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Hot News from Argentina - Brazil & Chile

Wednesday, December 18th 2002 - 20:00 UTC
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Headlines: Lavagna announces end of recession; Second thoughts about free trade agreement; Sales to Argentina and Brazil drop 38%; Modest 2% growth in Chile

Lavagna announces end of recession

Argentina's Economy Minister Roberto Lavagna officially announced the end of the country's four years recession saying that industrial production figures, "for the first time in 27 months are positive". "This means that including the coming fourth quarter, we're going to have three running positive quarters, and this according to international standards signals the end of a recession", emphasized an optimistic Mr. Lavagna while addressing Buenos Aires Chamber of Commerce. In November industrial production grew 2%, compared to a year ago and 3% over last October. However for the last twelve months the index is still a negative 12,2%. Mr. Lavagna was also optimistic about employment although he did not advance any figures. "If the economically active population increases, this means there's more people looking for jobs but knowing they can find one". The last unemployment figure dates from May when it reached a record 21,5%. Sources close to President Eduardo Duhalde have anticipated that the rate is now below 19%, and that Mr. Duhalde himself will make the announcement next December 27th. "Argentine is putting its house in order, and we're preparing for a more normal economy with growth capacity", insisted Mr. Lavagna pointing out that exporters now have a more competitive exchange rate, "although they still lack financing". "Our foreign debt is equivalent to the country's GDP so we're forced to export and double overseas shipments". However, Mr. Lavagna warned that exports can't be based on "low salaries and cheap labour", particularly if Argentina wishes to recover its domestic consumer market. During his speech Mr. Lavagna announced the creation of a special fund to promote exports that will be managed by the Investment and Foreign Trade Bank.

Second thoughts about free trade agreement

The Chilean Conservative opposition is having second thoughts about blindly supporting in Congress the recent free trade agreement with the United States, following strong pressure from several sectors of the Chilean economy. Although the Chilean opposition was openly supportive of the free trade talks and is in essence liberal favouring open markets and rejecting protectionism, it has turned more cautious given the agreement feedback coming from "productive sectors" that question the extent and timetable agreed. "We support free trade, real free trade with no protection clauses for certain areas such as those that are applied in the United State", said Pablo Longueira one of the leaders of the opposition coalition. However, to ensure the benefits from the Free Trade agreement "the government must implement policies to rescue relegated areas and definitively address the modernization of the productive structure". "Signing the free trade agreement is not enough. This is not a panacea", stressed Sebastián Piñera another outstanding leader of the opposition. Mr. Piñera added that the free trade agreement implies great challenges but it can also become a boomerang with disastrous consequences for certain areas of the Chilean economy. Both Mr. Longueira and Mr. Piñera anticipated that the opposition Alliance will not adopt a public position until they have full access to the whole text of the agreement. "In the meantime we will be involved in a consulting process with the different sectors of the economy that have contacted us", indicated the opposition leaders. President Lagos ruling coalition with a minority in Senate desperately needs opposition votes to have the free trade agreement approved in Congress.

Sales to Argentina and Brazil drop 38%

Chilean sales to crisis stricken Mercosur members Argentina and Brazil during the first ten months of 2002 dropped 38% from 1,25 billion US dollars to 778 million US dollars. However the fall was greater with Argentina, 60%, from 490 to 192 million US dollars, and with Brazil, even when the contraction was less dramatic, sales dropped 23%, from 761 to 585 million US dollars. Although Argentina historically has been Chile's main trade partner in Latinamerica (together with Brazil) it now ranks behind Colombia, Peru, Ecuador and Venezuela. Among the Chilean exports most affected are newsprint, tomato paste and copper. Chilean investments in Latinamerica, particularly Argentina and Brazil, also suffered from the devaluation of these two countries currencies. The Chilean Securities Commission estimates that the losses of Chilean companies in Argentina and Brazil reached the 430 million US dollars. Chilean analysts believe that Argentina finally is beginning to rebound but Brazil remains weak.

Modest 2% growth in Chile

Scarce foreign investments, high unemployment and cautious consumers have forced the Chilean Central Bank to reduce the country's growth estimate to just 2%. Last September Central Banks president Carlos Massad had forecasted that Chile would expand at a rate of 2 to 2,5%. However private sector analysts are less enthusiastic in spite of a strong showing of the economy during October compared to previous months. The majority consensus is that the Chilean economy will finally end 2002 with an expansion between 1,8 and 2%. Regarding next year Mr. Massad was more optimistic and said that even with the region in its current situation but with the world economy recovering, "Chile could be growing at a 5% rate towards the third and fourth quarter of 2003". Chile's Manufacturing Association, Santiago's Chamber of Commerce and the National Exporters Corporation estimate that the country's overseas sales will experience an encouraging expansion in 2003, reaching 20 billion US dollars, equivalent to a 9 to10% increase. "Recovery of the world's leading economies, --average 2,6%--, better prices for commodities and greater shipments should strongly stimulate Chile's exports next year", indicated Mr. Andrés Concha, chairman of the Manufacturing Association.

Categories: Mercosur.

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