Weekly Report - 10 February 2004

ARGENTINA | Pressure grows on the debt front. The G7, meeting last week at Boca Ratón, Florida, issued a call for Argentina to negotiate `constructively' with its creditors. This is an oblique way of saying that it should ease its 75% write-off proposal, a position held by the three G7 members who abstained at the last IMF board meeting when Argentina's first review came up for the vote. Even Argentina's main supporter in this matter, the US, signalled that reconsideration might be in order. US Treasury Secretary John Snow said that it is `terribly important' that Argentina should meet its commitments and `negotiate in good faith'. The decrypted version: it is not a good idea to delay the next repayment to the IMF if the second review is not on time, and Argentina should keep in mind that the IMF statutes allow it to continue lending to a country in default only if it is negotiating in good faith with its creditors — and that good faith could be called into question if there is no sign of flexibility on the write-off.

BRAZIL | Industrial downturn revealed. After five consecutive months of (small) increases in Brazil's industrial output, figures for December show a downturn in all branches of industry save one (intermediate products, up 0.9%). Overall, industrial output was down 1%: production of capital goods was down 5.3%; of consumer goods, 3.6%. This left total output in 2003 only 0.3% higher than in 2002.

In January, sales of cars were down 36.4% on December (and 4.4% on the same month last year), even as production increased by 2.1%. The main factor behind the fall was an average 5% increase in prices. Worth noting: all these developments took place before the central bank decided to halt the reduction of interest rates [WR-04-04].

CHILE | Unemployment down. Open unemployment in the Santiago conurbation in December, according to the Universidad de Chile survey, was 11.7%, the lowest rate in five years. INE reports a countrywide unemployment rate for the last quarter of 7.4%, which left the average for 2003 at 8.5% — also the lowest in five years.