Weekly Report - 23 March 2004

BRAZIL | Bank relents, lowers rate a little. The central bank last week lowered the benchmark interest rate by a quarter of a percentage point to 16.25% - its first reduction so far this year. Finance minister Antônio Palocci predicts that for the rest of this year `monetary policy will follow a descending curve.' Business associations, however, have criticised the cut as insufficient — which is hardly surprising, given that the real rate (after the cut) remains at an internationally exorbitant 10.6%.

Businessmen are also worried by reports that the IMF views the low rates charged by the state-owned BNDES as tantamount to a subsidy, and wants this corrected. News of this development came from planning minister Guido Mantega. The BNDES lending rates are one of the few monetary instruments left to a government that is committed to respecting the central bank's autonomy in these matters. If they are forced up by pressure from the Fund, and the central bank remains cautious, the prospects for economic reactivation this year will worsen.

ARGENTINA | High growth confirmed. Figures just produced by the national statistical institute, Indec, confirm that last year's GDP growth rate was way above expectations, at 8.7% - the first increase since 1998. Indec notes that growth in the third quarter of last year was running at 11.3%. The upswing was led by a 17.5% expansion of the productive sectors (with construction up 45.8% and industry, 16.2%), while services grew by 6.2%.

For this year the central bank is projecting a GDP growth rate of about 6%.

CHILE | Relying more on China. The economic dynamism of China has not only helped buoy the international price for copper — always a welcome development in Chile, where the metal accounts for about 40% of its export earnings — but has also made China the leading customer of Codelco, the state copper corporation. Already last year China ranked second (after France), with 16% of Codelco's sales worldwide. For this year it has already signed contracts for 300,000 tonnes of copper, worth an estimated US$750m — which raises it to first place.