Weekly Report - 4 May 2004

ARGENTINA | Growth exceeds expectations. Economic growth last year reached 8.4%, almost half a point more than private analysts had been predicting. Economy minister Roberto Lavagna noted two distinctive features of the upturn: first, it was driven by domestic consumption, and second, it started with the reactivation of small and medium-sized enterprises in the interior. For this year Lavagna is now predicting 5.5% growth.

The momentum is certainly continuing in the industrial sector, which in January expanded by 3.2% on the previous month (12% on the same month last year). Utilisation of installed capacity has shrunk somewhat over the year, to 65.6%, which reflects the less dynamic performance of some capital-heavy sectors.

Both Lavagna and President Néstor Kirchner have denied press reports that, under pressure from abroad, Argentina would `ease' the restructuring terms offered to holders of defaulted bonds. Lavagna said last week that the restructuring effort would be deemed a success if it had a 50% takeup.

CHILE | Tax warning to copper miners. As the world copper price last week hit its highest level since December 1995, finance minister Nicolás Eyzaguirre warned copper miners that they risked facing a specific tax on their activity if they refused to give up the special tax treatment they enjoy under the DL-600 régime (which was designed to attract foreign investment). The ruling Concertación is preparing legislation to introduce a royalty system.

URUGUAY | IMF approvals with caveats. The IMF has approved its fourth review of Uruguay's performance under its US$3.2bn standby agreement, clearing the disbursement of a US$141m tranche. While noting that recovery `is well underway', the Fund warned that `there is no room for complacency, as the recovery is still fragile and continued strong program implementation will be necessary to boost growth in a lasting way, bolster market confidence, and ensure sustainable debt dynamics.' The government, it said, needs `to build a consensus for reforms to enlarge the role of the private sector.'