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Thursday, December 12th 2002 - 20:00 UTC
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Headlines: Köhler in Chile; “Aninat's party”; Free trade agreement breakthrough; US interest rates unchanged; US interest rates unchanged; A meeting “beyond expectations”; Red tide alert in Argentina; Menem-Duhalde truce?

Köhler in Chile

International Monetary Fund Managing Director Horst Köhler arrived in Chile for a two days visit to underline its support to the country's solid management of the economy. Mr. Köhler comes from Colombia and Brazil. In Colombia he praised President Uribe's efforts in combating inflation and in Sao Paulo met with elected Brazilian president Luiz Inacio Lula da Silva. "The tour that started in Brazil has the purpose of reviewing some of the lessons of the Chilean experience", said Thomas Dawson IMF spokesperson, in direct reference to Chile's economic performance considered a show case for the multilateral organization. Chile was recently admitted to IMF New Agreement to Borrow, NAB, given the country's capacity to provide supplementary resources plus the level of Chile's international reserves and its uninterrupted participation in the IMF's Financial Transactions Plan as a creditor since the mid-1990s. Chile is the first Latin American country to participate in the NAB and will be represented by the Banco Central de Chile. As happened in his two previous stops, Mr. Köhler will be asked by Chilean officials a quick solution to Argentina's request for credit assistance that has seen ongoing negotiations for the past eleven months. Before leaving Colombia Mr. Köhler when asked about Argentina said that "negotiations continue, we want to support the country and we expect that the outcome of this process is positive". However Anne Krueger, number two in the IMF during a conference in Brussels was rather more caustic. "For some time we expected to reach a quick agreement, but we haven't been able. There are some relevant issues that are still under discussion, and once they are solved we want to support a program that we consider sustainable", said Mrs. Krueger.

"Aninat's party"

Although Chile is considered a success story for the IMF, President Ricardo Lagos' administration has been under constant flak for some time from the local business community who are demanding tighter fiscal policies to help the economy recover its 5 to 7% average growth of the nineties. An opinion shared by many Chilean economists who blame the former Economy Minister, Eduardo Aninat, (1994-1999), and now IMF number three man, for the current situation. "The country is still paying for the Aninat party of '99 when the presidential campaign between Mr. Lagos and Joaquín Lavín", said Sebastián Edwards, a former World Bank economist and now professor at the Berkeley campus of the University of California. Mr. Edwards believes there was a "misfortunate combination of fiscal and monetary policies during the whole of 1999". Another distinguished economist Vittorio Corbo from the Catholic University of Chile said that growth in Chile during 1996 and 1997 was interrupted "because of clearly expansive monetary policies". "Everything was fine when the television lights were on and Mr. Aninat and Central Bank president Carlos Massad talked to the press, but when the show was over you could hear the blows and the china dishes and glasses falling to pieces", recalled Mr. Corbo during a recent conference in Santiago where the current administration economic team was present. Apparently Economy Minister Nicolás Eyzaguirre just managed a forceful smile during the conference and later more solemnly declared that "Chile didn't react accordingly to the Asian financial crisis" of the late nineties.

<Free trade agreement breakthrough

Chilean president Ricardo Lagos declared this Wednesday that after eleven long years of negotiations the country has finally reached a reasonably good free trade agreement with the United States. "We now have a free trade agreement with the world's greatest economic power", announced an optimistic president Lagos, after crucial last minute negotiations that threatened to scuttle the whole package were overturned. President Lagos said that negotiations between Chilean Ministers of Foreign Affairs Soledad Alvear and of Economy Nicolás Eyzaguiree, with US Trade representative Robert Zoellick concluded in the early morning of Wednesday. Minister Alvear confirmed that "negotiations were tough", but we finally managed to reach an agreement. However no details were given of how the thornier and more contentious issues, mainly regarding agriculture, were overcome. An official announcement will be made in Washington by the negotiating teams. Chile also signed this year a free trade agreement with the European Union. "The agreement with the US, as has happened with those reached with Mexico, Canada, European Union and Korea will mean more jobs, more activity and more growth for Chile", underlined President Lagos in Santiago on confirming the successful conclusion of negotiations.

US interest rates unchanged

United States Federal Reserve (Central Bank) kept basic interest rates unchanged at 1,25%, the lowest in 41 years. The Federal Reserve said that risks to the US economy continued balanced between economic weakness and inflationary threats. According to the official release, "the limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot". The latest US economy indicators gave a rather contradictory picture. Official figures show unemployment rate increased to 6% (from 5,7% in October) and retail chain store sales dropped in the last weeks. However stockpiles of wholesalers decreased meaning that new orders could pick up. Analysts anticipated and applauded the Fed decision taking into account the fact that a new Congress has been voted in, and President Bush just named a new Treasury Secretary and Economic Advisor and is expected to move forward with a program of tax cuts and other measures to get the US economy rolling again. However the same analysts anticipate that the Fed will be raising the basic rate for federal funds in the second half of 2003, once tax stimuli and the successive rate cuts accelerate and consolidate US economic growth. Of the 22 primary operators who trade with the Federal Reserve, nine estimate the first increase in Fed rates could occur at the end of June while the other thirteen are forecasting September 2003.

A meeting "beyond expectations"

The meeting was "beyond my expectations", said Brazilian elected president Luiz Inacio Lula da Silva after sharing with US president George Bush an hour and ten minutes in the White House. The White House spokes person described the meeting as a "very good discussion", and Mr. Lula indicated he will be returning to Brazil knowing that "I can count with President Bush as an ally". The former union leader said he was very impressed with Mr. Bush's commitment to democracy, his willingness to increase bilateral relations, to help with social programs such as fighting hunger and support Brazil's private sector financially. President Bush also proposed a summit meeting between both governments to define an agenda of mutual interest issues, and although no location was established the idea is to debate the preservation of democracy in the continent, security and regional development. "I have the best possible impression of Mr. Bush, because of his disposition and willingness towards Brazil", underlined Mr. Lula who later met with the leadership of the American Federation of Labour, AFL/CIO, an organization that represents 14 million US workers. However at the National Press Club Mr. Lula anticipated his administration will adopt a tough attitude regarding the US sponsored Free Trade Association of the Americas. "We will negotiate FTAA taking into account our interests. It's only normal for the Americans to defend their interests. Politics should help us find a trail between Brazilian and American interests", said Mr. Lula. President Lula admitted that Venezuela, and the preservation of democracy, was considered with President Bush, but not the current Argentine situation, Brazil's main partner in the debilitated Mercosur. Finally Mr. Lula said Mr. Bush did manage some words in Spanish and expressed his interest in going surfing in Rio do Janeiro's world famous beaches.

Red tide alert in Argentina

Argentina's Sanitary and Food Quality Service, Senasa, warned that no bivalve sea food must be collected or consumed unless they have the official certification given several reported outbreaks of toxins in molluscs. The red tide phenomenon apparently has extended to the whole of the South Atlantic coast and the official recommendation is extensive to all sea food products from the Argentine maritime shores, since the "paralyzing toxins are extremely dangerous for humans even causing death". The original Senasa resolution 877/02 banned collecting and commercialization of all bivalve molluscs from bahía de Samborombón to Carmen de Patagones but now has been extended to the whole maritime front. Similar bans exist at provincial level in Rio Negro, Chubut and Rio Negro

Menem-Duhalde truce?

Primary elections in the Argentine ruling Justicialista Party could take place next February 23 following an understanding between the two main Peronist forces, those that respond to caretaker President Eduardo Duhalde and former president Carlos Menem. Mr. Duhalde and Mr. Menem are declared contenders for the control of the political movement that has had an overwhelming influence on Argentina's politics for the last sixty years. The party's Congress and Electoral Board is under Mr. Duhalde's influence and it has consistently postponed three primary dates fearing an open victory of Mr. Menem in the coming April 30 presidential election. The former president on the other hand controls the party's Federal Council, convened for next Monday to accept the February date, but has also warned that if the government persists in its confrontational attitude it will demand that the Courts intervene the party and establish a definitive date for the primary, as described in the electoral legislation. If Mr. Menem can participate in primary elections he almost certainly will become the party's candidate and Argentina's next president. According to the Argentine press if no primary is held some important political leaders believe the Justicialista party might loose the presidential election, its strong hold over clue provinces and increase the risks of social conflicts in an already volatile country. With this in mind a consensus is growing among Justicialistas to impose a truce between the two outstanding leaders and so ensure Argentina a stable political scenario for the coming elections, and obviously the continuance of the party in power. Besides, a recent poll taken in Argentina indicated that 36% of those interviewed considered that the best economic time in their lives was during the ten years of the Menem administration. The Ipsos-Mora poll interviewed 1,200 people and shows that those most satisfied with the Menem administration are the youngest and belonging to the lower income groups. "Impressive results, particularly the strong feeling that those (Menem) years were after all not so bad, in spite of the fact many people are not willing to vote him for several reasons", remarked Manuel Mora y Araujo, president of Ipsos-Mora.

Categories: Mercosur.

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