SANTIAGO, Chile, June 10 (UPI) -- Stocks across Latin America were mixed this week, as high oil prices made their influence felt on the domestic economies.
Argentina remained immersed in a complex struggle with both its creditors and international investors over the conditions of its proposed plan to restructure some $100 billion in defaulted bonds.
On the eve of making a filing to the U.S. Securities and Exchange Commission (SEC) on Thursday, Argentinean Finance Minister Roberto Lavagna has revealed new elements of the intricate proposal that would pay investors 40 cents per $1 of defaulted debt. These include a trend-based estimation of interest payments when the country's gross domestic product runs above a 3 percent trend. In addition, there will be payments on some $18 billion in past-due interest.
Seen by Lavagna as concessions towards making a more attractive proposal, these new elements have nonetheless been criticized by creditor groups such as the Global Committee of Argentine Bondholders (GCAB), which owns nearly $40 billion of the total defaulted bonds outstanding. GCAB representatives are likewise bitter about the fact that Argentinean authorities were unwilling to negotiate the terms of the debt restructuring process.
The ongoing debate, however, has another interested party in the International Monetary Fund (IMF) as the organization's newly-assumed Managing Director Rodrigo Rato made his first official pronouncement on the issue Wednesday. Rato commended Argentina's economic recovery and pointed out how its growth had surpassed the fund's expectations. He nonetheless stressed that the country needed to reach an agreement with its creditors in order to definitely leave its crisis behind as well as regain complete access to financial markets.
Progress on reaching an agreement with creditors is pivotal for the IMF to continue approving disbursements of a three-year, $13 billion assistance program. Prominent among the fund's manifold demands on Argentina figure reforming a law on revenue sharing between the federal government and the country's provinces. Proposed changes to the law have pitted the administration of Argentinean President Nestor Kirchner and the country's main province of Buenos Aires in opposing sides. According to Buenos Aires Governor Felipe Sola, the new bill will make his province to contribute more money than its counterparts while receiving substantially less. The reforms, however, would also set limits to debt issuance by individual provinces, one of the IMF's main concerns as reiterated by Rato on Wednesday.
As for the equity market, Argentina's Merval stock index lost 73 points for the week closing Wednesday at 904.
In Brazil, the central bank failed to slow down a 7.5 percent slide in its currency, the real, in what goes of the year as it sold Wednesday some $340 million in dollar-denominated swaps. The operation contravenes central bank president Henrique Meirelles' stated goal of significantly reducing the government's dollar linked obligations. Outstanding swap contracts have been reduced to $13 billion from $26 billion in November.
Nonetheless, both Meirelles and the bank's director of monetary policy Luiz Augusto Candiota have denied that the swaps sale sought to affect the exchange rate nor that it will imply a departure from the policy of reducing Brazil's exposure to dollar-denominated debt.
Swap contracts call for the central bank to cancel investors an interest rate in dollars and get in turn an interest rate local currency. Nearly $434 in swap contracts as well as an additional $549 million in dollar-denominated bonds are due for June 17.
Given the real's progressive weakening in recent weeks, investors have manifested a growing demand for hedge amid fears over growing oil prices and probable interest rate increases in the United States.
In spite of its currency setbacks, Brazil's economic recovery continues on track as industrial production rose for its eight consecutive month in April, reaching a robust 6.7 percent compared to the same month last year. Industrial output similarly grew 11.9 percent in March and 1.5 percent in February, according to the Brazilian census bureau.
For the week, Brazil's Bovespa stock index gained 147 points to close Wednesday at 19,864.
In Mexico, the finance ministry released Wednesday revised figures for its April trade deficit, signaling a significant reduction the country's trade gap reached nearly $480 million compared to more than $800 million during the same month last year. Still, Mexico's trade deficit for the first five months of the year amounts to some $900 million.
Mexico is looking south to increase its trade links as it edges closer to formalizing talks to strike a deal with the Southern Cone Common Market (Mercosur). The country is expected to make an official announcement during the next Mercosur summit on July 8.
Hints towards this move were provided by the executive secretary of Brazil's Foreign Trade Chamber Mario Mugnaini, who stated Tuesday that Mexico had requested formal links with the Mercosur. Mugnaini made his remarks at a conference on the United Nations Trade and Development meeting to take place next week in Sao Paulo.
The Mercosur is a trade bloc comprised by Argentina, Brazil, Paraguay, and Uruguay, with Chile and Bolivia as associate members. The bloc has a combined GDP of nearly $1 trillion.
On the domestic front, Mexico's consumer prices fell in May by .25 percent, a figure which nonetheless did not assuage worries over the country's inflationary outlook. The latter has been buoyed by rising oil prices worldwide and Mexico's need to import fuel due to a lack in its refining capacity.
Mexico's central bank faces an uphill task in meeting its goal of a 3 percent inflation rate for 2004, as annual inflation reached 4.2 percent in May.
For the week, Mexico's IPC stock index gained 237 points to close Wednesday at 10,219.
In Chile, the country's trade surplus continues to soar high after having reached some $966 million in May. Although marking a slight reduction from the previous month's $1 billion trade surplus, it still marked a $288 million increase from May 2003.
A growth in imports from $1.72 billion in April to $1.79 billion in May likewise pointed to the robust state of internal demand after being stagnated due to the economic slowdown that the country has endured since 1998.
Signs of growing economic activity in 2004, however, show that the slowdown is being firmly left behind. The country's economic activity index (Imacec) registered a 5 percent growth in April, thanks to increased exports and mining production. Exports have been buoyed by higher commodity prices for products such as copper and wood pulp, two of Chile's premium shipments abroad.
According to Chile's central bank, the country's GDP should grow between 4.5 percent and 5.5 percent in 2004, a marked increase from 3.3 percent GDP expansion last year.
Chile's IPSA stock index ended the week up 19 points at 1,435.
In Venezuela, the elections council finally set a date for a recall referendum, determining that August 15 will be the day in which the administration of President Hugo Chavez will face off the opposition in the ballots. The choice of date, however, has been criticized by prominent opponents of Chavez in view of Venezuela's constitutional provisions for replacing the government.
Should Chavez lose the referendum before August 19, which marks the fourth year in his six-year presidential term, elections would be held within a month. Nonetheless, if the referendum takes place after August 19, Venezuela's vice president Jose Rangel would replace Chavez until the end of the presidential term in 2007. According to the opposition, organizational problems could likely delay the recall vote.
Opinions are divided on the eventual outcome of the referendum. Whereas certain analysts hold that Venezuela's deteriorating economic conditions in recent years might exert a toll on Chavez' popularity, others claim that rising international oil prices will help the government overcome the situation.
For the week, Venezuela's IBC stock index lost 66 points to close Wednesday at 25,491.
In Colombia, public sector deficit reached .3 percent during the first quarter of 2004, significantly narrower from the .5 percent goal set out by the IMF. According to figures released Wednesday by the finance ministry, the result owes to higher tax collection, which grew 18.2 percent compared to the same period in 2003. The performance was also buoyed by a surplus in the state-controlled oil company Ecopetrol.
Colombia's 2004 fiscal deficit target for its public sector amounts to 2.5 percent of the country's GDP. The provisions were agreed to with the IMF as a way to grant the country greater fiscal flexibility.
For the week, Colombia's IGBC stock index lost 27 points to close Wednesday at 3,059.
