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Boletin Mayo2 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 MAY 2004 Content ARGENTINE ECONOMIC OVERVIEW *Extracts from the recent speech delivered by the Argentine Minister of Economy and Production, Roberto Lavagna, at the IMF (24 th April 2004) *Extracts from the latest Inflation Report published by the Argentine Central Bank (BCRA, 22 nd of April) FINANCIAL SECTOR *Improved tax receipts and primary fiscal surplus *Extracts from the presentation and comments made by the Argentine Minister of Economy and Production, Roberto Lavagna, in the Council on Foreign Relations (New York, 21 st of April 2004) ARGENTINE TRADE (provincial exports) TRADE NEWS *MercoLáctea *The London International Wine & Spirits Fair (18-20 May 2004) *Argentine trade stands in Polo events *Co-operation Agreement between EU and INTI (the Argentine Institute for Industrial Technology) ARGENTINE ECONOMIC OVERVIEW Extracts from the recent speech delivered by the Argentine Minister of Economy and Production, Roberto Lavagna, at the IMF (International Monetary and Financial Committee, 24th April 2004): - After a strong real GDP growth rate estimated at 8.7% during 2003, the growth momentum of the Argentine economy continues encompassing practically all areas of economic activity. Sound macroeconomic policies, including the elimination of the quasi-moneys and the appropriate level of the exchange rate, a favourable external environment, and the high degree of popular support for the government, in the context of a smooth political transition, have all contributed to strengthen investors and consumer confidence which is, in fact, the real underpinning of economic activity in Argentina these days. - All fiscal and monetary targets of the program with the fund continue to be met with wide margins. Revenues are being sustained by the strength of the economy and by a much improved fiscal administration aimed at combating tax evasion. On the expenditures side a continued control, in particular over wages, is also contributing to achieve levels of primary surplus beyond those committed in the program. This represents a considerable effort considering the sudden impoverishment suffered by the Argentine people with 50% living under the poverty line and over 25% under the extreme poverty line. The present strong fiscal position has set the right conditions for addressing the projected structural fiscal reforms, starting with the earlier reduction of the distortionary financial transaction tax. - The banking system which has been one of the areas most affected by the December 2001 crisis is showing signs of renewed strength. Total deposits grew 19% in real terms during 2003. Credit to the private sector has also increased in particular for consumer loans, while non-performing loans continue to show a declining trend with clear improvements in the consumers portfolio. - The most recent crisis in the energy sector has highlighted the need to speed up the process of normalisation of contracts with privatised companies, where adequate pricing policies and a clear and enforceable commitment to appropriate levels of investments will be present. It should also be highlighted that the energy crisis also reflects a much higher than expected level of demand due to the vibrant pace of economic activity, which we all welcome. However, it was also due to much higher than average temperatures during the summer months which points to a rather negative development that seems to be affecting many countries. - On the upcoming restructuring of the non-performing public debt the Argentine government is committed to seek in good faith an agreement with private creditors. In that context, Argentina will only assume commitments that could be fully honoured over the medium-term. Accepting an excessive debt service that could jeopardise economic and social recovery is in the interest of nobody, as it would only bring more instability to the region and to financial markets. For further information on this speech, please visit www.imf.org . Extracts from the latest Inflation Report published by the Argentine Central Bank (BCRA, 22 nd of April): - The macroeconomic performance throughout 2003 -which combined quarterly real GDP growth at two digit annual rates and a decreasing year on year inflation- extended also into the first months of the current year. The current estimate for growth during the first quarter of 2004 stands at 10% in annual terms, while retail inflation fell from 3.7% year-on-year (y.o.y) in December to 2.3% y.o.y. in March. Although the results for both variables were better than expected by the Central Bank of Argentina (BCRA), we have retained our forecast from three month ago: a gradual deceleration in growth, a slight rise in the Consumer Price Index (CPI) and an additional drop in the unemployment rate over the coming quarters. - Acceleration in the rate of economic expansion in the second half of 2003 took the rate of GDP growth for the year to 8.7%. The statistical carry-over for the current year is 4.1% which, when added to the seasonally-adjusted 2.5% growth forecasted on the basis of leading indicators for the first quarter, sets a floor of 6.7% for GDP growth in 2004, even if the economy were to cease to grow from the second quarter onward. In this context, the Central Bank has increased its GDP growth forecasts for 2004 from 6% to 8%, in spite of the slowdown predicted for the second half of this year. - With respect to retail inflation, the CPI increased 1.1% during the first quarter of 2004, less than half the increase during the first quarter a year earlier. Excluding the impact from “one time only” increases in prices, the accumulated inflation over the quarter was only 0.8%. Although this inflation rate (between 3% and 4% in annualised terms) is still below the range foreseen in the Monetary Programme, a premature revision of the monetary growth guidelines is not advisable. - Investment, shored up by the lowering of interest rates and less uncertainty about the course of the economy, continues to increase at over 40% y.o.y., ending the fall in the productive capital stock observed for two straight years. - Labour indicators show a noteworthy improvement, with job growth standing well above GDP growth causing a sharp decline in poverty levels. In just one year, the economic recovery triggered an 11.4% increase in employment, with the record creation of 1.3 million jobs. For 2004, the Central Bank forecasts a decline of approximately 4 p.p. in the unemployment rate. - Among exogenous influences on the business cycle that must be monitored are some both external and internal. Among the former, the adjustment of the United States current account balance, which so far has only caused a decline in the US dollar against other currencies, can be pointed out as the principal source of uncertainty world-wide. Likewise, the sharp increase in agricultural commodity prices will probably continue throughout 2004, although the incipient overheating of the Chinese economy -which is the main buyer of these products- is a warning light for the medium run regarding changes in commodity prices. Lastly, although all signs point to the worst of the Brazilian recession being over and that the country is seeing the first steps of a recovery in output, doubts remain as to the strength of that recovery. As to local sources of uncertainty, the renegotiation of public debt is in first place, as the fiscal sustainability necessary for long-term stability depends crucially on the results of these negotiations. In addition, the possible relative shortage of energy, which depends on the winter’s weather, is another risk factor to keep in mind. In the short term, however, it does not appear to be an important threat to either economic growth or the path of the price level”. For further information on this Inflation Report, please visit www.bcra.gov.ar . FINANCIAL SECTOR Improved tax receipts and primary fiscal surplus: The Argentine government recently announced that April tax receipts grew by 29% compared with April 2003 and that January-April tax receipts grew by 32% compared with the same period of 2003. The government is currently working on a report that will determine how it would use the improved tax receipts and primary fiscal surplus. According to some official statements, the first priority will be to start solving the so-called “social debt” and to stimulate investment in the energy sector. The Argentine Chief of Cabinet has said, regarding this strong performance and the so-called “social debt”, that “we have more money, but we have a lot of poor peoples, a lot of indigents, a lot of socials needs and also in Education. We still have an Argentina where the 13% of its population does not work. Even though Argentina is growing, we still have all these debts”. Extracts from the presentation and comments made by the Argentine Minister of Economy and Production, Roberto Lavagna, in the Council on Foreign Relations (New York, 21 of April 2004): - Looking ahead means achieving a restructuring that is credible, sustainable over time, and which minimises losses. Recovery and value creation are the central objectives and are part of the proposal made by Argentina in Dubai, which expressly takes into account the link between growth and payment capacity. We intend to complete the technical work in the second half of May or first week of June in order to start with the formal debt exchange process as soon as possible. - In the meantime, let me say that the Argentine economy is recovering, and significant business opportunities appear in our country. The GDP grew 8.7% in 2003, and private estimates put it up over 7% this year.
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