MercoPress. South Atlantic News Agency

Fifth rate cut in five months

Relief was the main reaction in Mercosur to the United States Federal Reserve decision to cut its basic rate another 50 points, from 4,5% to 4%. This is the fifth reduction so far this year, totaling 2,5%, and its main objective has been to avoid a recession in the US, stimulating consumer spending and helping the resurgence of the economy. Fed president Alan Greespan said that corporations earnings erosion, both currently and projected, combined with a considerable uncertainty about business prospects which seem to be sustained in a drop in future consumption, convinced the Open Market Committee of a further reduction. The reduction means immediate savings of 20 and 120 million US dollars in foreign debt interest payments for Uruguay and Argentina. However, in spite of the savings overall short term prospects for Mercosur countries are not encouraging since Argentina is still struggling to pull out of recession and Brazil now faces an energy crisis, a political scandal involving the main leaders, plus the effects of the Argentine confidence scenario. Besides the US economy is showing contradictory signs: industry productivity is down for the first time in six years, unemployment still low but increasing 4,5%, retail prices in April jumped 0,3% and industrial production has dropped for the seventh month running and is at its lowest level since 1991.