MercoPress. South Atlantic News Agency

International funds returning to Argentina

International funds are returning to Argentina according to the latest balance of payments figures revealed by the country's Census and Statistics Institute, Indec.

Last year capital net income reached 2.674 billion US dollars, up 53.8% from 2004 the last year when fearful funds kept fleeing Argentina.

The balance of payments fourth quarter bulletin shows that the net influx of funds together with the surplus trade and services balance, totalling 5.4 billion US dollars, increased international reserves by 8.857 billion US dollars in 2005 enabling Argentina to pay back all its pending debts with the International Monetary Fund.

Last year also signaled the reversion of capital movement from the non financial private sector: for the first time since the 2001/02 collapse of the Argentine economy, more funds came in than left. In 2005 the influx was positive, 3.498 billion US dollars compared to a negative 116 million in 2004.

The report indicates that international funds were attracted back for several reasons: Argentina concluded its huge defaulted debt swap; the expanding economy and the new indexed bonds, all of which helped new business opportunities.

Following all these operations Argentina's foreign (government and private) debt ended 2005 at 117.2 billion US dollars. Following the debt swap, the outstanding debt contracted by 53.9 billion US dollars compared to 2004, with the defaulted bonds swap representing 49.4 billion US dollars.

The private sector, financial and non financial, debt also contracted by 3.4 billion US dollars last year.

In related news Indec also announced that the Argentine economy expanded by 9.1% last January compared to the same month in 2004. Last year and according to provisional figures, the Argentine GDP increased 9.2% with forecasts for 2006 ranging from 7 to 8.5%.

"The first half will see a rapid expansion but in the second half the political agenda will have an impact and won't favour the business climate", said Jorge Gonazalez Fraga a former Central Bank president.

However inflation the soft spot of the president Kirchner administration is forecasted to reach 12%, in spite of "inconsistent" measures such as arm twisting different industries to freeze basic consumption prices or banning all beef exports to force a drop in livestock values.

"The government is obsessed with inflation and the index of prices, but what must be considered is that the economy has been growing for the last four years", added Gonzalez Fraga.

As to overall investment which reached a significant 22.7% (for Argentina) last year, Mr. Gonzalez Fraga said that "strategic investment, in infrastructure is still absent".

"There' s abundant investment in small and medium companies, in manufacturing, in commodities, and in the last six months investment expanded more rapidly than the economy, which means that industrial capacity has increased".

Investment and consumption are the two main engines of the Argentine economy.

"The main thrust still is consumption, which expands 8% year after year with a 5.3% contribution to GDP expansion. Investment, above 20%, also contributes strongly with an estimated 5.1%", highlighted Mr. Gonzalez Fraga.