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Monday, December 9th 2002 - 20:00 UTC
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Headlines: Negative inflation in Chile; Critical trade talks with US; “True leader of the XXI century”; Brazilian economy recovering.

Negative inflation in Chile

Chile's Consumer Price Index last November was negative with a -0,1% mark, with inflation during the last twelve months below 3%. If food and fuel are excluded, "subjacent" inflation in the last twelve months reached 1,8%, according to the latest release from Chile's Statistics Institute. The drop in fuel prices is considered the main reason for the negative November inflation in spite of having two previous strong months, September 0,9% and October 0,8%. The tendency is expected to continue in the coming months as fuel prices confirm their reduction and seasonal supply of farm produce normalizes. December could also show negative bringing the overall 2002 inflation in line with Chile's Central Bank long term projection between 2 and 4%. During the last few years Chile's inflation has been in the range of 3%. When the country recovered democratic institutions in 1990, inflation was 27%.

Critical trade talks with US

Chile and United States are discussing in Washington the final round of the free trade agreement that in the last week caused great controversy in Chile when some of the details regarding tariffs and market access were leaked to the press. Chilean Foreign Secretary María Soledad de Alvear and Economy Minister Nicolás Eyzaguirre will be meeting US Trade Representative in an attempt iron out differences, particularly a more flexible attitude from the US regarding financial, environment and intellectual property areas. Besides Chilean farmers associations and agro-industry representatives also openly questioned Chilean negotiators for their "weakness" in areas such as price policies, dairy products, poultry and other food industry related issues. However other areas "are doing very well and are virtually ready for signing" such as industry, textiles, fisheries and forestry, according to the Santiago Sunday press. Gustavo Rojas, Development Manager of Chile's National Agriculture Association stressed that in "traditional agriculture" and "other highly competitive farm produce" with the exception of wines and fresh fruit, "United States has not changed its position of high tariffs and very long term reductions, in some cases twelve years plus the right to appeal to safeguards". Mr. Eyzaguirre has also held talks with the US Deputy Secretary of the Treasury John B. Taylor regarding capital movements and financial investments, Chile's technical reserves system and how to avoid financial destabilization with incoming or the withdrawal of funds. Foreign Secretary Alvear publicly requested a moderation in criticism to the current Chilean negotiating team indicating that European Union talks had been equally difficult and had there been similar press exposure as with the current US talks, "we would have had a similar reaction and public uproar". However last week even the spokesman for the Chilean Executive said that President Ricardo Lagos would not sign the agreement with its current wording and Senator Gabriel Valdés, president of the International Affairs Committee bitterly complained about some "ridiculous" conditions, "light years of what was achieved with the European Union. Senator Valdés mentioned US wants to limit zero tariff shipments annually to 1,000 litres of fresh milk, 100 kilos of peanuts and 420 tons of cheese. Tariff reductions on fresh grapes would begin in eight years and twelve years for aguacate and asparagus. Mr. Eyzaguirre before leaving for Washington underlined the excellent international standing of Chile, (country risk is just 140 points), and warned that if no agreement is reached, "it will the US government responsibility to explain to the world what happened".

"True leader of the XXI century"

International Monetary Fund, IMF, Managing Director Horst Koehler said that Brazilian elected president Luiz Inacio Lula da Silva "is a true leader of the XXI century" adding he was highly impressed with Mr. Lula's views of the country's challenges. Mr. Koehler who is currently visiting Latinamerican countries interviewed Mr. Lula in Sao Paulo over the weekend. "I'm under the impression that President Lula is a true leader of the XXI century; I perceived a very strong posture regarding social fairness, ethics, honesty, besides his respect for contracts and institutions. I had a very good meeting with Mr. Lula", underlined the IMF Managing Director. Mr. Koehler said he had agreed with elected president Lula that fiscal and monetary disciplines are indispensable to make reality social development policies. IMF chief made a point to come to Brazil to meet the leader of the Workers Party, three times presidential candidate and who once preached the non payment of Brazil's foreign debt. "I believe Mr. Lula has come out stronger after this meeting", said Mr. Koehler who anticipated that the IMF is looking forward to start working closely with Lula's administration. Mr. Koehler also mentioned that the IMF-Brazil relation is in good shape and that the country is committed to the current agreements, among which the 30 billion US dollars stand by credit granted by IMF last September. When asked if Mr. Koehler was completely convinced of Mr. Lula's commitments, IMF chief said that "there's nothing certain in this world, and we must learn to live with some kind of risks". Financial markets in Brazil are edgy because of Mr. Lula's delay in naming his future economic team particularly the next president of the Central Bank, the man who will replace Arminio Fraga who is attributed as the architect of Brazil's stability following the January 1999 devaluation of the country's currency. Among the candidates for the crucial post are Jose Julio Senna, a former Central Bank director and John Hopkins graduate; Sergio Welang, an economist from the Central Bank, Pedro Bodin a friend of Mr. Fraga and Jair Ribeiro who headed JP Morgan in Rio do Janeiro. Whoever is named will show markets the Lula administration determination to combat inflation and its commitment to honour Brazil's 300 billion US dollars foreign debt.

Brazilian economy recovering

In spite of less encouraging forecasts the Brazilian economy managed to grow 2,38% during the third quarter of 2002 compared to a year ago. This was achieved basically with the strong showing of agriculture, 7,19% and industry, 2,98%. At this rate the Brazilian economy is expected to finish the current year with a growth estimate of 1,5 to 1,7%, but most important with industry recovering. "Data indicates that in spite of the financial difficulties and the run on the local currency, industry has kept growing", said Wilson Ramaio, Lloyds Bank senior economist in Sao Paulo. During the third quarter leading to Brazil's October presidential election, the Brazilin currency, Real, rapidly eroded against the US dollar (18% in September) forcing the government to raise basic interest rates to 22%. A weaker currency helped exports but hindered imports and had a negative influence on consumer prices. In November the Consumer Price Index reached 3,39% the highest monthly record since 1995, with 11,72% accumulated so far in 2002 according to the Brazilian Geography and Statistics Institute. The November index is 1,82 higher than October's 1,57%. In the last twelve months inflation reached 12,55% when in the same period a year ago is was 10,26%. November 2001 inflation was 1,29%. Food and fuel under the influence of the rocketing US dollar had the greatest impact in the November index. In Rio do Janeiro the November Consumer Price Index rose 4,05% according to the Getulio Vargas Foundation, the highest since July 1995. In October CPI was 1,14%. Inflation for the twelve months of 2002 is expected to reach 12%.

Categories: Mercosur.

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