Weekly Report - 9 December 2003

BRAZIL | Bolder interest-rate cut. The central bank's monetary committee last week responded to the rising pressure to do something about Brazil's poor growth outlook by lopping 1.5 points off the benchmark interest rate, leaving it at 17.5%. This is the lowest since the 16.75% recorded in May 2001, but is still very high in real terms, with inflation heading for a rate of slightly more than 10% in the year.

Interesting to note: market analysts, accustomed to the central bank's ultra-cautious behaviour, had almost unanimously predicted a smaller rate cut.

ARGENTINA | Measuring ability to pay. Argentina is only able to pay 15.3% of the US$92.1bn it owes private bondholders, according to a study conducted by the Instituto Argentino de Mercados de Capitales — and this is assuming a primary fiscal surplus held at 3% of GDP until 2032, and a GDP growth rate of 6% in 2004, 5% in 2005-06, 4% in 2007 and 3% from 2008 onwards.

This ability to pay matches the government's offer of a 75% `haircut'. The institute notes that it would increase to more than 42% if the multilateral creditors were not granted priority, as at present.

ARGENTINA | Growth outlook. Economic activity inched upwards by 0.1% between August and September, taking the accumulated increase in the first nine months to 7.3% over the comparable period of 2002. The September level of activity is almost the same as that of October 2001, just prior to the collapse of the economy.

Much has been made of a 2.6% increase in industrial production between September and October, but this looks less impressive when it is set against the 1.4% decline registered in September. Similarly, the 16% year-on-year improvement recorded in October pales somewhat when it is considered that in October 2002 industrial output was at one of its lowest points.

URUGUAY | Growth outlook. A further sign that Uruguay is finally pulling out of its long recession was provided by figures showing that industrial sales in the third quarter of the year were running 11% above the same period of 2002, with September sales up 30.7% year-on-year.