Boletin Febrero05
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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 Argentina 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 *Buenos Aires province 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.