September 2006

THE ARGENTINE EMBASSY IN THE UNITED KINGDOM ECONOMIC & COMMERCIAL SECTION 65 Brook St. London W1K 4AH Tel: 020 7318-1300 Fax: 020 7318-1301 [email protected] www.argentine-embassy-uk.org

NEWSLETTER

SEPTEMBER 2006

Content

ARGENTINE ECONOMIC OVERVIEW *Extracts from the statement made by Dr. Néstor Kirchner, President of the Argentine Republic, at the United Nations General Assembly (New York, 20 th of September 2006) *Extracts from the statement made by the Argentine Minister of Economy and Production, Felisa Miceli, at the IMF´s International Monetary and Financial Committee (Singapore, 17 th of September 2006)

FINANCIAL SECTOR *New placement of dollar bond by the Argentine government

ARGENTINE TRADE

INVESTMENTS IN ARGENTINA *Occidental Petroleum to double oil production in Argentina *Wal-Mart to invest US$ 150 million in new stores *Avex Company to invest US$ 44 million in chicken production *Peugeot-Citroen to invest US$ 20 million in auto parts production *Mosaic Company invested US$ 20 million in a fertilizer plant *Real estate development Company to invest US$ 26.5 million in a shopping centre *Peruvian Group invests US$ 19 million in the milk sector *French investments in the food industry *Pacheco Pereda´s wines have a new owner

NEWS *The Argentine economy grew 9.1% in July 2006 *Industrial activity grew by 7.2% in August 2006 *Primary fiscal surplus of 2.2bn pesos (US$ 712 million) in August 2006 *Tax collection rose by 26.9% in August 2006 *Consumer prices index (CPI) increased by 0.6% in August 2006 *International reserves of the Argentine Central Bank (BCRA) reached US$ 28.1bn *Poverty and extreme poverty fell to 31.4% and 11.2% of the population, respectively *Increases of overseas visitors during first semester 2006 *IMF lifts Argentina economic growth estimates *New partial lifting of beef export ban in Argentina *National and International open bid to build, operate and maintain a railway service in Mendoza *IDB approves US$ 50 million to Argentina in first multilateral loan to develop a satellite system for applications based on earth observation *IDB Fund approves US$ 1.9 million grant to strengthen competitiveness clusters in province of Santa Fe, Argentina *Argentine delegation from Tucumán province visits London between the 8 th and 16 th of October

ARGENTINE ECONOMIC OVERVIEW

Extracts from the statement made by Dr. Néstor Kirchner, President of the Argentine Republic, at the United Nations General Assembly (New York, 20 th of September 2006):

- We must understand that the world will come closer to peace insofar as it promotes equality and struggles to eradicate poverty and exclusion. This is true both for the global system and for each country nationally.

- Argentina supports the building of societies that are fairer, more equitable and with a better distribution of the benefits of economic growth. We also believe that each country has the right to search for its own development model, without any external conditionality. We not only aspire to generate a sustainable growth, we also want for it to reach everyone. There must be a harmonized growth that translates into a balanced income distribution - we know that what is needed is not development for only a few, but the development of the whole country.

- In the region and in MERCOSUR, we want to have an efficient instrument to deal with poverty and exclusion - for the common good to prevail over sectarian interests and to overcome stagnation and the technology gap. And to define a sustainable and productive development model that appreciates our competitive advantages and that fosters our vast wealth in human and material resources.

- The economic situation of the Republic is very different than it was when our administration began. We are achieving a true structural change. Uninterrupted growth at rates around 9%; growing participation of investment in the GDP; record local saving rates; resurrection of the local industry; fiscal surplus at historic levels; clear expansion of our industrial sales to the world; systematic decrease of the local and external public debt; preventive accumulation of reserves; lesser external exposure; marked drop in unemployment; strengthening of the income of the wage-earning and of retirees; significant fall of poverty and destitution levels.

- With a prudent monetary policy, an orderly fiscal policy, fiscal and commercial surplus and a responsible management of indebtedness, we are increasingly reducing the vulnerability and uncertainty that characterized Argentine economy in the past.

- Decent work, social inclusion, national production, internal consumption and sustained growth have allowed us to fulfil the Millennium Goals, although there is still a long way to go to recover from the hell we had fell into.

- Argentina is preoccupied to observe the stagnation in the negotiations of the Doha Round for the development of the WTO. It is imperative, within the current globalization process -of which developing countries must also profit- to reach a successful and

balanced result, fully consistent with the mandate of the Doha Declaration. Thus, we reaffirm the need to reach a satisfactory result in agriculture in this WTO Round, including a substantial reduction in domestic subsidies, the elimination of export subsidies and ample access to the markets of developed countries.

For further details about this Statement, please visit www.un.org/webcast/ga/61/pdfs/argentina-e.pdf .

Extracts from the statement made by the Argentine Minister of Economy and Production, Felisa Miceli, at the IMF´s International Monetary and Financial Committee (Singapore, 17 th of September, 2006):

- Argentina’s recent Article IV consultation was the first carried out since 1984 without a Fund arrangement in place and, even more importantly, without any outstanding credit to the Fund. This has helped to improve the quality of the policy dialogue both with the Fund staff and within the country. The foremost goal of Argentina government is to bring as many people as possible out of poverty and to lay the foundations for a socially inclusive society. After 16 quarters of uninterrupted strong growth, at an average rate close to 9 percent a year, unemployment rate fell to 10.4 percent by 2006 from 17.8 percent in 2003 and poverty declined to 33.8% from a peak of 57% in 2002. The government is fully aware that growth is a necessary but not a sufficient condition to reduce poverty and inequality. Thus, it is committed to use active public policies effectively to further progress on this front. With this goal in mind, it has introduced programmes of direct support and training for the unemployed; it has increased, inter alia, the minimum pension benefits, as well as introduces subsidies for public transportation and education, which help the most needed in the population. Perhaps education is the most relevant sector to ensure equal opportunities for all and the capacity of the economy to sustain growth overtime. In this respect, the government has steadily increased the budget devoted to education and is bound, by law, to bring it up to a 6 per cent of the Gross Domestic Product by 2010 (from a 3 percent or less in 2002).

- Strong and sustainable growth has been accompanied by an overall macroeconomic stance that is rendering significant primary and overall fiscal surpluses, 4.4 percent and 2.4 percent respectively in 2005, as well as external current account surpluses (1.9 percent in 2005) consistent with our financial needs. The combination of strong growth with fiscal and current account surplus is an unprecedented feat in Argentina’s economic history.

- All this in the context of an unambiguous commitment by the government to contain inflation at tolerable levels, namely, those that would not jeopardize growth by prompting the practice of indexation. In sum, the government has all available macroeconomic instruments at hand and is using them in appropriate combination, as circumstances evolve. In the meantime, inflation expectation is on a clear downward trend and is now below the 11 percent inflation projected in the budget for the current year.

- Finally it is worth mentioning that the current level of investment, largely oriented to the tradable sector, is at record levels and supported by high domestic savings. At a year over year measurement, growth in investment at the end of the first quarter of this year has been 24.6 percent – another exceptional performance. As a percentage of GDP in nominal terms, investment reached 22 percent, exceeding the peak levels of the Convertibility years.

For further details about this Statement, please visit www.imf.org/External/AM/2006/imfc/statement/eng/arg.pdf .

FINANCIAL SECTOR

New placement of dollar bond by the Argentine government: On the 7 th of September, the Argentine government sold US$ 500 million of dollar denominated 2013 bonds (Bonar VII) to yield 8.40%, with a demand that reached 1.44bn dollars. It was the first portion of a US$ 2bn sale.

ARGENTINE TRADE

In the first seven months of 2006, Argentine exports reached US$ 25.3bn, a rise of 12% over the same period last year. On the other hand, Argentine imports reached US$ 18.5bn, 16% higher than in the first seven months of 2005. As a result, the country recorded a trade surplus of nearly US$ 6.9bn, 1.7% above than the same period of 2005.

Exports of practically all sectors grew in value during the above mentioned period, due to 8% increase in prices and 4% in quantities, being primary products the only exception, with a decrease of 2%. Manufactures of agricultural origin (MAO) and of industrial origin (MIO) jointly represented 63% of total external sales, thus accounting for 34% and 45% of the increase, respectively.

Regarding Argentine imports, the increase during the first seven months of 2006 was lead by a rise of 13% in quantities and 3% in prices. MIO represented 88% of total Argentine imports and accounted for 95% of the increase in external purchases.

The most dynamics destinations for Argentine MIO were Brazil (+27%), Chile (12%) and the Andean Community region (10%) and the most important market for Argentine MAO was the EU, representing 33% and explaining 46% of total export growth for this sector.

For further information about trade figures, please visit www.cei.gov.ar .

INVESTMENTS IN ARGENTINA

Occidental Petroleum to double oil production in Argentina: Occidental Petroleum Oil Company (Oxy) has recently confirmed its intention to double oil production in Argentina within five years. According to official sources, this project could demand a total investment of US$ 1bn. Oxy currently produces about 25,000 net barrels of oil per day in Santa Cruz Province and in five years time would be producing 50,000. Mr. Ray Irani, chairman of the company, has said that the Argentine economy is fast improving, so they believe that the country will need more energy to satisfy the expected increase in consumption.

Wal-Mart to invest US$ 150 million in new stores: The American company Wal-Mart has recently confirmed its intention to invest US$ 150 million in the opening of 15 new supermarkets in Argentina within the next two years. They will be located in La Rioja, San Luis, Mendoza, Corrientes, San Juan and Buenos Aires and will imply the creation of 5,000 jobs.

Avex Company to invest US$ 44 million in chicken production: Avex Company has started an ambitious poultry project in the Argentine province of Córdoba which would mean an investment of US$ 44 million. In one year time they will be slaughtering 60,000 chickens per day and 70% of total production will be exported to China, EU, Japan and Russia, amongst other markets. The new slaughter facility will be about 13,000 square metres.

Peugeot-Citroen to invest US$ 20 million in auto parts production: The French company has reached an agreement with Fiat to use the facility that the Italian company still has in Córdoba to start producing gear boxes. Peugeot-Citroen will invest US$ 20 million in this project, starting production in May 2007. It will employ around 500 people and 70% will be exported. In principle, the company will produce 135,000 gear boxes per year with the possibility to increase it to 240,000.

Mosaic Company invested US$ 20 million in a fertilizer plant: Mosaic Company has officially inaugurated in Santa Fe province the first “Super Simple Phosphate” fertilizer production plant which will be traded as SSP. This product is basically used for soy production soils, besides other crops such as corn, wheat, sunflower and sorghum. Mosaic is owned by the multinational Cargill (70%) and the American investment group IMC Global (30%). The new facility has the capacity to produce 240,000 tons per year, an amount that would be enough to satisfy approximately 100% of the domestic consumption for this product. In a few months time they will be producing 300,000 tons per year, a figure that will be double in one year with the objective of exporting SSP to Paraguay, Bolivia and Brazil.

Real estate development Company to invest US$ 26.5 million in a shopping centre:

Eidico, a real estate development company, will start building in November 2006 the largest shopping mall in the Patagonia region. It will be located near the Beagle Channel in the capital of Tierra del Fuego, Ushuaia, and will mean a total investment of US$ 26.5 million. The new shopping centre will occupy and area of 25,000 square metres with 100 stores, a food hall, four movies theatre with 700 seats, a semi-Olympic swimming pool and spa, and will have a parking capacity for 600 cars. One of the main aspects that were taken into account at the moment of deciding the location of this shopping center was the fact that Ushuaia receives 270,000 tourists a year, who spend an average of 365 pesos per day (US$ 118).

Peruvian Group invests US$ 19 million in the milk sector: The Gloria Group from Perú, in association with the Argentine company La Ramada, has recently inaugurated a milk plant in the Argentine province of Santa Fe. This new plant will produce powder milk and will have a production capacity of 800,000 litres per day, which will be entirely exported to Perú, Bolivia and Ecuador. This project implied an investment of US$ 19 million.

French investments in the food industry: The French company Danone has announced an investment of 150 million pesos (US$ 48 million) in dairy production and 65 million pesos (US$ 21 million) in the production of mineral waters and flavoured soft drinks. The group has in Argentina a turnover of 1.2bn pesos (US$ 387 million).

Pacheco Pereda´s wines have a new owner: Arco´s international division, United Wineries (UWI), a group of Spanish capitals, has recently acquired the Argentine winery Pacheco Pereda. This is part of an expansion plan that is being carried out by the Spanish company in the country, and which will imply an investment of about 20 million euros. Arco has already made, through UWI, other direct investments in Argentina (Bodegas Hispano Argentinas, of which they have 100% control) as well as in the UK (Bodegas Unidas) in a joint venture with the British distribution group Waverley, subsidiary of Scottish & Newcastle. It has a turnover of 300 million euros.

NEWS

The Argentine economy grew 9.1% in July 2006: According to official data, gross domestic product grew 9.1 percent in July from a year earlier and 8.5 percent in the first seven months of the year. July´s performance was better than expected by private analysts, who were forecasting a growth of 8.3% to 8.7%.

Industrial activity grew by 7.2% in August 2006: According to official data, the industrial activity in Argentina grew by 7.2% in August 2006 compared to the same month of 2005, lead again by the automobile and construction sectors. Automobile production grew 33.9% if compared to August 2005 and 8.8%

compared to last July. In the year to August, this industrial sector grew by 27.1%. Other increases were recorded in construction materials such as non-metallic minerals (+15.5% y.o.y, accumulating a rise of 17.5% in the first eight months of 2006), cement (+16.1 y.o.y) and glass (10.1% y.o.y). Food industry increased by 5.8% y-o-y, due basically to good performance in white meats (+15.8%), dairy products (+10%) and beverages (+9.5%). Others sectors with good performances were the textile industry (+6.5%), oil refining (+7.7%), rubber and plastic (+5.5%). The only sector that showed a slight decrease was paper and cardboard industry (-0.9% y.o.y). Regarding industrial installed capacity, it reached an average of 72.8%, lower than one year ago, showing an increase in business investments, but with peaks of 97.6% in oil refining, 91% in base metals industries and 89.9% in textile industry.

Primary fiscal surplus of 2.2bn pesos (US$ 712 million) in August 2006: According to official data, the national public sector recorded a primary fiscal surplus of 2.2bn pesos (US$ 712 million) in August 2006, increasing 19.7% compared to the same month of 2005. In the year to August, the primary fiscal surplus reached 16.9bn pesos (US$ 5.45bn), 10% more than January-August last year.

Tax collection rose by 26.9% in August 2006: August tax receipts grew by 26.9% compared to August 2005, reaching 13bn pesos (US$ 4.2bn), meaning an accumulation of nearly 96bn pesos (US$ 31bn) in the first eight month of 2006, 23% more than the same period of 2005 and 8.2% more than the government forecast. The best performers were VAT (+27% y.o.y), income tax (+30.5% y.o.y) and employer contributions to the social security system (41.8% y.o.y), which jointly explained 72.5% of August tax collection growth. Other taxes also recorded positive figures, such as the financial transaction tax (known as the “cheque tax”, 24.3%), and import and export taxes (+29.3% and 10.5% respectively).

Consumer prices index (CPI) increased by 0.6% in August 2006: According to official data, inflation rate rose by 0.6% in August, accumulating 6.1% in the first eight months of 2006. Even though August’s figure was above private and public forecast, it is still a figure that could allow the government to have at the end of the year an annual inflation rate of one digit. Private services, such as private education (+3.2%) and private health care (+2.5%), recorded the highest price increases, basically affecting the middle class. Other sectors that also had an important rise in inflation were home rentals (1.3%) and delivery services (+1.2%).

International reserves of the Argentine Central Bank (BCRA) reached US$ 28.1bn: Nine or ten months after cancelling the entire US$ 9.6bn debt to the IMF (see Newsletter of January 2006), which meant a reduction of BCRA´s international reserves from US$ 28.1bn to US$ 18.7bn, the Argentine Central Bank could announce that it has increased its international reserve to the same level it had before the cancellation of that debt.

Poverty and extreme poverty fell to 31.4% and 11.2% of the population, respectively:

According to official data, in the first semester of 2006 poverty and extreme poverty fell from 38.5% and 13.6% in the same period last year (see Newsletter of September 2005) to 31.4% and 11.2%, respectively. These figures mean that 2.4 million people have improved their situation in the last year and are not longer considered poor, but there are still 10.77 million in that condition. The social crisis has also improved if compared to the second semester of 2005, when poverty level was 33.8% and extreme poverty 12.2%. It is worth remember that in October 2002, when it reached a record level, 57.5% of the Argentine population was living under the poverty line.

Increases of overseas visitors during first semester 2006: According to official data, incoming tourism in Argentina has increased by 10.4% in the first semester of 2006, compared with the same period of 2005, reaching 2,068,654 visitors. They came, basically, from Mercosur countries plus Bolivia and Chile (59.1%), NAFTA (19.3%), Europe (16.2%), Asia and others (5.4%). These visitors spent in Argentina a total of US$ 1.5bn, an increase of 17.4% compared to first semester 2005. Visitors from Mercosur countries plus Bolivia and Chile spent 506.5 million dollars (34%), followed by North America (NAFTA) with US$ 436.9 million (29.4%), Europe with US$ 427.2 million (28.7%) and Asia and others (US$ 117.3 million -7.9%-).

IMF lifts Argentina economic growth estimates: According to a recent IMF report (World Economic Outlook), Argentina economic growth will stand higher at 8 percent in 2006 and 6 percent in 2007, 0.7 percentage points and 2 percentage points higher, respectively, than the previous forecast in April. With this performance, the report says that the Argentine economy will be in 2006 one of the main engines of Latin American growth.

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

New partial lifting of beef export ban in Argentina: After the partial lifting of the ban on beef exports that took place in May (see Newsletter of that month) and then in July (see July´s Newsletter), the Argentine Minister of Economy, Felisa Miceli, announced on 28 th September a new measure that will allow Argentine companies to export up to 70% of total volume exported in 2005. It will be in force for 60 days, with possible extensions in case domestic prices remain under control.

National and International open bid to build, operate and maintain a railway service in Mendoza: The Argentine government is calling for a National and International open bid to build, operate and maintain a railway cargo and passenger service linking the new multimodal station to be built in Luján de Cuyo with Mendoza city-Guaymallén (Province of Mendoza) in the international border with Chile. The presentation and opening of tender offers (technical offer) will take place on the 21 st of February 2007; presentation and opening of economic offers will take place on the 21 st of February 2007 and 5 th of April 2007, respectively.

For any other reference as terms and condition and costs, please visit www.transporte.gov.ar/html/licita.htm .

IDB approves US$ 50 million to Argentina in first multilateral loan to develop a satellite system for applications based on earth observation: The Inter-American Development Bank announced on the 6th of September a US$ 50 million loan to Argentina to finance a programme to develop a satellite system and applications based on Earth observation (PROSAT). It is the first multilateral financing for development of an Earth observation satellite programme. The National Commission for Space Activities (CONAE) will be in charge of PROSAT, an initiative of Argentina’s Science and Technology Policy and the National Development Strategy that is expected to help increase long-term productivity and economic sustainability. The programme will also foster private sector participation for the development of value added services based on satellite images, as well as research and development efforts in the national and international academic community to support the development of new applications. The programme is expected to strengthen Argentina’s existing science and technology capacity, positioning the country in a technological niche, and establishing meaningful collaboration with the country’s industrial base and with suppliers of services and products that are necessary for the design, construction, and operation of the satellites and their applications. The loan is for a 20-year term, with a seven-year grace period at a variable interest rate. Local counterpart financing will total US$ 100 million.

For further information about this loan, please visit www.iadb.org .

IDB Fund approves US$ 1.9 million grant to strengthen competitiveness clusters in province of Santa Fe, Argentina: The Multilateral Investment Fund announced on the 26 th of September the approval of a US$ 1.9 million financing to the province of Santa Fe, Argentina, to increase the competitiveness of its central region’s agri-food and metalworking clusters. The Santa Fe province’s central region, led by the city of Rafaela, is known for its entrepreneurial and innovative spirit. The agribusiness and metalworking productive clusters define the region’s economy with 800 small and medium-sized industrial enterprises and 1,500 milk-producing businesses. The regional development agency Partnership for Development and Competitive Innovation, Rafaela Agency (ACDICAR in Spanish) will be in charge of the project and will match with its own resources the funding provided. The initiative will benefit micro, small and medium-sized companies in the central departments of Castellanos, Las Colonias, San Martín, San Jerónimo and San Cristóbal. By diversifying regional production and exports, introducing new technologies and know- how in supply chains and facilitating public-private cooperation and business development, the project will expand the province’s presence in international markets.

For further information about this grant, please visit www.iadb.org .

Argentine delegation from Tucumán province visits London between the 8 th and 16 th of October: An important official delegation from Tucumán province, headed by its Minister of

Economy, Mr. Jorge Gustavo Jiménez, will visit London between the 8th and 16 th of October. The main purpose of this mission -which will also include France- is to discuss with British technical staff, at national as well as municipal level, the British experience in some economic and financial issues (i.e.: management, processing and control of data or information related to public sector’s financial resources and public spending; transparency policies; fiscal responsibility regimes or similar; tax collection distribution amongst different jurisdictional levels; legal and tax administration aspects, especially coordination aspects between national and local level).

For further information about this visit, please contact us at trade@argentine-embassy- uk.org or tel: 020 7318-1300 / 1336.

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