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

SEPTEMBER 2005 Content

ARGENTINE ECONOMIC OVERVIEW *Extracts from the statement made by President Néstor Kirchner at the United Nations General Assembly (14 September 2005)

FINANCIAL SECTOR *Private debt restructuring – Telecom reached an agreement with its creditors *Argentina cancelled its auction of the new Boden 2015 bonds

INVESTMENTS IN ARGENTINA *Investment increased by 24.4% in the second quarter of 2005 *Internal report from the Ministry of Economy on investment and its crucial role in the Argentine economy recovery *Investment in the meat industry *The textile industry could receive investments for 3bn pesos in five years *Bunge Argentina inaugurates a new port facility in Ramallo *The Canadian mining company Barrick Gold started its operations in San Juan *Intel, the world’s largest microchip maker, announces the implementation of two IT projects in Argentina *The Mexican Group Posadas will invest US$ 3.2 million in Argentina *Investments of 1bn pesos in public works

NEWS *The Argentine economy grew by 7.8% in July 2005 *Industry activity grew by 7.6% in August 2005 *Primary fiscal surplus of 1.8bn pesos in August 2005 *Tax collection rose by 21.2% in August 2005 *Consumer prices index (CPI) increased by 0.4% in August 2005 *Poverty and extreme poverty fell to 38.5% and 13.6%, respectively *Inventors of products for the industrial sector were awarded a prize for innovation *The Argentine company Tulsa Oilfield Equipment SRL was awarded the National Prize Siderca for Technological Development *Argentine IT company receives international award *Public utilities services – and the government reaches agreement for a new concession contract *Public utility services – French company Suez withdraws from Argentina *EFSA Scientific Report on the Assessment of the Geographical BSE-risk (GBR) Argentina *IDB approves US$ 33 million to Argentina to promote competitiveness in the tourism sector *Chilean experience on integrating low-income groups into the productive systems to benefit Argentina and other Latin American countries *Lord Mayor’s visit to Argentina, Chile and Brazil (3rd to 14 th September) *8 th annual Argentine wine tasting (20 th September) *An Evening of Argentine Fashion & Design in Belgravia (22 nd of September) *Hortifrut 2005 (1 st to 4 th of December 2005)

ARGENTINE ECONOMIC OVERVIEW

Extracts from the statement made by President Néstor Kirchner at the United Nations General Assembly (14 September 2005): - “….With great effort, Argentina is managing to return to the path of development and has achieved an important and sustained growth in its economy, while at the same time has succeeded in significantly reducing unemployment, poverty and destitution indexes. After coming out from the crisis, indicators show a sustained growth in the economy and a surplus situation in the fiscal and external accounts, together with the recovery in national reserves. Argentina has grown 8.8% in 2003, 9% in 2004 and over 9% during the first semester of 2005. The consolidated primary surplus is 5% of the GDP and the reserves have increased from nearly 10 billion dollars to over 25 billion. Exports this year will exceed 40 billion dollars, with an estimated growth of about 15%. The labour market shows a declining trend in unemployment, paired with a recovery in salary levels, a pointed improvement in the social situation and a clear decline in the poverty and destitution rates. Unemployment has dropped from 24% in 2003 to 12.1 over the first semester of 2005. Poverty rates have dropped, from 57.5 to 40.2, and destitution rates have come down from 27.5 in 2003 to 15% 2004 and continue to decline. The improvement in salary levels in the real general salary index has reached 16%. Since overcoming default, Argentina is consolidating as an opportunity for foreign investment”.

- “….Regrettably, throughout this process of recovery, expansion and transformation, we did not have the support of the IMF, which in turn had indeed supported until only weeks before the convertibility regime. During its crisis, Argentina made net payments of about 13.5 billion dollars. As many developing countries, we continue to endure both this archaic conception of the indebtedness issue and an international trade system that is unfair to agricultural products, where subsidies and non-tariff barriers in developed countries continue to restrain our countries from their full growth based on their genuine resources. In this sense, we call for the ministerial conference of the World Trade Organization to be held at the end of this year in Hong Kong, China, to fulfill the unfulfilled promise of placing development in the center of the international trade. We follow attentively the international debate on the notion of sustainability of external debt. We believe that international finances are too important to be left in the hands of concerted interested that affect the stability of markets, discriminate against the small investor and spawn pro-cyclic policies. That is why, in various fora, we have put forward proposed modifications which increase the transparency of the international financial system, which free this Organizations from certain financial lobbies, which bring an enhanced stability to the capital flux and which favor small investors. There is neither ideology nor politics in this. We show concrete facts showing that these Financial Organizations did not perform the role they must perform. Looking ahead, our country has structured a debt-reduction strategy, designed to gain degrees of independence in the implementation of its plans for its development and the growth of its economy. In this regard, we want to reaffirm our decision that payment of external financial commitments must not be made with detriment to resources pledged to social areas such as education, health, housing and employment promotion. We shall be firm in maintaining this position when dealing with the international credit organization, and we reiterate our call for increased transparency, democracy and deep restructuring and revision of their policies in order to ensure their equity and efficiency.” For further details on this speech, please visit www.un.int/argentina/english/statements/miscelaneous/President2005.htm .

FINANCIAL SECTOR

Private debt restructuring - Telecom Argentina reached an agreement with its creditors: Telecom Argentina, which is controlled by Telecom Italia and the local group Werthein, paid US$ 1.3bn and left behind the biggest private default in the country. The company issued new securities and paid its creditors in advance, reducing its debt from 3.2bn dollars to 1.8bn dollars. The company was declared in default in April 2002, in the middle of the worst Argentine economic and financial crisis. Its General Manager said in a statement that they were very pleased by the result of the debt restructuring process and that it will establish a strong base to continue the expansion of their business in Argentina.

Argentina cancelled its auction of the new Boden 2015 bonds: Argentina had to cancel a dollar bond issue after bids came in too high. The government was offering up to US$ 800 million in 10-year bonds, being the biggest debt deal since its 2002 default, but they had to cancel the auction after the average yields came in at 8.8 percent, or 0.8 percentage point more than what the government had expected. According to some private analysts, the decision to walk away from the debt offer was possible because Argentina´s economy is now doing well, expecting growth of nearly 8% in 2005.

INVESTMENTS IN ARGENTINA

Investment increased by 24.4% in the second quarter of 2005: According to official data, investment has increased by 24.4% in the second quarter of 2005, in comparison to the same period of 2004. This is considered by the government a very good result, taking into account that investment in the first quarter had grown by only 13.4%. Official sources believe that 2005 will show record levels of investment, which currently represents 21% of GDP.

Internal report from the Ministry of Economy on investment and its crucial role in the Argentine economy recovery: An internal report from the Ministry of Economy says that “investment is performing a central role in the economic recovery: more than 50% of GDP growth during the period 2003/2004 can be explained by an increase in investment”. The report also emphasizes that investment increased by 86% between 2002 and 2004 . In addition, Minister Lavagna stressed in a recent meeting with businessmen that the Argentine economic growth was first stimulated by domestic consumption, being now driven by investment and exports.

Investment in the meat industry: Swift Armour, the most important meat exporter of Argentina, was bought by the Brazilian company Friboi in about 200 million dollars. The group will now concentrate more than 50% of global trade in processed meat, with an annual turnover of US$ 1bn. This is the third acquisition of an Argentine company that takes place in this sector. Finexcor was acquired by Cargill and another company was bought by a British investor related with Tesco. Some analysts believe that all these acquisitions are due to an increase in European demands.

The textile industry could receive investments for 3bn pesos in five years: The Argentine textile industry reached a historical record of production in the first semester of 2005. This good performance could mean, according to private sources, the arrival of new investments for the sector, totaling 3bn pesos in five years (US$ 1bn). The textile industry has already invested about 7.1bn pesos (US$ 2.4) since the currency devaluation. Some private analysts believe that Argentina is building a world-class textile industry able to compete with any country.

Bunge Argentina inaugurates a new port facility in Ramallo: The oilseed company Bunge Argentina has inaugurated a new port facility in Ramallo, being the first stage of an investment project of US$ 300 million. Taking into consideration that Argentine exports of soybean will reach 50 million tons in 2010 (ten more than the nearly 40 million of last campaign), several companies, amongst them Bunge, have announced investments for about 800 million dollars in order to improve their productive capacity and infrastructure. Mr. Padilla, chairman of Bunge, said on the occasion of this inauguration that “Argentina’s perspectives are really good, because global demands for food continue to increase at high levels” and that “Argentine producers are very efficient; they do not receive subsidies as some of their competitors do”.

The Canadian mining company Barrick Gold started its operations in San Juan: Barrick Gold Corporation announced on the 15 th of September that its Veladero Mine in San Juan province (Argentina) has poured its first gold earlier than previously forecast. Mr. Greg Wilkins, president and CEO of the company, has said "we are very excited about this event as Veladero will be a significant contributor to Barrick’s growing production profile.". Gold production for 2005 is expected to be 50,000 to 55,000 ounces, and is expected to average approximately 700,000 ounces per year over the first three full years of operation. According to the Canadian company, the mine has proven and probable gold reserves of 12.8 million ounces.

Intel, the world’s largest microchip maker, announces the implementation of two IT projects in Argentina: In a recent visit to the country, Mr. Craig Barrett, former CEO and current chairman of Intel, announced that the company will establish in Argentina a software development centre and a “digital district”. The software development centre will be located in Córdoba and will start operations in 2006, implying the creation of 400 highly skilled jobs during the first five years. Esteban Galuzzi, Intel’s general manager in the Southern Cone said that “the strategic plan for this industry, the Software Law and growing investment in education and research and development have made the country a very attractive place for locating this development centre." The software law, which went into effect this year, offers tax benefits to technology companies. Regarding the so-called “Digital District”, the first of its kind in South America, it will be located in Puerto Madero ( city) and will include the implementation of the latest technology created by Intel in the context of a specific urban development project. This initiative will be implemented in association with Faena Group ( www.faenagroup.com ) and the Mexican company Telmex which will invest 10 million dollars.

The Mexican Group Posadas will invest US$ 3.2 million in Argentina: After several years with no investment projects, the Mexican Group Posadas will take up again its expansion plans in the Argentine market. The most important hotel operator in Latin America announced an investment of US$ 3.2 million in the refurbishing of Caesar Park Buenos Aires, which is, up to now, the only hotel that the Group has in the country. Furthermore, they have also announced the opening of new hotels, which will be located in Iguazú, Bariloche, Rosario and Greater Buenos Aires.

Investments of 1bn pesos in public works: According to a recent decree, the federal government will finance public works in Mendoza, Córdoba and Greater Buenos Aires, implying investments for 1bn pesos (US$ 342 million) in four years. The objective will be to improve road infrastructure.

NEWS

The Argentine economy grew by 7.8% in July 2005: According to official data, the Argentine economy grew by 7.8% in July 2005, in comparison to the same month of 2004, accumulating a growth of 8.9% in the first seven months of the year, comparing with January-July 2004. These figures are showing that 2005 could have a higher economy growth than the one that is currently being forecast by the government (7.3%). Even some private analysts are starting to forecast a higher rate. This good performance was led by the construction (+10.7%) and industrial (+6.7%) sectors.

Industry activity grew by 7.6% in August 2005: According to official data, the industrial activity in Argentina grew by 7.6% in August 2005, in comparison to the same month of 2004, above previous estimates of 6.8%. The growth rate was of 1.6% if the comparison takes place with July 2005. With this result, in the year to August the industrial activity has increased by 7.2%. Furthermore, the use of installed capacity reached a new record, with 73.1%, with sectors such as oil refining reaching 90.3%. The automotive sector, along with the food industry, metallurgical industry, materials for construction and chemical products, led this growth. Within these sectors, some of the products that recorded higher growth were white meat (+15.9%), edible oil and by-products (+16.7%), agrochemicals (+9.6%) and cement (+19.3%). The production of cars, according to private figures, reached 200,875 units in the first eight months of the year, a 27.4% increase over the same period of last year. The only activity that in August showed a decrease in productivity was tobacco (-8%).

Primary fiscal surplus of 1.8bn pesos in August 2005: The national public sector recorded a primary fiscal surplus of 1.8bn pesos in August 2005 (US$ 629 million), accumulating a saving of 15.3bn pesos in eight months (US$ 5.2bn), approaching the official annual target of nearly 18bn pesos (US$ 6.1bn). With this result, and believing that public spending is under control, some private analysts are forecasting that the annual primary fiscal surplus could be between 18bn pesos and 19bn pesos.

Tax collection rose by 21.2% in August 2005: August tax receipts grew by 21.2% compared with August 2004, reaching 10.3bn pesos (US$ 3.5bn), driven by a very good performance in export duties (+41%), due to higher oil prices and economic growth, VAT (+14.7) and income tax (+26.2%). In the year to August, tax collection reached 78.1bn pesos (US$ 26.6bn), representing an increase of 18% in comparison to the first eight months of 2004. With this result, the government estimates that it will be possible to reach the official target for the current year: a tax collection of 107bn pesos (US$ 36.5bn). Some private analysts are estimating that it will be close to 115bn pesos (US$ 39.2bn).

Consumer prices index (CPI) increased by 0.4% in August 2005: According to official data, August recorded the lowest inflation rate of 2005, with an increase of 0.4%, and this was basically due to higher prices in one particular sector -basic foods (+1.5%)- which was offset by decreases in leisure (-2.9%) and clothing (- 1.3%). In the year to August, the accumulated inflation rate reached 7.7%.

Poverty and extreme poverty fell to 38.5% and 13.6% of the population, respectively: According to official data, in the first semester of 2005 poverty and extreme poverty fell from 40.2% and 15% to 38.5% and 13.6%, respectively, same level as 2001. This is considered a good result, due to the current economic growth and creation of jobs, but it shows that more has to be done to improve these figures. It implies that nearly 15 million people in Argentina do not cover essential needs such as clothing, transport, education and health.

Inventors of products for the industrial sector were awarded a prize for innovation: The government sponsored the 2005 Award on Innovation, giving the first prize (30,000 pesos –US$ 10,240-) to Omar Ferraris, who created a new agricultural machinery which allows the increase of crop yields by more than 10%. The second prize was for Fernando and Augusto Cicaré, who designed a device that allows the use of gas as fuel in a diesel engine. This latest invention is already in the market. The main purpose of this Award on Innovation is to bring together scientist, researchers and designers with entrepreneurs in order to give them the possibility of obtaining financing for the development of their inventions.

The Argentine company Tulsa Oilfield Equipment S.R.L. was awarded the National Prize Tenaris Siderca for Technological Development: On the 26 th of September, at the Ministry of Foreign Affairs, the company Tulsa Oilfield Equipment ( www.tulsaoilfield.com.ar/tulsaoilcom ) was awarded the National Prize Tenaris Siderca for Technological Development. The purpose of this Award is to stimulate Argentine exports of high value products, rewarding the small and medium company from the metallurgical sector that presents the best technological development project.

Argentine IT company receives international award: Forty new media products and applications have been selected in the Kingdom of Bahrain at the World Summit Award (WSA) Grand Jury Meeting (3-10 September 2005) in an intense process of evaluation. One of the winners was the Argentine company “Competir.com” ( www.competir.com ) in the category of e-learning, due to its “Digital Literacy Programme” which was developed for the official initiative “Mi PC” (My PC). The winning projects will be presented as the world’s best at the WSA Gala on 16 November 2005 in Tunis, during the second phase of the UN World Summit on the Information Society (WSIS). The WSA is a global contest for selecting and promoting the world’s best e-contents and applications. It sees the bridging of the Digital Divide and narrowing of the Content Gap as its overall goal and -as of today- involves representatives from 168 countries on each continent.

Public utilities services - Edenor and the government reaches agreement for a new concession contract: The Argentine government and electricity distributor Edenor reached an agreement on the 21 st September on a new contract after three years of disputes over frozen tariffs. Edenor is newly controlled by Argentina’s Dolphin group after Electricité de France (EDF) sold its 65 percent stake two months ago (see Newsletter of July). Dolphin executive Marcelo Mindlin said the company has withdrawn a complaint against Argentina with the World Bank’s arbitration tribunal, known by the acronym ICSID. Edenor also announced a 1.2 billion peso investment over a five-year period (US$ 414 million).

Public utility services - French company Suez withdraws from Argentina: The French company Suez has announced its withdrawal as major shareholder of Aguas water concession after failing to reach agreement with the government on the renegotiation of a new contract to supply water and sanitation services to more than 10 million people in Buenos Aires. Suez has not yet begun formal contract rescission procedures, though the company is moving ahead in the process. In separate meetings, Aguas Argentinas´ board of directors and shareholders approved the beginning of the withdrawal process. The local unit has said in a statement that it will work with the Argentine authorities to plan an “orderly transition”.

EFSA Scientific Report on the Assessment of the Geographical BSE-risk (GBR) Argentina: The European Food Safety Authority (EFSA) and its Scientific Expert Working Group on the Assessment of the Geographical Bovine Spongiform Encephalopathy (BSE) Risk (GBR) were asked by the European Commission (EC) to provide an up- to-date scientific report on the GBR in Argentina, i.e. the likelihood of the presence of one or more cattle being infected with BSE, pre-clinically as well as clinically, in Argentina. After a careful analysis, EFSA concludes that the current GBR level of Argentina is I (the lowest possible category, meaning that it is highly unlikely that domestic cattle are -clinically or pre-clinically- infected with the BSE-agent).

For further information, please visit http://www.efsa.eu.int/science/tse_assessments/gbr_assessments/1074_en.html

IDB approves US$ 33 million to Argentina to promote competitiveness in the tourism sector: The Inter-American Development Bank recently approved a US$33 million loan to Argentina for a programme to improve competitiveness in the tourism sector. The project will support further development of two strategic touristic circuits: the Lakes in Patagonia and the Iguazú Falls and Jesuit Missions in the Northeast. The initiative will increase the number of foreign visitors by around 177,000 by 2010 and extend their average stay to bolster foreign currency income in these two important tourist areas. The country intends to increase the total number of foreign visitors by 1 million by 2010. Programme activities include improving management and conditions of tourist attractions, offering more information for a better distribution of flows of visitors and extended stays, developing tourist products and their international marketing; and optimizing the organization and management of the Secretariat of Tourism, which is in charge of the programme. The loan is for a 20-year period, with a six-year grace period, at a variable interest rate. Local counterpart funds total US$23 million. For further information about this loan, please visit www.iadb.org .

Chilean experience on integrating low-income groups into the productive systems to benefit Argentina and other Latin American countries: Inter-American Development Bank President Enrique Iglesias and the general manager of “Un Techo para Chile” (a Roof for Chile) Foundation signed a US$ 3.5 million Multilateral Investment Fund grant for a project to transfer a successful Chilean methodology for integrating low-income groups into the productive systems in Argentina, Colombia, El Salvador, Mexico, Peru and Uruguay. The project will help the poor who live in fringe areas to join the economic mainstream by strengthening and making technical improvements in the activities of institutions that contribute to building basic housing and working for social empowerment . A group of Chilean university students created “Un Techo para Chile” in 1997 to secure minimum living conditions for low-income people to break the poverty cycle. Seven years since it began operations it has built over 24,000 basic housing units, and in 2004 it recruited more than 18,000 volunteers in Chile. In 2002 the foundation created a program titled “Un Techo para mi País” (A Roof for my Country) to share its experience with other Latin American countries.

For further information on this project, please visit www.iadb.org .

Lord Mayor’s visit to Argentina, Chile and Brazil (3 rd to 14 th September): Lord Mayor of the City of London, Alderman Michael Savory, along with an important business delegation, visited Argentina, Chile and Brazil between the 3 rd to the 14 th of September. He arrived in Buenos Aires on Sunday 4 th and departed on Wednesday 7 th . He had meetings with the Vice President, the Minister of Economy, the Governor of the Central Bank and others high ranked public officials. He also attended a Carbon Trading Seminar. During his meetings he discussed issues such as the Argentine economic situation, the British experience on PPP (Public Private Partnership) and the opportunities in Argentina regarding emissions trading.

8th annual Argentine wine tasting (20 th September): On the 20 th September the 8 th annual Argentine wine tasting took place at the Nursery Pavilion, Lord’s Cricket Ground. Sixty-nine (69) different wineries provided a unique insight into the diversity that Argentina has to offer in terms of grape varieties and price points to suit all palates and pockets. In addition, this year’s Central Tables were set to highlight Argentina’s strength as a top quality producer of a wide variety of grapes from Verdelho to Petit Verdot under the banner of “Malbec and More”. The Argentine wine industry continues to increase its exports to the British market and the important number of wineries represented at the event was a telling symbol of this success.

An Evening of Argentine Fashion & Design in Belgravia (22 nd of September): For the second consecutive year, the Embassy organized a fashion show that took place on the 22 nd of September at the Ambassador’s Residence. Almost 250 people attended the event, including buyers from stores and boutiques and specialized press. Ten designers from Argentina presented their creations in fashion and accessories (hats, shoes, lingerie and jewellery). The products were exhibited in two showrooms and two catwalks. The show was complemented with an exhibition “A retrospective view of Argentine Fashion” displaying nine decades of covers of the Argentine Fashion Magazine “Para Ti”.

For further information about the exhibitors, please contact us on 020 7318- 1334/1334 or send an e-mail to [email protected] . To see some photographs of the event, please visit www.argentine-embassy-uk.org .

Hortifrut 2005 (1 st to 4th of December 2005): Between the 1 st and 4 th of December the Hortifrut International Exhibition (Hortifrut 2005 -www.hortifrutexpo.com -) will take place in Mar del Plata, Argentina. Canning House is inviting UK companies to participate in two days of pre-arranged business meetings with Argentine and other Latin American companies attending that event. The meetings are run under the AL-Invest Programme, a European Commission initiative aimed at increasing business between SME´s in Latin America and Europe. These meetings will take place on the 1 st and 2 nd December 2005 at the exhibition venue. Sectors involved are the following: fresh/frozen fruits and vegetables, organic products, goods and technology, transport and logistics, technical support services.

For further information, please contact Catalina Barreto at Canning House at [email protected] or phone number 020 7235-2303, extension 217.