SANTIAGO, Chile, May 8 (UPI) -- Stocks were mixed across Latin America this week, as Brazil and Argentina's political woes on the domestic front continued to weigh on the markets.
Hopes for yet another cut in Brazil's benchmark interest rate were dampened Wednesday after the release of local inflation figures in Sao Paulo, showing a rise of 0.29 percent in March. The numbers are likely to constitute additional pressure for the central bank to maintain the reference interest rate at 16 percent.
Brazilian President Luiz Inacio Lula da Silva continues to walk the thin line between satisfying growing demands from social and labor movements while saving face with markets that remain ever observant of his administration's fiscal policies. Caught between opposing forces, Lula suffered a heavy blow Wednesday as the opposition set a Congressional committee to review the government's decision last week to raise minimum wages by 8.3 percent.
Albeit modest and hardly what workers had in mind, wage hikes such as last week's proposal are one of the few tools Lula can hold on to in order to stave off labor demands. The promise to double the country's minimum wage was one of the main planks of Lula's electoral platform as well as the source of grave concerns among international investors.
Given how the wage increase requires Congressional approval, the opposition's attacks could not have come at a worse time for Lula, who is also negotiating a pay agreement with public workers amid threats of a general strike. Lula has repeatedly attempted to calm down workers claiming that budget constraints do not allow for larger wage increases, particularly considering the heavy burden imposed on Brazil's finances by its state pension system.
Reforming Brazil's deficit-laden pension system has been an uphill Congressional battle for the Lula administration. The system ran a deficit amounting to nearly 4 percent of the country's GDP in 2003. Nonetheless, hopes of a reform resurfaced Tuesday as the lower house voted a new bill that would cut payments on workers' dependents as well as increase the social security contributions of retired public employees. The bill, however, is still pending a final vote in the Senate.
Brazil's Bovespa fell 458.76, or 2.4 percent, to 18,731.72, for a 4.5 percent drop for the week.
In Argentina, the administration of President Nestor Kirchner continues its desperate attempts to stave off an energy crisis and control natural gas shortages as winter approaches. Demand for natural gas both from residential end-users and large industries is expected to peak in May as low temperatures hit the southern hemisphere. Nonetheless, gas companies are facing serious difficulties in providing the commodity as the 2-year rate freeze on utilities mandated by the government begins to exert its toll on the country's energy system.
Frozen rates have resulted in a serious lack of investment within Argentina's gas industry, particularly affecting the country's electricity generator companies. Nearly 60 percent of Argentina's power demand is generated by thermal plants.
Among the latest measures implemented by the Argentinean government figures a decree issued Tuesday restricting the signing of so-called guaranteed supply agreements. The latter contracts are favored by large industries who in the face of gas shortages have struck deals with suppliers to secure their demand.
Meanwhile, President Kirchner is making news during his visit to the United States as he stated Wednesday that his government would be delivering its creditors a final debt restructuring proposal by mid-June. Kirchner spoke at an investment forum in Manhattan after which he told reporters that he was confident his government would be able to reach an agreement with owners of some $100 billion in Argentinean debt bonds.
His optimism was not shared, however, by the Global Committee of Argentina Bondholders (GCAB), which claims to represent investors holding some $37 billion in Argentinean bonds. The GCAB complained Tuesday that restructuring talks were overtly delayed and warned that a "unilateral proposal will not be accepted by international private investors." The committee alluded to the Kirchner administration's proposal in September to pay bondholders a mere 25 cents on the dollar. The initiative has been met with unanimous rejection from Argentina's creditors.
Argentina's Merval stock index fell 4.65 percent to 1,005.87.
Mexico's economy is showing positive vital signs as fiscal budget expanded by 66 percent during the year's first quarter thanks to increased tax collection and revenues from oil sales. The Finance Ministry stated Tuesday that the economy is likely to have grown by nearly 3 percent during the period. The figures are the result of the Mexican government's plan to save some $400 million this year by cutting expenditures.
Another move to reinvigorate the Mexican economy was made by the country's pension regulators as pension fund managers will be allowed to put part of their investment portfolios in foreign debt and equity. Pension agency Consar made the announcement Monday as the allowed limit for equity exposure will reach 15 percent whereas the limit for investing in foreign debt will amount to 20 percent.
Investors welcomed the measure although they considered it moderate both in its intended goals and potential impact. The initiative will nonetheless increase the number of investment options for pension fund managers, allowing them to venture into equity instruments for the first time since their privatization in the late 1990's. Pension funds in Mexico manage more than $37 billion in assets.
Mexico's IPC stock index dropped 0.62 percent or 61.42 points to 9790.99 points.
Prospects of a definite recovery for the Chilean economy became brighter after the Central Bank released Wednesday the figures for the country's monthly economic activity index, the Imacec, which registered an impressive 6.3 percent growth in March. The present Imacec is the highest since August 1997, shortly after which the country immersed itself into an extended period of economic slowdown.
Chile's first quarter GDP growth reached 4.5 percent, the largest growth since 2001. According to the central bank, the country's economy should grow at its fastest pace in over six years, forecasting a 5.5 percent GDP expansion for 2004.
Chilean economic growth is presently riding on the heels of a revived demand for its exports as some of the country's leading commodities, including copper and wood pulp, profit from higher prices. Copper alone accounts for nearly 40 percent of the country's total exports.
Although Finance Minister Nicolas Eyzaguirre expressed his satisfaction over the Imacec, he issued a call for "caution, in the sense that this 6.3 percent [growth] does not mean that we will observe similar rates from now on." Aligning himself with Chile's central bank, Eyzaguirre pointed out that the Imacec's growth trend was situated near the 5 percent range.
On the downside, Chile's energy industry continues to operate under the looming threat of further gas shortages from neighboring Argentina. Natural gas imports from neighboring Argentina account for nearly 40 percent of power generation in Chile's central electricity grid, which in turn serves more than 90 percent of the country's population.
Chile's electricity generator companies are facing prospects of increasing costs as Argentina implemented drastic cutbacks on gas exports in early April. In the wake of diminishing gas volumes from Argentina, Chile's electricity generators are being increasingly forced to resort to costlier alternatives such as diesel and coal in order to power their plants. Should the export cutbacks persist or grow in time, the new scenario will not only jeopardize the profitability of the electricity companies' operations, but also those of their largest clients: multinational mining companies operating in northern Chile.
For the week, Chile's IPSA stock index gained 12 points to close Wednesday at 1,443.
Criticism against Venezuela's stringent currency control system surfaced from an unlikely quarter Wednesday as the central bank issued a report on the convenience of easing some restrictions. Originally implemented by the government of President Hugo Chavez to stem the hemorrhaging of capital from the country, market analysts insist that currency controls are only aggravating Venezuela's recession.
The central bank stated that it was "indispensable" for the authorities to curb restrictions on the acquisition of U.S. dollars as controls increasingly drive investors to the black market. According to official estimates, local businesses get as much as 70 percent of their dollars from the black market.
For the week, Venezuela's IBC index gained 55 points to close at 25,910.
Colombian inflation dropped by more than half in April as it reached 0.46 percent compared to the previous month's 0.98 percent. The decreased inflationary rates owe to a fall in the cost of imports as well as the invigorating effects that heavy rainfall has had on agricultural activity in the country.
Colombia's peso has gained 8 percent against the dollar over the past year, lowering the price of imported goods and helping the central bank in its goal to control inflation and keep the benchmark lending rate at 6.75 percent after two consecutive reductions since February.
Colombia's IGBC stock index gained 10 points for the week closing Wednesday at 3,343.
