MercoPress. South Atlantic News Agency

Argentina: Crucial negotiation

Headlines: Crucial negotiation; Uruguayan beef and Nafta; Dramatic figures; Europe holds basic rates at 3,25%

Crucial negotiation

Argentina's Financial Secretary Guillermo Nielsen arrived in Washington for crucial negotiations with the International Monetary Fund that could finally open the way for an understanding that has remained elusive since almost twelve months. This time however Argentina must honour a World Bank 809 million US dollars credit by next Thursday and Argentine officials have said the country will not pay with its international reserves that now stand at 9,5 billion US dollars. This means that if no agreement is reached by Thursday Argentina could be defaulting in its debts with multilateral institutions, similarly to what happened at the beginning of the year with 128 billion US dollars of private debt. Besides Argentina must pay back an additional 14 billion US dollars to multilateral institutions in the coming fourteen months, so unless an agreement is reached with the IMF, it's hard to see a way out of the situation. IMF has insistently demanded that in the letter of intention Argentina commit itself to a 2,5% primary budget surplus in 2003; definitively solve the "leakage" caused to frozen bank deposits by judicial rulings; grant no extension to the suspension of judicial executions and an increase in public utility rates. Most of the conditions have been met or are in the process of, but time is short and some temporary form of payment with the World Bank must be reached. World Bank apparently would accept a partial refund, giving time for Argentina and the IMF to arrive to an agreement that will at least help to "roll on" most payments. Mr. Nielsen said that if prospects are good Argentine Economy Minister Roberto Lavagna would fly to Washington for the signature of the IMF agreement.

Uruguayan beef and Nafta

The final steps for the full reopening of the United States market to Uruguayan beef exports will be announced this week, according to Uruguay's Senior Veterinary Officer Ricardo Ugarte. However 120 days must elapse before the definitive sanitary certification is extended by the US Agriculture Department. United States Nafta partners, Canada and Mexico, are in a similar technical assessment period but both markets are expected to be open to Uruguayan beef ahead of the US. Uruguay was exporting fresh beef to Nafta members until April-May 2001, when an outbreak of Foot and Mouth disease that spread from Paraguay and Argentina reached the country. Uruguay immediately isolated and terminated the outbreaks, and has since recovered its condition of free of FAM with vaccination. This week the Panamerican FAM Centre will be meeting in Buenos Aires to assess the extent of another outbreak in Paraguay, in the heartland of South America and next to the Brazilian state of Matto Grosso, a thousand miles north of Uruguay. Argentina and Brazil have imposed strict controls in their borders and together with Uruguay banned all cattle and beef imports from Paraguay. However Brazilian and Argentine cattle breeders are very concerned because the outbreak has cut Paraguayan cattle prices to less than half, becoming a great temptation for rustlers and cattle smugglers.

Dramatic figures

According to the latest release from the United Nations Economic Commission for Latinamerica, Cepal, 221 million people in the region are defined as poor, of which 99 million indigent, that is they don't access to a basic daily calories input. Even when Cepal describes the report as preliminary, figures are dramatic. Between 2000 and 2002, the region has 15 million more poor people, with Argentina having a specific incidence of 5,2 million. Cepal recalls that in 1990 the Millennium targets for the region were to halve poverty by 2015, and even when the objective seemed achievable when indigence dropped from 18 to 14,5% between 1990 and 1997, it jumped to 18,6% in 2001 and to 20% in 2002. Poverty stood at 43% in 2001 and 44% this year. However the degree of poverty is not homogeneous, Chile figures with 20%; Ecuador 60,2%; Argentina 30,3%; Venezuela 45%; Brazil 36,9%; Mexico 42,3%, with Paraguay 61,8% and Honduras the worst case, 79,1%. Uruguay is the country with the lesser indexes, 11,4% poverty and 2,4% indigence. The Social Picture of Latinamerica 2001/2002 estimates that the region must grow at an average annual and steady 2,7% until 2015 to reduce indigence by half. The report also indicates that 37% of children, particularly in rural areas, do not finish primary school.

Europe holds basic rates at 3,25%

The European Central Bank, ECB, has left the main interest rate unchanged at 3,25% in spite of intense pressure for a cut and the latest decision of the US Federal Reserve. ECB president Wim Duisenberg with strong support from Bundesbank president Ernst Welteke argues that the main concern is that European inflation may reignite. Similarly the Bank of England left UK interest rates unchanged at 4%. However the gap between US and ECB rates plus the sluggish performance of the European economy, --growth estimated in less than 2% in the Eurozone--, and IMF's suggestions could anticipate a change in policy in the coming months. The IMF lowered the Eurozone's growth forecast to 0,75% from 0,9% last month and to 2% from 2,3% for 2003. "The economy is fairly weak and we don't see a very robust recovery in prospect", Hans Deppler head of IMF's Europe Department. "In view of persistently sluggish growth in the region, a clear bias towards further monetary easing would be appropriate". ECB cut interest rates for the last time in October 2001 at 3,25%. Earlier this year the European Commission pushed back the date by which member governments must balance their budgets by three years to 2006. This was agreed after Germany, France and Italy anticipated significant budget deficits because of "low growth rates".