THE ARGENTINE EMBASSY IN THE UNITED KINGDOM ECONOMIC & COMMERCIAL SECTION 65 Brook St. London W1K 4AH Tel: 020 7318-1300 Fax: 020 7318-1331 [email protected] www.argentine-embassy-uk.org

NEWSLETTER

FEBRUARY 2005

Content

ARGENTINE ECONOMIC OVERVIEW *Extracts from the latest Inflation Report published by the Argentine Central Bank (BCRA, 19/01/05)

FINANCIAL SECTOR *Debt restructuring process: recent developments *US Judge rules for Mendoza debt exchange *Standard & Poor´s upgrades rating

ARGENTINE TRADE *Bilateral trade with UK

NEWS *Argentine GDP grew by 8.8% in 2004 *Primary fiscal surplus of 1.6bn pesos in January 2005 *Tax collection rose by 23% in January 2005 *Industrial activity grew by 7.1% in January 2005 * will adopt the “Orderly Financing Programme” *The national government reaches new agreements with public utility companies *Argentine auto parts will be exported to UK in 2006 *Argentine exports of tea rose by 11% in volume and 14% in value in 2004 *Repsol´s profits in Argentina rose by 5.3% in 2004 *Chinese investments in the Argentine telecommunication sector *Spain approved a debt-for-education swap favouring Argentina *The Cairns Group criticised European subsidies *MIF approves a grant to promote new growth-oriented enterprises in Argentina *Argentine governor Jorge Obeid of Santa Fe visited London from the 20 th to 23 rd of February *Argentine week in London *Argentina will participate in IFE05

ARGENTINE ECONOMIC OVERVIEW

Extracts from the latest Inflation Report published by the Argentine Central Bank (BCRA, 19/01/05): The rate of growth in economic activity during the second half of 2004 was greater than expected, while price increases remained in line with expectations. GDP growth in 2004 surpassed 8% and the year-on-year (y.o.y) change in retail prices was 6.1% in December, about 1 percentage point below the 7% to 11% target range to which the Central Bank was committed.

However, business cycle conditions have started to show slight signs of an increase in inflationary pressure on the most relevant prices of the economy. The Central Bank is carefully following these developments to determine whether they may require a reaction from the monetary authority.

The CPI (Consumer Price Index) surged in the last month of 2004, with a monthly increase of 0.8%. A concentration of price increases is expected for the first quarter of the year, particularly in January, which would put the quarterly inflation at more than 2%. Part of this result would be caused by a set of ad hoc price increases (i.e. the remaining effect of the cigarette price increase at the end of December, and rises in taxi cab fares in the City of Buenos Aires, compressed natural gas, private health insurance, and private schools with public subsidies) as well as by the seasonal behaviour of CPI components such as tourism and leisure.

On the expenditure side, investment continues to grow, although at lower rates, driven by the increase in budgeted public and private investment. Some private sector productive projects will benefit from the Investment Incentive Law, for which an accumulated 6 billion pesos worth of investment projects (7% of investment in 2004) has already been submitted for approval.

Consumption will also continue to recover, fostered among other reasons by government decisions that are mostly aimed at restoring the income of sectors of the population with higher propensity to consume. However, some of these measures (bonuses for pensioners and employment subsidy recipients, as well as a deferment in the payment of the income tax) had a one time impact and their residual effect in 2005 will be lower than that observed during December.

External accounts keep showing a substantial surplus, despite a continuous adjustment towards normal conditions. The reduction in the trade surplus, which would continue in 2005, is based on a significant increase in imports, particularly of capital goods. The increase in exports, which was partly favoured by the strength of the Brazilian economy, was not enough to offset the rise in imports. The current account would have ended last year with a surplus of about 2% of GDP. Conditions in the external sector allowed for a record accumulation of international reserves, which to date amount to almost US$ 20 billion.

The primary deficit that would have been obtained in December did not mar the excellent performance of federal fiscal accounts in 2004. Tax revenues reached a record 22.1% of GDP, which permitted the financing of higher levels of public spending. The national primary surplus would reach 4% of GDP, which would be enlarged to 6% by adding the provincial primary result.

National and provincial government finances are expected to keep strengthening in 2005, although the consolidated primary balance would be slightly lower than in the previous year. These resources would permit the government to finance interest services on performing and restructured debt, as planned in the national budget for 2005.

On the supply side, sectors producing goods and services registered an improvement in activity levels. In the second half of 2004 there was a greater drive from service- linked activities, while goods-producing sectors experienced more moderate growth rates, which were considerably lower than in 2003 and the first half of 2004.

Taking into account domestic and external factors, growth in real GDP is expected to surpass 6% in 2005.

For further information on this report, please visit www.bcra.gov.ar .

FINANCIAL SECTOR

Debt restructuring process - recent developments: Friday 25 th of February was the last day for owners of eligible securities to exchange them for new securities on the terms and subject to the conditions set forth in the Argentine offer. According to private sector estimates, a high percentage of creditors finally participated in this debt swap. Official figures are expected shortly.

US Judge rules for Mendoza debt exchange: Recently, a US district court ruled twice in seven days in favour of Argentina´s Mendoza province in its dispute with Greylock Global Opportunity Master and the Rabbi Jacob Joseph School, respectively, over the terms of its debt-exchange offer. The Mendoza’s debt restructuring process ended on the 22 nd of October 2004, with an approval of 64% of its creditors.

Standard & Poor´s upgrades Argentina’s rating: On the 2 nd of February, Standard & Poor´s, a leading US credit-rating agency, announced that it expects to assign its “B-” foreign and local currency issuer credit ratings to Argentina following the financial close of the current debt rescheduling exercise. In addition, Standard & Poor's expects to assign its 'B-' rating to the new debt that is exchanged for defaulted debt. Argentina has been rated 'SD' (selective default) since its debt default in late 2001. The B-minus rating means the agency believes the new debt will be successfully serviced.

For further information, please visit www.standardandpoors.com .

ARGENTINE TRADE

Bilateral trade with UK:

US$ Million 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Arg. Exports to UK 277 416 450 441 345 320 280 309 388 435 499

Arg. Imports from UK 69 383 533 795 778 481 434 382 190 220 323

Trade balance 208 33 -83 -354 -433 -161 -154 -74 198 215 176

Total Trade 345 800 983 1.236 1.123 801 714 691 579 656 822 Source: H.M. Customs and Excise

During the 90s, in general, bilateral trade between Argentina and UK improved year by year, reaching the highest level in 1997, with 1.2bn dollars, representing an increase of 258.3% in comparison to 1990.

Due to the international financial crisis of late 90s and the Argentine economic recession of 1998-2002, bilateral trade began a downward trend in 1998 that recorded its lowest level in 2002. Finally, as a consequence of better international and domestic economic conditions, trade between both countries began to improve again in 2003, reaching 822 million dollars in 2004, close to the best levels of mid-90.

Last year, Argentine exports to UK reached an historical record, never seen in the last fifteen years, representing an increase of 14.7% in comparison to 2003. Concerning Argentine imports of UK products, even though they are still below pre-devaluation levels (2001), it is worth noting that they are improving, closing the gap.

Main Argentine exports to UK (2004)

Chapter Description US$ million Part.% %Change 04/03

23 Residues from food ind. 77 15,5% 16,2%

02 Meat 52 10,4% 20,3%

22 Beverages (wine) 42 8,5% 6,0%

71 Precious metals 36 7,2% 101,9%

08 Fruits 36 7,2% 52,9%

10 Cereals 28 5,6% -7,7%

33 Essential Oils 28 5,5% 190,3%

16 Prep. of meat/fish 21 4,2% 78,0%

73 Articles of iron/steel 19 3,7% 48,7%

40 Rubber 18 3,6% 16,0% Source: World Trade Atlas

Main Argentine imports from UK

Chapter Description US$ million Part.% %Change 04/03

84 Machinery 54 16,7% 45,0%

38 Miscellaneous chemical prod. 38 11,7% 153,5%

87 Vehicles & parts 36 11,0% 109,8%

30 Pharmaceutical prod. 35 11,0% -5,0%

85 Electrical machinery 17 5,1% 48,2%

29 Organic chemicals 16 4,9% 21,2%

90 Optical, medical instruments 15 4,6% 26,4%

28 Inorganic chemicals 12 3,7% 92,6%

22 Beberages (whisky) 12 3,6% -22,4%

39 Plastics 12 3,6% 23,3% Source: World Trade Atlas

NEWS

Argentine GDP grew by 8.8% in 2004: According to official data, the GDP grew by 8.8% in 2004, the same level as in 2003, meaning that the economy has already expanded in 11 consecutive quarters. Some observers believe that the strong performance during the last part of 2004 could lead to better-than-expected economic growth this year.

Primary fiscal surplus of 1.6bn pesos in January 2005: The Argentine national government has started 2005 with a primary fiscal surplus of 1.6bn pesos (US$ 561 million), driven by an increase in tax collection. It represents a growth of 3.4% in comparison with the surplus of January 2004. According to some analysts, these numbers show a sound economic growth. It is estimated that the fiscal surplus will be around 14bn pesos (US$ 4.8bn) in 2005.

Tax collection rose by 23% in January 2005: Tax collection was 23% higher in January 2005 than in January 2004, reaching 8.8bn pesos (US$ 3bn). This good performance, which was above the official forecast, was due, basically, to VAT (+19.3%), Income Tax (+34.9%) and export duties (+29.7%).

Industrial activity grew by 7.1% in January 2005: According to official data, the industrial activity in Argentina grew by 7.1% in January 2005, in comparison to the same month of 2004, driven, basically, by the automotive sector.

Buenos Aires province will adopt the “Orderly Financing Programme”: On the 23 rd of February, the Provincial Congress of Buenos Aires approved a new law allowing the province to adopt the “Orderly Financing Programme”. This initiative implies that Buenos Aires, which has the biggest provincial budget in the country, will be able to restructure its debt with the national government (1.6 million pesos - US$ 531,000-) and have access to the Orderly Financing Programme that is requested by the IMF.

The national government reaches new agreements with public utility companies: In February, the Argentine government and two energy companies (Transener and Trasba) reached Understandings on certain subjects regarding their concession agreements, which will be taking into account in the current renegotiating process. These Letters of Understandings includes consensus on issues such as tariff, investment and the quality of the service. In order to be ratified, they have to overcome first other steps, like public hearings.

For further information on the Understanding between the government and Transener, please visit www.transener.com.ar .

Argentine auto parts will be exported to UK in 2006: The Argentine company Perkins, located in Ferreira (Córdoba), will supply the British company Perkins Engines, which is also the owner of the brand, from January 2006 onwards, with high-value parts for its products. It is estimated that the value of this operation will be around 3.5 million dollars, needing investments of 2 million pesos (683 thousands dollars) in new machineries and implying the creation of 50 new jobs.

Argentine exports of tea rose by 11% in volume and 14% in value in 2004: According to official data, Argentina increases its exports of tea in 2004, reaching 67,941 tonnes and 40 million dollars in value. The main destinations were USA (54%), Chile (19%), UK (8%), Kenya (5%) and Germany (4%).

Repsol´s profits in Argentina rose by 5.3% in 2004: The oil company Repsol has announced a global profit of about 7.5bn pesos (US$ 2.6bn) in 2004, decreasing by 3.5% in comparison with 2003. 65% of that profit (4.9bn pesos -1.7bn dollars-) was due to its operations in Argentina, where it rose by 5.3%. Furthermore, the company has announced an investment in the country of 1.2bn dollars in 2005, implying an increase of 35% in comparison with 2004.

Chinese investments in the Argentine telecommunication sector: The Chinese company ZTE, suppliers of telecommunication technology, is planning to invest 1.7 million dollars in the south of Argentina, installing high-tech wireless equipment to connect rural places located in a mountainous environment (between El Calafate International Airport and the Perito Moreno glacier) and with small populations. It is going to be the first time that a project of this kind will be implemented in Latin America.

Spain approved a debt-for-education swap favouring Argentina: The government of Spain has announced that it will exchange a debt of 60 million Euro that Argentina has with that country for investments in education. This initiative will help to finance two scholarship programmes for poor children and scientific projects.

The Cairns Group criticised European subsidies: On the 9 th of February, the Cairns Group, which is a coalition of agricultural exporting countries such as Argentina, Australia and Brazil, who account for one- third of the world´s agricultural exports, issued a statement saying that they were “extremely disappointed at the decision by the European Union to re-introduce export refunds on wheat”. The statement also says that the Cairns Group calls on the EU and other major agricultural subsidizers to use the opportunity of the Doha negotiations to refrain from pushing the costs of their domestic and export support programs onto the rest of the world. The burden of these policies is most commonly borne by farmers in those countries, particularly developing countries, which cannot afford to compete in farm subsidy wars. Finally, it mentions that the Cairns Group will continue to press all WTO Members to show genuine commitment to the goal of a fairer global trading environment for agriculture and that they look forward to elimination of all export subsidies in as quick a time frame as possible. For further details on this statement, please visit www.cairnsgroup.org .

MIF approves a grant to promote new growth-oriented enterprises in Argentina: The Multilateral Investment Fund, a member of the Inter-American Development Bank Group, announced on the 7 th of February the approval of a grant to promote the development of new growth-oriented enterprises to expand a dynamic entrepreneurial base in Buenos Aires and its metropolitan area in Argentina. The MIF financing will help entrepreneurs who are developing a new business idea or opportunity; entrepreneurs whose businesses have less than three years of operation; and institutional stakeholders that support entrepreneurship. Women and persons living in unfavorable economic conditions will be given priority in the selection process. The program will strengthen the institutional support network and will set-up two development poles to jump-start new business ideas: one in the northern section of Greater Buenos Aires and the other in the southern part of the city. The project will help 1,500 persons, to develop their entrepreneurial skills and will select 300 ideas for growth-oriented businesses that will receive mentoring and advisory services. Out of them, 100 business projects will receive technical assistance and financing for start-up expenses.

For further information, please visit www.iadb.org .

Argentine governor Jorge Obeid of Santa Fe visited London from the 20th to 23 rd of February: The governor of , Dr. Jorge Obeid, invited by the Foreign Office and the British Council, visited London from the 20th to the 23 rd of February. On Monday 21 st he made a presentation at the Embassy on investment opportunities in his province, citing and explaining several important infrastructure projects that are going to be implemented in the near future, such as (a) bridge Reconquista-Goya (US$ 500 million in seven years); (b) “Plan Circunvalar” (790 million pesos in 10 years -US$ 270 million-); © drinking water (741 million pesos -US$ 253 million-); (d) dual-carriage road Santa Fe-Córdoba (840 million pesos -US$ 287 million-); (e) bridge Santa Fe-Paraná (645 million pesos -US$ 220 million-); (f) road connection Santa Fe-Santo Tomé (75 million pesos – US$ 26 million); (g) dual-carriage road Rosario-Sunchales (690 million pesos -US$ 235 million-).

For further information on these projects, please contact [email protected] or 020 7318-1300 / 1334.

Argentine week in London: The Embassy is organizing an Argentine week in London for the trade sector to promote food, wines and tourism. This promotional activity, which will take place at the same time as IFE05 (International Food & Drink Exhibition), will include a bovine meat tasting on the 14 th of March, a food and wine tasting on the 15 th and a tourism event on the 17 th . Several Argentine companies will be participating promoting their products and services as well as the Argentine Beef Promotion Institute ( www.ipcva.com.ar/eng/index1.php ).

For further information, please contact [email protected] or 020 7318-1300 / 1334.

Argentina will participate in IFE05: - The Argentine Beef Promotion Institute will have a 50 square meter stand in the “Meat and Poultry” section of IFE05 (Excel, 13-16 of March). It will be the start of an Argentine beef campaign in UK. - Fundación Exportar, the official export promotion agency, is also organizing its participation in IFE05. They will have a national pavillion in the “Walk the World” section, where some Argentine companies will exhibit products such as oil & olive oil, meats, powder milk, teas, mate, kosher and jalal products, dulce de leche (organic and conventional), organic honey, soy snacks, gourmet food , specialities and wines. - Finally, Eurocentro Patagonia and Eurocentro Córdoba are also organizing the participation of others Argentine food companies in that important event.

For further information, please contact [email protected] or 020 7318-1300 / 1334.