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Thursday, December 19th 2002 - 20:00 UTC
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Headlines: Peronist primary February 23rd; Lula confirms current policies; Latinamerica's economy contracts; 39 billion US dollars capital flight.

Peronist primary February 23rd

The ruling Argentine Justicialista Party agreed this week to hold open primary elections next February 23rd for the nomination of the party's candidate in the presidential election scheduled for April 27th. Ruben Marín, vice-president of the Peronist Council and governor of La Pampa province indicated that "whether we like it or not, this is the last chance Peronism has to convene a primary election" in direct reference to the ongoing dispute between the two main leaders of the political movement that has dominated Argentina's politics for the last sixty years. The two leaders are former president Carlos Menem and caretaker president Eduardo Duhalde, who has managed to postpone the primary date from December 15th to January 19th and now February 23rd. However two other Peronist hopefuls didn't participate in the "Duhalde-Menem" representatives' summit, Adolfo Rodríguez Sáa and Santa Cruz governor Nestor Kichner. Mr. Duhalde is determined to impede a third mandate for Mr. Menem and is looking for a palatable candidate to defeat the two times president whom the Argentine electorate reluctantly seem to accept. After having failed in convincing Santa Fe governor Carlos Reuteman, one of the most respected figures of the devalued Argentine political system, Mr. Duhalde is now thinking in a possible ticket with two other relatively successful provincial governors, José de la Sota from Córdoba and Néstor Kichner from Santa Cruz. The fact that the primary will be open means that 3,8 million affiliates of the Justicialista Party and 15 million independents could potentially participate next February 23rd. Recent opinion polls indicate that Mr. Menem as the only candidate for the ruling party can easily win the presidential election. However, if the Peronist party runs divided and with several candidates, even as independents, chances rapidly diminish endangering victory. Apparently regional party leaders warned Mr. Duhalde of the danger and this helped arrange the summit where the February 23rd. date was agreed. The Argentine electorate have a strange relation with former president Carlos Menem. Blamed for having planted the seeds of much of the current Argentine havoc, they also remember the stability of his ten years of rule and believe he's one of the men better positioned to put Argentina back in the world of reliable countries.

Lula confirms current policies

The incoming Brazilian administration of elected president Luiz Inacio Lula da Silva will keep to the current economic policies to ensure stability while social programs are implemented, announced designated Finance Minister Antonio Palocci. "It's not easy, but we are convinced that without political stability there will be no social improvement", said Mr. Palocci in Brasilia where he's the acting official coordinator of the transition team and main advisor of Mr. Lula. Mr. Palocci added that the Workers Party has a "Brazil project" that will enable the country to grow again, increase exports, generate jobs, improving social conditions plus attracting research investments in science and technology, however, "before that happens we need a long period under the current instruments". The former Trotskyite doctor underlined that the incoming government will implement an "adequate monetary policy", a "higher quality fiscal strategy" and will keep all the staff from the previous administration "that is necessary". In a clear message to the markets and former critics who warned about possible drastic changes contrary to stability under a Lula administration, Mr. Palocci indicated that "we're not concerned about ideological filters; we will appeal to professionals and the best minds in each field". Regarding the Central Bank, where a former Bank Boston CEO was named, he said the bank will have all the autonomy needed to implement the necessary policies that ensure a balanced economy. "We will not interfere, now or later, with Central Bank decisions establishing interest rates and monetary policy; we picked Mr. Henrique Mierelles because of his background and capacity, not because of party links", stressed Mr. Palocci. Since the naming of Mr. Lula's collaborators in the economic field, international confidence in Brazil has surged and the local currency Real has recovered ground against the US dollar. "We're optimistic because signals are most positive", said Mr. Palocci. Almost in coincidence with Mr. Palocci's statements the International Monetary Fund, IMF, released 3,1 billion US dollars of a stand by loan of 30 billion US dollars approved last September in the midst of the presidential election. The release was approved after an IMF review team confirmed that the primary budget surplus of 14, 4 billion US dollars in the first ten months of 2002 had been easily reached (actually it was 15,4 billion). The Lula administration that takes office next January according to the IMF agreement endorsed by all presidential candidates during the campaign, stipulates a 3,75% of GDP primary surplus for 2003, 2004 and 2005.

Latinamerica's economy contracts

Latinamerica's economy contracted 0,5% in 2002 under the influence of the poor showing of South American countries, particularly Argentina, Uruguay and Venezuela according to the latest primary report from the United Nations Economic Commission for Latinamerica, Cepal, released this week in Santiago de Chile. "The evolution of the region has been signalled by an adverse international economic context, the deterioration of external financial conditions, less United States dynamism and the persistent drop in exchange terms of non oil economies", reads the report. The countries with the worst economic evolution in 2002 were Argentina, Uruguay and Venezuela with contractions of 11%, 10,5% and 7%. Brazil on the other hand managed a modest 1,5% and Mexico 1,2%. The Cepal report indicates that in 2002 the region completed "half of a lost decade" regarding economic development and that the social situation has severely deteriorated with seven million more poor people and record 9,4% unemployment, in spite of the advance of the informal economy. Inflation doubled from 6% in 2001 to 12% in 2002. For the coming year Cepal estimates that Latinamerica and Caribbean countries will manage a modest average expansion of 2,1%, with Argentina playing an important role. One of the few encouraging signals in the report comes from Chile, that this year reached free trade agreements with the European Union, United States and South Korea, and is set to expand a healthy 3,5% in 2003. "The Chilean economy continued in 2002 with its moderate growth trend; GDP expanded 1,8%, compared to 2,8% in 2001", says the report. Inflation in spite of seasonal changes and exchange rate and oil price fluctuations was 3% in line with the monetary authority target. "Chile confronted in 2002 one of the worst external situations since the 1982-83 crisis and could not avoid the effects of external turbulences and drastic reduction of capital influx to emerging economies", all of which summed up to a loss equivalent to 5 points of GDP. However basic targets such as monetary and fiscal policies were kept to their targets. Central Bank cut rates six times in an effort to stimulate domestic demand and the structural budget surplus remained at 1% of GDP. The estimated 0,9% deficit was easily financed with 900 million US dollars in sovereign bonds. For 2003 Cepal anticipates a similar 0,7% deficit but it should be financed without difficulties since Chile's foreign debt is equivalent to only 17% of the country's GDP. But the report also indicates that domestic demand persists depressed and unemployment has become the main task, having reached the 10% mark during winter months.

39 billion US dollars capital flight

According to Cepal's primary report on Latinamerica during 2002 an estimated 39 billions US dollars fled from the region, half of if from Argentina. The report also indicates that in the last four years the GDP per capita in Argentina dropped 22,4%. In spite of the low interest rates in developed countries, capital flight from Latinamerica was encouraged by uncertainties in regional financial markets and the significant increase in country-risk assessments. Argentina with its banking system in shambles and devalued currency lost an estimated 19,5 billion US dollars in 2002.

Categories: Mercosur.

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