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Hot line Buenos Aires-Brasilia; Trade surplus in Argentina; Controversy over exchange rate; Democrats warn about US deficit; Record crop in Brazil; “We're determined to kill and dismember inflation”; “We're determined to kill and dismember inflation”

Hot line Buenos Aires-Brasilia

Argentine and Brazilian presidents will establish a direct 24 hours line to enable them to discuss foreign policy issues at any moment. According to Buenos Aires daily, Clarín, Foreign Affairs ministers, Rafael Bielsa and Celso Amorim confirmed the information during a meeting held in Brasilia. Apparently Mr. Nestor Kirchner and Mr. Luiz Inacio Lula da Silva are interested in having a "tight no-fissure block" in their talks with Washington, and a common ground regarding the rest of Latinamerica. Mr. Bielsa visited Brasilia to prepare Argentine president Kirchner's visit that is scheduled to take place in the coming fifteen days, but before the Mercosur presidential summit that will be taking place in Asunción, Paraguay between June 17 and 19. Clarín publishes that Mr. Bielsa considered this a unique opportunity for Argentina and Brazil. "We will be ruling our countries at the same time during the next four years. And coincidently we think the same way. It's like if the elections of both our countries had been won by the same party", said Mr. Bielsa.

Trade surplus in Argentina

Argentina managed a 1,361 billion US dollars trade surplus during April bringing the total for the four months of 2003 tp 5,283 billion, according to the National Statistics and Census Office, Indec. "The significant surplus this year and in 2002 (16,358 billion US dollars) is mainly the result of the falling imports process that started in 1999 and increases all along 2002", reads the official report. In January 2002 Argentina abruptly ended the one US dollar-one peso decade long ratio and allowed the currency to float, and it rapidly climbed to above 3 pesos to the greenback. April exports reached 2,469 billion US dollars, a 13% jump over 2002, and in the four months 8,889 billion, also a 13% expansion over the same period a year ago. Imports during April increased 81% compared to the same month in 2002 recording 1,108 billion US dollars, and in the first four months of the year reached 3,606 billion, with a 34% jump over the same period last year. Exports were shipped to Mercosur, 21%; European Union 20%; Nafta 15%; Asia 14% and Chile 12%. Imports originated in Mercosur 36%; European Union 21%; Nafta 20%; Asia 12% and Chile 2%.

Controversy over exchange rate

Argentine Central Bank president Alfonso Prat-Gay described president Nestor Kirchner wish of a stable exchange rate in the range of three Argentine pesos to the US dollar as "a tremendous error". Addressing the Argentine Association of Friends of the Hebrew University of Jerusalem, Mr. Prat-Gay indicated that "a president must never involve in such level of detail", since there's no way of forecasting exchange rates in a "free floating money market", adding that "I strongly recommend the President not to endanger his credibility in something that can't be forecasted with precision". Mr. Prat-Gay anticipated that under his rule the "Central Bank will not concentrate in the exchange rate, we'll look at its expansion rate every now and then, but we will be closing watching the final results of the monetary policy". Mr. Prat-Gay revealed that during April "monetary expansion rate increased significantly", and the Argentine Central Bank "was forced to buy more US dollars that usual to keep inflation in target". However he also forecasted that the retail price index rate for April, to be made public this week, for the first time since the Argentine peso was floated, will indicate a "level of deflation". "April statistics will show a general drop in the price level, which could be interpreted after the bid shake-up last year of the US dollar, as something positive", highlighted the Central Bank president. Mr. Prat-Gay also expressed he had differences with Economy Minister Roberto Lavagna who was confirmed by the incoming Kirchner administration, and announced the creation of a special body that will be responsible for the restructuring of the Argentine financial system. "The Central Bank is effectively entitled to rule on anything involving the financial system", warned Mr. Prat-Gay. Since Mr. Lavagna became Economy Minister a year ago, he has clashed with successive Central Bank officials regarding policies to restructure the Argentine banking and financial system that virtually collapsed in early 2002 following Argentina's defaulting of 128 billion US dollars sovereign debt. However the Argentine Business Association that includes seventy of the strongest companies in the country openly supported President Kirchner and Mr. Lavagna stressing the administration's intention of "recreating an efficient taxing system that rewards investment and the creation of jobs, and severely punishes evasion and elusion with its negative impact on social policies". The Argentine Business Association 70 companies employ 210,000 people, have an annual turnover of 41 billion US dollars and export 7 billion US dollars annually.

Democrats warn about US deficit

Several Democrat Congressmen, still troubled with the recent approval of a massive tax cut package sponsored by the Republican administration have warned about the ballooning federal budget deficit that this year is expected to reach 400 billion US dollars. Democrats from the House of Representatives Budget Committee have indicated that the deficit will keep growing and can be expected to total 500 billion US dollars next year. The actual figures are 416 billion in 2003 and 489 billion in 2004, that exceeds the Congressional Budget Office's forecasts but coincide with some Wall Street analysts. Democrats are insisting that the recently signed 350 billion US dollars tax cut in ten years will only worsen the fiscal situation and further weaken the US economy. They recall that the 1,35 trillion tax reduction of 2001 virtually has had no impact in promoting consumption or creating jobs. On the contrary since Mr. Bush took office in January 2001, 2,7 million jobs have been lost. The White House has insisted with arguments that tax cuts promote activity and underlined that the fiscal incentives for corporations in this last package will stimulate investment and job creation. Democrats are determined to make the economy and budget policies the center piece of the 2004 general elections agenda, when Mr. Bush will be attempting his re-election. However the latest confidence index from a private business research group Conference Board shows that it rose to 83,8 points from 81 last April. This has been the first confidence increase in four months because apparently consumers anticipate better business and job conditions. But only time will tell how much actually translates into spending. "The post-war euphoria experienced last month has quickly given way and consumers focus has returned to matters on the home front", said Lynn Franco director of the Conference Board.

Record crop in Brazil

Brazil's cereal, leguminous and oleaginous harvest this season could reach 116,3 million tons, a 19,73% increase over the 97,1 million tons of 2002, according to the latest release from the Brazilian Geography and Statistics Institute, IBGE. The latest estimate corresponds to a survey taken during April that reported a 2,36% over the a similar March survey. The three main farming areas of Brazil, South, Southeast and Center-west that represent 45%, 13% and 32% of national production are experiencing crop increases of 23,81%, 4,91% and 21,89%. In the northeast with 7,41% of national production, the increase compared to 2002 is estimated in 33,89%, and in the North with 2,29% the expansion expected is 21,89%. Soybeans the main crop is expected to reach 50,5 million tons, 1,79% above the previous March estimate of 49,6 million. Either way it's a 20% expansion over the 2002 season. The final crop of maize is expected to reach 9,5 million tons compared to the previous March estimate of 8,84 million tons, a 7,35% increase. Regarding wheat, the 2003 crop will be 45% above the 2,9 million tons of 2002. The final April estimate from IBGE indicates 4,25 million tons, and in a particularly good year for wheat.

"We're determined to kill and dismember inflation"

Brazilian Finance Minister Antonio Palocci underscored that the current monetary policy will remain unchanged until inflation is definitively eradicated and therefore interest it's not possible to reduce interest rates. Mr. Palocci who is part of the delegation of President Luiz Inacio Lula da Silva at the G8 summit in Evian, France, admitted that retail prices are not decreasing "as fast as we would like" given the rollover inertia of wholesale inflation. "We're determined to kill and dismember inflation. We do it this year, or we'll spend the rest of the four years trying to do the same", stressed Mr. Palocci. The insistence of the Lula da Silva administration in keeping the basic inter-bank rate, Selic, at 26,5% has irritated Brazilian industry, the opposition and even the left wing of the president's party who are demanding the "growth miracle" promised in the electoral campaign trail. Mr. Palocci who insists that Brazil is in the last leg of the battle to defeat inflation admitted that some options have been presented but "they have failed dismally in the past". However it's hard to know when it will effectively occur in 15 days, a month, or even further on. "Let us say we ease monetary policy and tolerate inflation, this will lead to growth in the short term, but will be followed by disaster", indicated Mr. Palocci to the growing number of critics. "We could still end with high inflation this year. The Central Bank Monetary Committee will continue to do what is necessary since the inflation target for 2003 is 8,5% and in May the accumulated inflation of the last twelve months reached 12,13%", warned Mr. Palocci. Private institutions published last week that unemployment in Sao Paulo's metropolitan area, (Brazil's industrial heartland) had reached 20,6% in April compared to 19,7% in March. Mr. Sergio Mendoca from the Trade Unions Statistics and Socioeconomic Studies Department indicated that unemployment was worse than in the last recession of 1981/82 when it had reached 18%. "This is a lost year for employment, and incomes take even more time to recover; maybe sometime in 2004, actually the industrial worker's real income has dropped 9,5% since March 2002", pointed out Mr. Medonca. The Brazilian Finance Minister not only has been criticized for his orthodoxy regarding monetary policy but also in the handling of the budget. Primary budget surplus currently stands at 6% of GDP, well above the 4,25% target agreed with the IMF. However Mr. Palocci points out that in the first half of the fiscal year expenditure is less than during the second half, "when we have to pay the civil service end of the year bonus, so the surplus will be dropping to target".

"We're determined to kill and dismember inflation"

Agriculture Ministers from Mercosur, (Argentina, Brazil, Paraguay and Uruguay), and associate members Chile and Bolivia, will develop joint agricultural policies to facilitate negotiations with economic blocks and in international forums. The strategy was agreed during the first meeting of the Agricultural Council of the South, CAS, held in Brasilia in which representatives from the six countries created the Informal Group of International Agriculture Negotiations, Gina-Sul. The purposes of the group is to iron out issues considered controversial and harmonize the agriculture interests of all the countries of the region when sitting to discuss with for example the United States sponsored, Free Trade of the Americas Association, FTAA, "The idea is to make feasible the participation of the South American Agriculture Ministers in the FTAA rounds", said Brazilian Agriculture Minister Roberto Rodrigues. Mr. Rodrigues admitted that the Agriculture Ministries of the different countries are in no position to discuss directly in the framework of the World Trade Organization, WTO or with the European Union, "but consensus positions can be presented to the six Foreign Affairs ministries to advance on a common front". "Much now depends on the political will of our governments, not only in the Ministers of Agriculture", admitted Mr. Rodrigues. However the meeting agreed on a Letter of Intent claiming adequate treatment in all farm discussions with FTAA and warning about the "distortions" of the talks, particularly the United States declared intention of taking the issue of subsidies and farm support to the much more cumbersome scenario of the WTO. Agriculture ministers also agreed to jointly address the issue of quality production in the region with common policies for example to eradicate foot and mouth disease by 2005. "Sanitary excuses can no longer be a pretext to impede our more competitive and organic production from entering in foreign markets; that is why we have to eliminate all our sanitary problems", emphasized Mr. Rodrigues.