement of Meirelles and a change in the bank's monetary policy. Brazil has carefully restored market confidence over its monetary policy as Meirelles successfully conducted a 10.5 percent reduction in the benchmark interest rate, leaving it at its current 16 percent level. Although there is a consensus among investors about Meirelles' beneficial role on monetary policy, they still believe there is room for more rate cuts.

In spite of tight controls and restrictive policies, Brazil's inflation was reported Wednesday to have surged to a 15-month high in July. The government IPCA consumer price index grew .9 percent in the month following a .7 increase in June as growing demand for steel and manufactures as well as a rise in oil prices pushed inflation upwards.

Brazil's Bovespa stock index lost 608 points for the week closing Wednesday at 21,570.

Argentina's Cabinet Chief Alberto Fernandez dispelled Wednesday fears that the country would stop making debt payments to the International Monetary Fund (IMF). Fernandez' reassurance came a day after Economy Minister Roberto Lavagna announced that the country was suspending talks with the IMF until December. Lavagna's rationale for halting negotiations is that it will allow Argentina to focus the restructuring of some $100 billion in debt with investors.

Fernandez stated Wednesday that Argentina would "continue fulfilling the obligations" it had with the fund. Argentina has some $2.7 billion in debt to the IMF due for the end of the year.

The IMF will have to decide whether to suspend the third review of a $13.3 billion loan agreement signed with Argentina last year. The review was scheduled for June but had been postponed as the IMF criticized Argentina's delays in negotiating with its creditors as well as implementing recommended structural reforms. These include the enactment of a fiscal responsibility bill to regulate spending and debt issuance that was recently approved by Congress.

Delayed negotiations between Argentina and the fund will also amount to the South American nation starting 2005 devoid of IMF-mandated economic targets.

Argentina is now facing tough talks with its creditors in an already tense relation. The Argentinean government is proposing a debt swap to pay 25 cents per each dollar of defaulted debt. The offer has so far been rejected by most of Argentina's creditors, including the powerful Global Committee of Argentina Bondholders, representing creditors owning a third of the country's defaulted debt.

For the week, Argentina's Merval stock index lost 26 points to close Wednesday at 957.

Manufacturing continues to spearhead growth in Mexico's industrial output as rising demand in the United States, which buys nearly 90 percent of Mexican exports, boosts domestic production. Industrial output grew 5.2 percent in June compared to the same month last year.

Mexico's industrial production index includes energy, construction, mining, and manufacturing, which experienced a 6.1 percent increase in June. Maquiladora assembly plants were up by 10.1 percent while the remaining manufacturing sectors rose 5.8 percent.

Industrial output exceeded the most optimistic forecasts leading the country's economic recovery after three years of stagnation. Both government and analysts agree on their projections that the country's GDP is expected to grow around 4 percent in 2004. Mexico's reinvigorated economic performance is marking a sharp contrast to last year's dismal 1.3 percent GDP growth.

The country's accumulated industrial output grew 3.5 percent during the first half of the year compared to the same period in 2003. Growth, however, has not managed to reedit the exceptionally high rates experienced by the country in the late '90s. Mexico's industry has been hit in recent years by the aggressive entrance of China into the World Trade Organization and the virtual flood of Chinese products in markets that were dear to the Mexican industry. China already surpassed Mexico in export volumes to the U.S. during 2003.

For the week, Mexico's IPC stock index lost 226 points to close Wednesday at 9,849.

Chile's President Ricardo Lagos vowed Wednesday to promote a bill to implement mining royalties in spite of a sound defeat in Congress. The initiative failed to garner enough votes in the Chilean Senate to warrant congressional discussion.

"I will send [Congress] a new project, because copper and mining must contribute to the future development of Chile. That's my obligation and that is what we will do," Lagos said.

The initiative was struck down Tuesday as rightist opposition senators voted against the government motion to raise an annual $100 million by means of royalty payments on mining sales. The government project sought to implement a 3 percent royalty fee on sales for metallic mining as well as a 1 percent royalty on sales for non-metallic mining.

The government bid failed in spite of numerous meetings between opposition and government representatives to discuss alternative proposals, including one by rightist presidential candidate Joaquin Lavin aimed to raise some $247 million in new mining taxes.

According to Finance Minister Nicolas Eyzaguirre, the authorities will now have to decide whether to forward Congress a new bill proposal next year or back up a similar project forwarded in March by government legislators.

Chile's IPSA stock index gained 16 points for the week closing Wednesday at 1,538.

Venezuela is heading for a highly-anticipated recall vote on Sunday that will decide the continuity of President Hugo Chavez. The National Electoral Council reassured foreign observers Wednesday that there would be no problems in spite of widespread fears of violence. Chavez' tenure has been characterized by constant conflicts with a belligerent opposition, including a short-lived coup attempt and an extended national strike which led the economy to shrink 9 percent last year.

The opposition needs to garner over 3.7 million votes or more than the number of people that elected Chavez in the 2000 presidential elections. Polls have consistently shown that the country is evenly split among pro-government forces and the opposition.

The referendum has grabbed the attention of foreign observers as well as authorities such as U.S. Secretary of State Colin Powell who issued a call Wednesday for Venezuelans "to strengthen their democracy and promote national reconciliation."

For the week, Venezuela's IBC stock index gained 53 points to close Wednesday at 27,391.

Colombia's Central Bank voiced approval Wednesday of the government's proposed spending budget for 2005 but warned about the risks posed by resorting to high levels of debt for its funding. According to the government initiative, nearly $1.5 billion in the $35.8 billion budget will be funded through bond issuances whereas another $2 billion will come from multilateral creditors.

Central Bank General Manager Miguel Urrutia stated that spending would be possible as long as the economy had access to foreign capital flows that allow for a higher deficit in the balance of payments.

Securing that Colombia's spending plan for 2005 works smoothly will be pivotal for the country to meet its goal of a 3 percent fiscal surplus for that same year. The target was recommended by the IMF as part of a series of measures to help Colombia's economic recovery.

Colombia's IGBC stock index lost 45 points closing Wednesday at 2,840.