MercoPress. South Atlantic News Agency

Argentine industrial production forecasted to expand 6% to 7% in 2012

Minister Debora Giorgi expects industry to keep the same level of activity as last year

Argentine industrial production is expected to expand 6% to 7% this year, Industry Minister Debora Giorgi said in a statement Sunday. That would put industrial growth inline with 2011, when it rose 6.5%, according to the national statistics agency, Indec.

Industrial output growth slowed sharply in December, with activity contracting in a number of key areas, including the automobile sector. Industrial production expanded 1.4% on the year, and increased 0.9% in seasonally adjusted terms from November.

Until recently, Argentina's industry benefited from a booming domestic economy and strong demand from Brazil, especially for automobiles and chemicals. Protectionist trade barriers have also allowed industries like textiles, footwear and consumer electronics to flourish.

President Cristina Fernandez industrial policy also relies heavily on restricting imports to force international companies to make their goods in Argentina and source parts and components from local suppliers.

But economists say economic growth will slow notably this year. They cite headwinds including inflation that they say surpass 20%, a drought that has curbed corn output and threatens soybeans, and weaker demand from top trading partner Brazil.

Manufacturers are especially vulnerable as they slowly lose competitiveness to the inflation-adjusted appreciation of the Argentine peso and double-digit increases in wages and materials.

In related news Argentina’s central bank raised capital requirements for financial institutions to comply with international standards.

Argentine banks will be required to hold an extra 75% of their minimum capital requirements before dividend payments from the current 30%, the bank said in an e-mailed statement.

The measure, which will be applied gradually starting Feb. 1 through December, aims to comply with the Basel Committee on Banking Supervision.

“It has the double purpose of giving more security to savers, as well as increasing the system’s resources to expand credit” the Central Bank said in the statement.

Following her Oct. 23 landslide re-election, President Cristina Fernandez ordered energy and mining companies to bring export revenue to the country after Argentina faced record capital flight in the third quarter.

She also told insurance companies to repatriate investments held abroad, tightened oversight of the foreign exchange market and raised the amount of wheat farmers can sell abroad.