Argentina’s ranking in The Wall Street Journal/Heritage Foundation’s Index of Economic Freedom—now 135th out of the 179 countries ranked in the Index—has declined steadily in the seven years since President Cristina Fernández de Kirchner and her husband, former President Nestor Kirchner, took power. It is by far the lowest ranked G-20 nation. Recently Charles Krauthammer neatly summarized why: Argentina is “a chronically unstable, endemically corrupt polity with a rich history of dictatorship, economic mismanagement and the occasional political lunacy.”[1]
The relentless drop in Argentina’s Index rank is due to, among other things, the Kirchners’ statist policies as well as their failure to protect private property and to fight against corruption. Meanwhile, the performance of market-friendly, democratic Peru, Colombia (the most improved country regionally in the 2010 Index), and long-time economic freedom leader in Latin America Chile proves that South American governments can—through the correct mix of policies favoring private property, rule of law, and market-based, democratic institutions—deliver true economic and political freedom to their citizens.
Argentina’s Economic Freedom: Corroded by Pervasive Cronyism
A closer look at Argentina’s scores on the 10 indicators in the Index reveals exactly how and why, under the rule of the Kirchners, Argentina has suffered a decline in prosperity and economic freedom.
* Business freedom. Argentina’s burdensome regulatory environment is inconsistent and lacks transparency. Recent moves to nationalize unprofitable businesses represented by powerful unions in the Kirchners’ coalition (e.g., Aerolineas Argentinas and Telecom Italia Argentina) have sent strong signals to private-sector companies that their inefficient but unionized competitors will be unfairly (and unwillingly) subsidized by Argentina’s taxpayers.
* Trade freedom. Import/export bans, controls and taxes, restrictions on trade in services, higher tariffs, reference pricing, licensing provisions, subsidies, restrictions on ports of entry, domestic preference in government procurement, and issues involving enforcement of intellectual property rights—all for special interests and cronies—have added to the cost of trade.
* Fiscal freedom. Argentina has relatively high tax rates, and they will have to go higher unless the wildly irresponsible spending by the Kirchners can be brought under control.
* Government spending. The Kirchners’ economic stewardship has been dismal. Although highly indebted and facing declining commodity prices, the Kirchners have imposed unsustainable levels of government spending. To help finance this spending spree, in the fall of 2008 the Kirchner government seized $30 billion in 401(k)-type private pension accounts belonging to individual argentine citizens.[2]
* Monetary freedom. Although the Kirchners manipulate official government statistics to hide the true rate, private estimates show inflation in Argentina to be spiraling out of control. In 2010 it soared to more than 20 percent, raising fears of a return to the bad old days of 1980s-style hyper-inflation.[3] In trying to contain the rate of inflation, the Kirchner government has subsidized or price-controlled electricity, water, retail-level gas distribution, urban transport, and local telephone services. It also pressures companies to artificially hold down prices and wages.
* Investment freedom. The Kirchners manipulate foreign exchange rates and restrict capital flows to artificially pump up the economy. Corruption, weak institutions, and uncertain creditor, contract, and property rights are also serious deterrents to investment.
* Financial freedom. Argentina’s largest bank (Banco de la Nación) is state-owned and is the only financial institution operating in some parts of the country. International banks that have returned since the 2001 default have not recovered their former prominence, and capital controls remain in place. Overall, financial freedom in Argentina remains constrained by government influence, political interference with an inefficient judiciary that hinders foreign investment, and other official and informal obstructions to due process.
* Property rights. The executive branch influences Argentina’s judiciary; the courts are notoriously slow, inefficient, secretive, and corrupt. Many foreign investors must resort to international arbitration. Government manipulation of inflation statistics has caused foreign and domestic bondholders to lose billions in interest payments on their rightful property.
* Freedom from corruption. The entire political economy of Argentina is blighted by the Kirchners’ brand of “crony capitalism”—one of the most corrosive and hardest-to-eradicate forms of corruption. Foreign investors complain about widespread government and private-sector corruption as well as pervasive demands by government officials for bribes. Money laundering, trafficking in narcotics and contraband, and tax evasion plague the financial system. Furthermore, the U.S. State Department’s 2009 Investment Climate Statement for Argentina notes that the corruption is so endemic and deep-rooted that U.S. businesses (which are subject to the U.S. Foreign Corrupt Practices Act) frequently complain that “their adherence to the letter of the tax and regulatory codes at times places them at a competitive disadvantage.”[4]
* Labor freedom. Inflexible labor regulations hinder job creation and productivity growth. According to the World Bank’s 2010 “Doing Business” survey, terminating an employee in Argentina costs, on average, 95 weeks of wages, a rate significantly above the Latin American average of 54 weeks and more than three times the OECD average of 26 weeks.[5] Additionally, labor unions, a major component of the Kirchners’ Peronist Party governing coalition, enjoy access to an extensive patronage system supported by massive government subsidies.
Argentina Must Reform
The Index rankings of neighboring Peru, Colombia, and Chile prove that Argentina can also enjoy prosperity and economic freedom—if reforms are instituted.
The table below illustrates these diverging performances. Chile has scored highest throughout the period, while Colombia’s score has improved steadily, reflecting the tough economic reform measures implemented by President Alvaro Uribe over the past half decade. In contrast, Argentina and all three “Bolivarian ALBA” countries in the Andes have registered a progressively downward trend in their scores.
Recommendations
Although economically freer countries in the Western Hemisphere (e.g., the U.S., Canada, Chile, Mexico, and others) cannot do much to influence Argentina’s government to adopt market-friendly reforms, they should take advantage of every opportunity to do so, at the very least as an encouragement to reformers within the country. The U.S. in particular should take the lead in this effort. Specifically, the Obama Administration and the U.S. Congress should:
* Encourage the Kirchners to turn from their fiscally reckless statist approach before they completely destroy Argentina’s economic freedom and return to the core principles of The Heritage Foundation’s Index of Economic Freedom: limited government and private-sector-led prosperity built upon a foundation of private property rights that are impartially protected by transparent judicial institutions.
* Instruct the U.S. Trade Representative to open negotiations with the Kirchner government on a U.S.–Argentina “Trade and Investment Framework Agreement (TIFA) to provide a strategic framework and principles for dialogue on trade and investment issues.”[6] The TIFA could lead to an eventual free trade agreement and a strengthening of Argentina’s institutions.
* Instruct the U.S. Ambassador to the Organization of American States to propose a resolution condemning Argentina’s destructive economic and political policies toward international financial institutions (e.g., the International Monetary Fund).
* Encourage Argentina to respect international laws and institutions in light of its continuing failure to reschedule all of the sovereign debt from the 2001 default.
* To further this step, President Obama should ask the U.S. Executive Director at the Inter-American Development Bank (IADB) to request that the IADB fund programs to modernize Argentina’s government structures to improve democratic governance, make the judiciary more transparent and efficient, and institutionalize the fight against corruption.
These steps, while by no means an immediate panacea, will begin correcting some of the Kirchner government’s most egregious economic missteps and move Argentina in the direction of renewed economic freedom.
[1]Charles Krauthammer, “Disrespecting Foreign Allies,” Real Clear Politics, April 2, 2010, at http://www.realclearpolitics.com/articles/2010/04/02/slapping_friends_105025.html(April 2, 2010).
[2]Matt Moffett, “Argentina Makes Grab for Pensions Amid Crisis,” The Wall Street Journal, October 22, 2008, at http://online.wsj.com/article/SB122460155879054331.html(April 14, 2010).
[3]Gary S. Becker, “Deficit Spending Got Argentina into This Mess,” Business Week, February 11, 2002, athttp://home.uchicago.edu/~gbecker/Businessweek/BW/2002/02_11_2002.pdf (April 14, 2010).
[4]U.S. Department of State, Bureau of Economic, Energy and Business Affairs, “2009 Investment Climate Statement—Argentina,” athttp://www.state.gov/e/eeb/rls/othr/ics/2009/117861.htm (April 9, 2010).
[5]Doing Business 2010, Argentina, at http://www.doingbusiness.org/ExploreEconomies/?economyid=9 (April 9, 2010).
[6]U.S. Trade Representative, “Trade and Investment Framework Agreements,” athttp://www.ustr.gov/trade-agreements/trade-investment-framework-agreements (April 15, 2010)
James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics at The Heritage Foundation.
Source: Heritage Foundation
www.hacer.org
Saturday, November 20, 2010
Friday, November 19, 2010
Congress should discuss privatized distribution - NEMA director - Mexico
Mexico's congress should consider the privatization of power distribution both to free up resources for state power company CFE and to provide lower consumer power rates, Gustavo Dominguez, the director of electrical manufacturing industry trade association NEMA Mexico, told BNamericas.
Transmission and distribution in Mexico's grid (SEN) is controlled exclusively by CFE. The distribution network is made up of 48,941km of sub-transmission lines and 648,765km of distribution lines, according to the company's website.
Though privatizing distribution would not be politically feasible at this time, Dominguez said lawmakers should begin the "large technical and political discussion" while, in the meantime, CFE goes about adopting smart grid technologies.
CFE could also ultimately withhold strategic areas for exclusively public distribution, while opening the sector elsewhere to private firms.
"It is something that should be done in the short term," Dominguez said.
Source: www.bnamericas.com
Transmission and distribution in Mexico's grid (SEN) is controlled exclusively by CFE. The distribution network is made up of 48,941km of sub-transmission lines and 648,765km of distribution lines, according to the company's website.
Though privatizing distribution would not be politically feasible at this time, Dominguez said lawmakers should begin the "large technical and political discussion" while, in the meantime, CFE goes about adopting smart grid technologies.
CFE could also ultimately withhold strategic areas for exclusively public distribution, while opening the sector elsewhere to private firms.
"It is something that should be done in the short term," Dominguez said.
Source: www.bnamericas.com
Thursday, November 18, 2010
Fidel says happy with direction of Cuba
HAVANA – Fidel Castro says he is happy with the direction Cuba is taking under the leadership of his brother Raul, his most explicit remarks to date about the sweeping economic changes the country is undergoing.
"I'm content, because the country is moving forward despite all the challenges," the bearded revolutionary icon told Cuban students in comments carried by the official Communist Party newspaper Granma and broadcast on Cuban television Thursday.
The elder Castro stepped down in 2006 due to a serious illness that almost killed him. He re-emerged from four years of seclusion in July, but has rarely spoken about Cuban current events, preferring to use his appearances to warn of what he fears is a looming nuclear war pitting the United States and Israel against Iran.
Castro, 84, remains head of the Communist Party, though in his remarks to the students he gave the impression he had delegated many of his official duties to others when he became ill.
When one student began to ask about a key upcoming economic gathering that would in theory be led by Castro as first secretary of the Communist Party, the former president politely brushed the question aside, telling the students he was not meeting with them in his capacity as party chief.
By way of explanation, Castro then immediately said of his 2006 illness: "I got sick and I did what I had to do: delegate my duties. I cannot do something if I am not in a condition to dedicate all my time to it."
Castro described himself as a "soldier of ideas" and said that he "did not hesitate for a minute to relinquish my duties," an apparent reference to his decision to step down as president.
He left unclear how much of a role he continues to play in the day-to-day running of the party. The Communist Party's official website lists Fidel as first secretary and Raul as second secretary.
Part of the meeting with the students was carried on national television Wednesday, but Castro's comments about his brother and his decision to delegate official duties were not broadcast until Thursday.
In the initial broadcast, Castro read word-for-word from a long speech he gave to students in 2005 that he said continued to be relevant today.
In that speech, he spoke of the need to control corruption and the black market, and warned that the revolution could fail from within if leaders did not make the correct decisions.
Since taking over — first temporarily, then permanently — in 2006, Raul Castro has warned his countrymen that the state can no longer afford to pay idle workers and must cut many subsidies Cubans have come to expect.
In September, the government announced that it was laying off 500,000 workers — or one-tenth of its labor force — while allowing many to work for themselves in an expanded private sector.
Raul Castro called a Party Congress for April in which the government is expected to map out details of Cuba's economic future.
A separate Communist Party gathering, called a Party Conference, is also to be held at some point in 2011, and there is speculation Fidel Castro might use one of the occasions to step down as head of the Communist Party.
Source: www.news.yahoo.com
"I'm content, because the country is moving forward despite all the challenges," the bearded revolutionary icon told Cuban students in comments carried by the official Communist Party newspaper Granma and broadcast on Cuban television Thursday.
The elder Castro stepped down in 2006 due to a serious illness that almost killed him. He re-emerged from four years of seclusion in July, but has rarely spoken about Cuban current events, preferring to use his appearances to warn of what he fears is a looming nuclear war pitting the United States and Israel against Iran.
Castro, 84, remains head of the Communist Party, though in his remarks to the students he gave the impression he had delegated many of his official duties to others when he became ill.
When one student began to ask about a key upcoming economic gathering that would in theory be led by Castro as first secretary of the Communist Party, the former president politely brushed the question aside, telling the students he was not meeting with them in his capacity as party chief.
By way of explanation, Castro then immediately said of his 2006 illness: "I got sick and I did what I had to do: delegate my duties. I cannot do something if I am not in a condition to dedicate all my time to it."
Castro described himself as a "soldier of ideas" and said that he "did not hesitate for a minute to relinquish my duties," an apparent reference to his decision to step down as president.
He left unclear how much of a role he continues to play in the day-to-day running of the party. The Communist Party's official website lists Fidel as first secretary and Raul as second secretary.
Part of the meeting with the students was carried on national television Wednesday, but Castro's comments about his brother and his decision to delegate official duties were not broadcast until Thursday.
In the initial broadcast, Castro read word-for-word from a long speech he gave to students in 2005 that he said continued to be relevant today.
In that speech, he spoke of the need to control corruption and the black market, and warned that the revolution could fail from within if leaders did not make the correct decisions.
Since taking over — first temporarily, then permanently — in 2006, Raul Castro has warned his countrymen that the state can no longer afford to pay idle workers and must cut many subsidies Cubans have come to expect.
In September, the government announced that it was laying off 500,000 workers — or one-tenth of its labor force — while allowing many to work for themselves in an expanded private sector.
Raul Castro called a Party Congress for April in which the government is expected to map out details of Cuba's economic future.
A separate Communist Party gathering, called a Party Conference, is also to be held at some point in 2011, and there is speculation Fidel Castro might use one of the occasions to step down as head of the Communist Party.
Source: www.news.yahoo.com
Wednesday, November 17, 2010
Argentine lawmaker socks colleague in budget spat
BUENOS AIRES, Argentina – A lawmaker in Argentina apparently has taken the phrase "bare-knuckle politics" to heart.
A budget spat erupted into fisticuffs Wednesday when opposition legislator Graciela Camano punched fellow lawmaker Carlos Kunkel in the mouth.
Two television news channels broadcast the melee live as Camano got out of her chair to confront Kunkel during a session of the Upper House's constitutional affairs commission.
The two exchanged words, Kunkel gestured with his arms and Camano socked him then left the chamber.
"Under no circumstances will I allow Kunkel or anyone else to lack respect," Camano said later. "He wore me out because I have been putting up with him all year long. He kept shouting without making a single proposal."
She declined to reveal what Kunkel said, but added: "He is always attacking me."
Kunkel, a close ally of President Cristina Fernandez, did not immediately comment. Under congressional rules, he can file a complaint that could lead to possible sanctions against Camano.
Congress has been especially tense recently, with opposition lawmakers saying Fernandez's government is exerting tremendous pressure on them to vote for the 2011 budget.
Source: www.news.yahoo.com
A budget spat erupted into fisticuffs Wednesday when opposition legislator Graciela Camano punched fellow lawmaker Carlos Kunkel in the mouth.
Two television news channels broadcast the melee live as Camano got out of her chair to confront Kunkel during a session of the Upper House's constitutional affairs commission.
The two exchanged words, Kunkel gestured with his arms and Camano socked him then left the chamber.
"Under no circumstances will I allow Kunkel or anyone else to lack respect," Camano said later. "He wore me out because I have been putting up with him all year long. He kept shouting without making a single proposal."
She declined to reveal what Kunkel said, but added: "He is always attacking me."
Kunkel, a close ally of President Cristina Fernandez, did not immediately comment. Under congressional rules, he can file a complaint that could lead to possible sanctions against Camano.
Congress has been especially tense recently, with opposition lawmakers saying Fernandez's government is exerting tremendous pressure on them to vote for the 2011 budget.
Source: www.news.yahoo.com
Tuesday, November 16, 2010
International Reserves, Private Deposits and the Argentine Peso
Overview: In addition to existing controls on foreign currency transactions, such as the US$2 million-per-month foreign currency purchasing limit, Argentina’s authorities have established additional restrictions with the stated intention of reducing money laundering and tax evasion. The main features are twofold: First, annual purchases above US$250,000 will require the buyer to provide proof of personal income (or balance sheet in the case of a firm) to verify that this is compatible with the amount to be puchased. Second, purchases above US$20,000 per month will have to be made via check or wire transfer, not in cash. This way, there will be a record of all the money declared.
* RGE View (Sep 17, 2010): Argentina’s Economy Minister Amado Boudou presented the 2011 budget bill to Congress based on a 4.3% economic growth, 8.4% inflation, a primary surplus of 2.46% of GDP and Argentinean peso fluctuating at a range of US$4-US$4.15. The economic growth forecast, however, falls short of a 6% growth expected by the finance ministry. Lower forecast growth in the budget enables the government to spend additional revenues derived from “extraordinary” growth. The bill also includes a plan to use approximately US$7.5 billion of international reserves to pay debt in 2011 (US$6.6 billion in 2010), replicating what the government did at the beginning of 2010. This will allow the government to increase spending, an important issue amid the run-up to the presidential election in October 2011. The government expects to increase primary spending by 17% next year, reaching almost 23% of GDP. In RGE’s view, the 2011 budget bill assumptions are somewhat misleading. Taping on central bank reserves will likely keep robust spending in place ahead of the election, while containing a severe damage to the primary fiscal surplus. Analysis RGE Bertrand Delgado, Juan Lorenzo Maldonado and Maria Paula Carvajal Sep 17, 2010 Intervention is Back
Argentine Peso
* On June 28, 2010, Adelmo Gabbi, the president of Argentina's stock exchange, announced a proposal to revise the country's capital control measures. The proposal suggests eliminating the requirement that foreign investors deposit 30% of any money they bring into the country with the central bank for one year, a policy that resulted in Argentina being demoted to “frontier” status by index provider MSCI Barra in May 2009. The proposal suggests instead keeping investors’ money in the country for a fixed amount of time by imposing a tax on investors who take their money out before the end of that period. This measure would only be applied to the shares of companies traded exclusively in Argentina. News Wall Street Journal Jun 28, 2010 UPDATE: Argentina's Bourse Wants To Ease Capital Controls News Wall Street Journal Jun 28, 2010 CORRECT:Argentina Stock Exchange Wants To Modify Capital Controls
* Argentina's Economy Minister Amado Boudou has denied the government has any plan to revise capital controls. Many analysts don’t expect the government to change the terms of capital controls since they are used to manage the local exchange rate, unless the government thinks the resulting rise in foreign investment would offset the money withdrawn by Argentines. News Wall Street Journal Matthew Cowley and Dow Jones Newswires Jul 19, 2010 UPDATE: Argentina Minister Denies Plan To Ease Capital Controls
* According to Argentine daily Ambito Financiero, by the end of the month President Cristina Fernandez de Kushner is expected to announce plans to ease capital controls by removing the requirement that investors deposit 30% of their money in the central bank for one year. Instead, investors will probably be required to maintain their investments for at least one year. News Bloomberg Drew Benson Jul 19, 2010 Argentina to Ease 2005 Capital Controls as Soon as This Month, Ambito Says
* The Argentine central bank announced that peso-denominated certificates of deposit rose 3.7% m/m in June to approximately US$30 billion, as Argentine investors bet against a likely fall in the currency. Barclays and UBS forecast the peso weakening to 4.3 and 4.5, respectively, by the end of the year. Expectations for a lower exchange are not totally backed by the behavior of the Argentine public, who in the last 16 months have been betting more on peso-denominated certificates of deposit. News Business Week Drew Benson Jul 19, 2010 Argentines Buck UBS Peso Forecast as Deposits Surge
* Adelmo Gabbi, head of the Buenos Aires Stock Exchange, Bolsa de Comercio, demanded the elimination of capital controls as a first step to attract more foreign capital after Argentina’s successful swap of debt. It seems that stock and derivatives exchanges are pushing the government to lift capital controls in order to boost volumes by opening the market to high-speed traders. News Financial Times Jude Webber Jul 18, 2010 Argentine bourse seeks to open doors to HFT
* According to La Nacion newspaper, Argentina's government is considering softening a restriction on investment flows as a way to rejoin an important international stock index. The restriction, which makes investors who want to buy Argentine financial assets deposit 30% of any money they bring into the country with the central bank for one year, may be eased for investments in shares of Argentine companies that don't have any shares listed overseas. News Wall Street Journal Jun 18, 2010 Argentina May Soften Capital Control On Financial Assets
* Argentina’s new foreign currency controls had a marginal impact in formal operations but in the parallel informal market the U.S. dollar surpassed four pesos, due to strong demand. The reduced impact on daily operations was expected since the measures are targeted mainly to control money laundering. On parallel, this measure will help government to have more information about corporations and their transactions. The parallel dollar is expected to converge towards formal market in the short run. The new rules limit US dollars or equivalent, cash sales to US$20,000. If they exceed US$250,000, a proof of assets and/or earnings must be provided to support the operation. News MercoPress. Jun 09, 2010 US dollar breaks through the 4 pesos barrier in Buenos Aires informal market
* According to reports in local newspapers El Clarin and La Nacion, rules made by Argentina's central bank, the tax agency AFIP and the anti-money laundering agency UIF designed to limit money laundering and tax evasion are suspected of having the ulterior motive of restricting the flow of U.S. dollars out of the country. The government has been keen to use the surplus of dollars flowing into Argentina as a buffer to protect the local economy from international financial turmoil. News Wall Street Journal Matthew Cowley and Dow Jones Newswires Jun 07, 2010 Argentina May Tighten Foreign Exchange Rules - Report
International Reserves
* On August 5, Argentina recovered its foreign currency reserves to US$50.036 billion after paying capital and interest on the Boden 2012 dollar-denominated bonds. The central bank followed the payout with dollar purchases on local currency markets to rebuild the reserves. Without this intervention, the rising inflow of export earnings would push the currency higher. The central bank also might increase the minimum reserve requirement for banks. News iMarkets News Charles Newbery Aug 09, 2010 LatamWatch: Argentina to Build Reserves, Buying Dlrs to Slow FX Appreciation, Infl
* Argentina’s central bank is selling debt to companies of up to ARP150 million (US$38 million) in central bank notes (Lesbacs) due up to at least three months at an ARP800 million auction. As stated by Carola Sandy from Credit Suisse Group, this is a strategy to drain cash from the financial system and to reduce inflation after dollar purchases pushed international reserves to a record US$51 billion. News Bloomberg Drew Benson Jul 27, 2010 Argentina's Record Reserves Get Companies an Invite to Weekly Debt Sales
* Argentina’s Ministry of Economy announced that international reserves exceeded US$50 billion, boosted by an intervention by the central bank in a record purchase of US$262 million and by an increase in agricultural exports. News MercoPress. Jul 10, 2010 Argentine agro-exports help boost international reserves to over 50 billion USD
* Argentina's central bank bought $262 million worth of U.S. dollars, in part to prevent the peso to fluctuate drastically. These fears came after exporters brought dollars to the economy by selling grain and oilseed products. A central bank official stated that: "This is an absolute record since the opening of the currency market in 2002." According to the official, international reserves have surpassed US$50 billion. News WSJ Taos Turner Jul 09, 2010 Argentina Stocks Up; Ctrl Bank Buys Record $262M In Forex Mkt
* The Argentine government intended to swap Boden 2012 bonds in order to push back debt payments, but it had to suspend these plans as a consequence of adverse market conditions. Therefore, the government will most likely use more central bank reserves to make debt payments. According to the Congressional Budget Committee, the country has already used $2.37 billion of these reserves to pay down foreign debt due this year. News WSJ Shane Romig Jul 08, 2010 Argentina Stocks, Bonds Rally On Wall Street, Crude-Oil Gains
* The central bank resumed accumulating international reserves in September, adding US$2.9 billion to US$47.7 billion by the end of 2009 (17% of GDP). Despite this, in RGE’s view, Congress will likely restrict the amount of reserves the central bank can transfer to the treasury and perhaps who the government can pay; the government will most likely be able to pay multilaterals. Analysis RGE Bertrand Delgado Jan 30, 2010 Argentina: Q1 2010 Outlook
Private Deposits
* According to Mercopress, approximately 16 out of 40 investment banks are leaving Argentina after the Central Bank tightened the requirements that ban the banks from “attracting Argentine deposits to send overseas to wealth funds.”
Source: www.roubini.com
* RGE View (Sep 17, 2010): Argentina’s Economy Minister Amado Boudou presented the 2011 budget bill to Congress based on a 4.3% economic growth, 8.4% inflation, a primary surplus of 2.46% of GDP and Argentinean peso fluctuating at a range of US$4-US$4.15. The economic growth forecast, however, falls short of a 6% growth expected by the finance ministry. Lower forecast growth in the budget enables the government to spend additional revenues derived from “extraordinary” growth. The bill also includes a plan to use approximately US$7.5 billion of international reserves to pay debt in 2011 (US$6.6 billion in 2010), replicating what the government did at the beginning of 2010. This will allow the government to increase spending, an important issue amid the run-up to the presidential election in October 2011. The government expects to increase primary spending by 17% next year, reaching almost 23% of GDP. In RGE’s view, the 2011 budget bill assumptions are somewhat misleading. Taping on central bank reserves will likely keep robust spending in place ahead of the election, while containing a severe damage to the primary fiscal surplus. Analysis RGE Bertrand Delgado, Juan Lorenzo Maldonado and Maria Paula Carvajal Sep 17, 2010 Intervention is Back
Argentine Peso
* On June 28, 2010, Adelmo Gabbi, the president of Argentina's stock exchange, announced a proposal to revise the country's capital control measures. The proposal suggests eliminating the requirement that foreign investors deposit 30% of any money they bring into the country with the central bank for one year, a policy that resulted in Argentina being demoted to “frontier” status by index provider MSCI Barra in May 2009. The proposal suggests instead keeping investors’ money in the country for a fixed amount of time by imposing a tax on investors who take their money out before the end of that period. This measure would only be applied to the shares of companies traded exclusively in Argentina. News Wall Street Journal Jun 28, 2010 UPDATE: Argentina's Bourse Wants To Ease Capital Controls News Wall Street Journal Jun 28, 2010 CORRECT:Argentina Stock Exchange Wants To Modify Capital Controls
* Argentina's Economy Minister Amado Boudou has denied the government has any plan to revise capital controls. Many analysts don’t expect the government to change the terms of capital controls since they are used to manage the local exchange rate, unless the government thinks the resulting rise in foreign investment would offset the money withdrawn by Argentines. News Wall Street Journal Matthew Cowley and Dow Jones Newswires Jul 19, 2010 UPDATE: Argentina Minister Denies Plan To Ease Capital Controls
* According to Argentine daily Ambito Financiero, by the end of the month President Cristina Fernandez de Kushner is expected to announce plans to ease capital controls by removing the requirement that investors deposit 30% of their money in the central bank for one year. Instead, investors will probably be required to maintain their investments for at least one year. News Bloomberg Drew Benson Jul 19, 2010 Argentina to Ease 2005 Capital Controls as Soon as This Month, Ambito Says
* The Argentine central bank announced that peso-denominated certificates of deposit rose 3.7% m/m in June to approximately US$30 billion, as Argentine investors bet against a likely fall in the currency. Barclays and UBS forecast the peso weakening to 4.3 and 4.5, respectively, by the end of the year. Expectations for a lower exchange are not totally backed by the behavior of the Argentine public, who in the last 16 months have been betting more on peso-denominated certificates of deposit. News Business Week Drew Benson Jul 19, 2010 Argentines Buck UBS Peso Forecast as Deposits Surge
* Adelmo Gabbi, head of the Buenos Aires Stock Exchange, Bolsa de Comercio, demanded the elimination of capital controls as a first step to attract more foreign capital after Argentina’s successful swap of debt. It seems that stock and derivatives exchanges are pushing the government to lift capital controls in order to boost volumes by opening the market to high-speed traders. News Financial Times Jude Webber Jul 18, 2010 Argentine bourse seeks to open doors to HFT
* According to La Nacion newspaper, Argentina's government is considering softening a restriction on investment flows as a way to rejoin an important international stock index. The restriction, which makes investors who want to buy Argentine financial assets deposit 30% of any money they bring into the country with the central bank for one year, may be eased for investments in shares of Argentine companies that don't have any shares listed overseas. News Wall Street Journal Jun 18, 2010 Argentina May Soften Capital Control On Financial Assets
* Argentina’s new foreign currency controls had a marginal impact in formal operations but in the parallel informal market the U.S. dollar surpassed four pesos, due to strong demand. The reduced impact on daily operations was expected since the measures are targeted mainly to control money laundering. On parallel, this measure will help government to have more information about corporations and their transactions. The parallel dollar is expected to converge towards formal market in the short run. The new rules limit US dollars or equivalent, cash sales to US$20,000. If they exceed US$250,000, a proof of assets and/or earnings must be provided to support the operation. News MercoPress. Jun 09, 2010 US dollar breaks through the 4 pesos barrier in Buenos Aires informal market
* According to reports in local newspapers El Clarin and La Nacion, rules made by Argentina's central bank, the tax agency AFIP and the anti-money laundering agency UIF designed to limit money laundering and tax evasion are suspected of having the ulterior motive of restricting the flow of U.S. dollars out of the country. The government has been keen to use the surplus of dollars flowing into Argentina as a buffer to protect the local economy from international financial turmoil. News Wall Street Journal Matthew Cowley and Dow Jones Newswires Jun 07, 2010 Argentina May Tighten Foreign Exchange Rules - Report
International Reserves
* On August 5, Argentina recovered its foreign currency reserves to US$50.036 billion after paying capital and interest on the Boden 2012 dollar-denominated bonds. The central bank followed the payout with dollar purchases on local currency markets to rebuild the reserves. Without this intervention, the rising inflow of export earnings would push the currency higher. The central bank also might increase the minimum reserve requirement for banks. News iMarkets News Charles Newbery Aug 09, 2010 LatamWatch: Argentina to Build Reserves, Buying Dlrs to Slow FX Appreciation, Infl
* Argentina’s central bank is selling debt to companies of up to ARP150 million (US$38 million) in central bank notes (Lesbacs) due up to at least three months at an ARP800 million auction. As stated by Carola Sandy from Credit Suisse Group, this is a strategy to drain cash from the financial system and to reduce inflation after dollar purchases pushed international reserves to a record US$51 billion. News Bloomberg Drew Benson Jul 27, 2010 Argentina's Record Reserves Get Companies an Invite to Weekly Debt Sales
* Argentina’s Ministry of Economy announced that international reserves exceeded US$50 billion, boosted by an intervention by the central bank in a record purchase of US$262 million and by an increase in agricultural exports. News MercoPress. Jul 10, 2010 Argentine agro-exports help boost international reserves to over 50 billion USD
* Argentina's central bank bought $262 million worth of U.S. dollars, in part to prevent the peso to fluctuate drastically. These fears came after exporters brought dollars to the economy by selling grain and oilseed products. A central bank official stated that: "This is an absolute record since the opening of the currency market in 2002." According to the official, international reserves have surpassed US$50 billion. News WSJ Taos Turner Jul 09, 2010 Argentina Stocks Up; Ctrl Bank Buys Record $262M In Forex Mkt
* The Argentine government intended to swap Boden 2012 bonds in order to push back debt payments, but it had to suspend these plans as a consequence of adverse market conditions. Therefore, the government will most likely use more central bank reserves to make debt payments. According to the Congressional Budget Committee, the country has already used $2.37 billion of these reserves to pay down foreign debt due this year. News WSJ Shane Romig Jul 08, 2010 Argentina Stocks, Bonds Rally On Wall Street, Crude-Oil Gains
* The central bank resumed accumulating international reserves in September, adding US$2.9 billion to US$47.7 billion by the end of 2009 (17% of GDP). Despite this, in RGE’s view, Congress will likely restrict the amount of reserves the central bank can transfer to the treasury and perhaps who the government can pay; the government will most likely be able to pay multilaterals. Analysis RGE Bertrand Delgado Jan 30, 2010 Argentina: Q1 2010 Outlook
Private Deposits
* According to Mercopress, approximately 16 out of 40 investment banks are leaving Argentina after the Central Bank tightened the requirements that ban the banks from “attracting Argentine deposits to send overseas to wealth funds.”
Source: www.roubini.com
Monday, November 15, 2010
PM plans trade-boosting Brazil visit in 2011
LONDON (AFP) – Prime Minister David Cameron said Monday he hopes to visit Brazil and Russia next year as part of a broader mission to boost his country's global economic standing.
"Next year I plan to visit Brazil and Russia," the leader said at a speech to business figures in London.
"There are some who say that Britain is embarked on an inevitable path of decline. I want to take this argument head on. Britain remains a great economic power."
Cameron has targeted developing countries as the lynchpin of Britain's future foreign trade policy and has recently completed business-boosting visits to China and India as-well as attending the G20 summit in Seoul.
"We must link our economy up with the fastest growing parts of the world, placing our commercial interests at the heart of our foreign policy," Cameron said."
However, the British leader also expressed commitment to older friends.
"We will continue to build on our special relationship with America," he added.
"It is not just special, it is crucial - because it is based on solid practical foundations such as our cooperation on defence, counter-terrorism and intelligence."
Russia remains an untapped market for Britain, but the two countries are at loggerheads over Russia's refusal to extradite the main suspect in the London murder of Kremlin critic Alexander Litvinenko in 2006.
British Foreign Secretary William Hague said "serious differences" existed between the two countries after meeting with Russian President Dmitry Medvedev in Moscow last month.
Source: www.news.yahoo.com
"Next year I plan to visit Brazil and Russia," the leader said at a speech to business figures in London.
"There are some who say that Britain is embarked on an inevitable path of decline. I want to take this argument head on. Britain remains a great economic power."
Cameron has targeted developing countries as the lynchpin of Britain's future foreign trade policy and has recently completed business-boosting visits to China and India as-well as attending the G20 summit in Seoul.
"We must link our economy up with the fastest growing parts of the world, placing our commercial interests at the heart of our foreign policy," Cameron said."
However, the British leader also expressed commitment to older friends.
"We will continue to build on our special relationship with America," he added.
"It is not just special, it is crucial - because it is based on solid practical foundations such as our cooperation on defence, counter-terrorism and intelligence."
Russia remains an untapped market for Britain, but the two countries are at loggerheads over Russia's refusal to extradite the main suspect in the London murder of Kremlin critic Alexander Litvinenko in 2006.
British Foreign Secretary William Hague said "serious differences" existed between the two countries after meeting with Russian President Dmitry Medvedev in Moscow last month.
Source: www.news.yahoo.com
Sunday, November 14, 2010
Health precautions for La Oroya residents still valid - AIDA - Peru
Peru's government needs to properly implement precautionary health measures for residents in La Oroya, where Lima-based Doe Run Peru's polymetallic smelter is located, Astrid Puentes, co-director of the Interamerican Association for Environmental Defense (AIDA), told BNamericas.
In 2007, following a petition submitted by AIDA, the Inter-American Commission on Human Rights (IACHR) asked the Peruvian government to take precautionary measures for more than 60 La Oroya residents. The inhabitants suffer from health problems believed to be caused by air, soil and water contamination from the metallurgical complex.
The measures included the provision of adequate medical treatment and specialized medical tests and diagnoses for the beneficiaries.
During a hearing this March, AIDA presented evidence that the government had not fully complied with the measures, while authorities said that they have met the demands of the commission and asked for the case to be closed.
"We proved with independent experts that there were many things that they had not complied with, so the commission has maintained the measures. They are still valid," Puentes said, adding: "The government is still in the process of complying."
"One of the problems is that the government is giving general medical examinations and what we need are specialized tests for people, because it is not a regular situation," Puentes said.
ONGOING CONTAMINATION
The metallurgical complex in La Oroya was built in 1922 by the Cerro de Pasco Corporation and nationalized in 1971. Doe Run Peru acquired it in 1997 in a privatization process that included an environmental cleanup agreement called PAMA.
The complex includes smelters and refineries that process copper, lead, zinc and silver concentrates, as well as several byproducts. The plant is known for having caused serious lead contamination around La Oroya.
Doe Run Peru suspended operations at the smelter last year when it ran into financial difficulties as a result of the global economic crisis without completing the PAMA cleanup.
As a result, residents are still exposed to contamination. "Because lead is everywhere, people are still exposed," Puentes said. "Contamination is still going on because the city has not been cleaned up."
Doe Run Peru is an affiliate of the New York-based Renco Group. The company is currently undergoing proceedings at competition regulator Indecopi that will result in it being restructured or liquidated.
Source: www.bnamericas.com
In 2007, following a petition submitted by AIDA, the Inter-American Commission on Human Rights (IACHR) asked the Peruvian government to take precautionary measures for more than 60 La Oroya residents. The inhabitants suffer from health problems believed to be caused by air, soil and water contamination from the metallurgical complex.
The measures included the provision of adequate medical treatment and specialized medical tests and diagnoses for the beneficiaries.
During a hearing this March, AIDA presented evidence that the government had not fully complied with the measures, while authorities said that they have met the demands of the commission and asked for the case to be closed.
"We proved with independent experts that there were many things that they had not complied with, so the commission has maintained the measures. They are still valid," Puentes said, adding: "The government is still in the process of complying."
"One of the problems is that the government is giving general medical examinations and what we need are specialized tests for people, because it is not a regular situation," Puentes said.
ONGOING CONTAMINATION
The metallurgical complex in La Oroya was built in 1922 by the Cerro de Pasco Corporation and nationalized in 1971. Doe Run Peru acquired it in 1997 in a privatization process that included an environmental cleanup agreement called PAMA.
The complex includes smelters and refineries that process copper, lead, zinc and silver concentrates, as well as several byproducts. The plant is known for having caused serious lead contamination around La Oroya.
Doe Run Peru suspended operations at the smelter last year when it ran into financial difficulties as a result of the global economic crisis without completing the PAMA cleanup.
As a result, residents are still exposed to contamination. "Because lead is everywhere, people are still exposed," Puentes said. "Contamination is still going on because the city has not been cleaned up."
Doe Run Peru is an affiliate of the New York-based Renco Group. The company is currently undergoing proceedings at competition regulator Indecopi that will result in it being restructured or liquidated.
Source: www.bnamericas.com
Saturday, November 13, 2010
Venezuelan police arrest 33 people in metro protest
By Will Grant BBC News
Police have arrested 33 people during protests on the metro system in the Venezuelan capital, Caracas.
They said they were protesting about the poor service of the underground network, which commuter groups say has deteriorated rapidly in recent months.
Police said the passengers prevented a train from leaving a station, and accused them of sabotage.
Last month, the government appointed a new head of the metro system to try to tackle the network's problems.
The arrests were the culmination of several weeks of growing anger among commuters in Caracas over the state of the metro system.
A lawyer acting for the protesters said they were simply angry at having to wait around 40 minutes for a train, only to be told that they could not board the one which eventually arrived.
The police say members of the public refused to let the train leave the station, holding up services on other lines.
The transport ministry accused the protesters of sabotage - something their lawyer has denied.
As the police arrived in numbers at the station in the west of the capital, the protests turned ugly and the arrests were made.
High volume
The metro system in the Venezuelan capital was once the envy of Latin America.
However in recent months it seems to have reached saturation point.
Long delays are a daily problem and many trains, escalators and lines are in need of urgent maintenance.
President Hugo Chavez recently appointed a new head of the metro system, which carries some 1.3m commuters a day - the second highest volume in Latin America.
The system was only designed to carry around 600,000 passengers a day.
Source: BBC
www.bbc.co.uk
Police have arrested 33 people during protests on the metro system in the Venezuelan capital, Caracas.
They said they were protesting about the poor service of the underground network, which commuter groups say has deteriorated rapidly in recent months.
Police said the passengers prevented a train from leaving a station, and accused them of sabotage.
Last month, the government appointed a new head of the metro system to try to tackle the network's problems.
The arrests were the culmination of several weeks of growing anger among commuters in Caracas over the state of the metro system.
A lawyer acting for the protesters said they were simply angry at having to wait around 40 minutes for a train, only to be told that they could not board the one which eventually arrived.
The police say members of the public refused to let the train leave the station, holding up services on other lines.
The transport ministry accused the protesters of sabotage - something their lawyer has denied.
As the police arrived in numbers at the station in the west of the capital, the protests turned ugly and the arrests were made.
High volume
The metro system in the Venezuelan capital was once the envy of Latin America.
However in recent months it seems to have reached saturation point.
Long delays are a daily problem and many trains, escalators and lines are in need of urgent maintenance.
President Hugo Chavez recently appointed a new head of the metro system, which carries some 1.3m commuters a day - the second highest volume in Latin America.
The system was only designed to carry around 600,000 passengers a day.
Source: BBC
www.bbc.co.uk
Friday, November 12, 2010
Argentina / China Economic Tango: Railways, Soy, Oil
Argentina and China signed a deal for Beijing to invest $10 billion in the South American nation's railways during a visit by the Argentine president to Beijing,but there was no sign of progress in a dispute over soy imports.
The agreements announced during the visit by President Cristina Fernandez earlier this month come as Beijing expands its role in Latin America through investments in oil and other industries and closer financial ties with the region's governments.
The railway deals include a $2.5 billion project to upgrade the rail system of Argentina's capital, Buenos Aires, Chinese news reports said.
They said projects would include the purchase of Chinese railway technology.
China is promoting exports of railway equipment and is trying to develop its own high-speed rail technology.
A Chinese railway official said in March that state-owned companies are building high-speed lines in Venezuela and Turkey.
There was no sign of progress in a dispute over China's ban on imports of Argentine soy, a key export for Fernandez's nation.
The Chinese government played down the ban, calling it a normal trade dispute.
The soy dispute is the most pressing issue for Fernandez, who was on the first trip to China by an Argentine president since 2004.
Others deals announced during the visit earlier this month included
a memorandum of cooperation state-owned China Petroleum & Chemical Corp., also known as Sinopec, and state-owned Energia Argentina SA, or Enersa.
No details were released.
There was no word on a possible Chinese purchase of BP plc's stake in Argentina's Pan American Energy, an oil and gas producer.
News reports say BP might sell its 60 percent share to state-owned China National Offshore Oil Corp.,
which owns 20 percent of Pan American and wants to expand abroad.
Argentine exports of soy oil to China totaled $1.4 billion last year,
accounting for a sizable chunk of two-way trade that strongly favored Beijing.
China imposed the soy ban April 1, after saying it found shipments containing excessive levels of hexane, a potentially cancerous chemical used in soy processing.
The restrictions also came after Argentina last year imposed antidumping measures on some Chinese goods.
China has denied the soy ban is a retaliatory measure, while Argentina has said its soy products are not contaminated.
When asked during the visit by reporters about the soy dispute, according to this article in the New York Times,
a Chinese Foreign Ministry spokesman called Argentina an important partner in Latin America and said the problem should be resolved.
''Regarding the import of soybean oil to China, it's just a normal problem that comes with the development of trade and economic relations,'' said the spokesman, Qin Gang.
''I believe as long as the two countries follow the spirit of cooperation and mutual benefit and through friendly consultation, a proper resolution will be found.''
Source: www.economywatch.com
The agreements announced during the visit by President Cristina Fernandez earlier this month come as Beijing expands its role in Latin America through investments in oil and other industries and closer financial ties with the region's governments.
The railway deals include a $2.5 billion project to upgrade the rail system of Argentina's capital, Buenos Aires, Chinese news reports said.
They said projects would include the purchase of Chinese railway technology.
China is promoting exports of railway equipment and is trying to develop its own high-speed rail technology.
A Chinese railway official said in March that state-owned companies are building high-speed lines in Venezuela and Turkey.
There was no sign of progress in a dispute over China's ban on imports of Argentine soy, a key export for Fernandez's nation.
The Chinese government played down the ban, calling it a normal trade dispute.
The soy dispute is the most pressing issue for Fernandez, who was on the first trip to China by an Argentine president since 2004.
Others deals announced during the visit earlier this month included
a memorandum of cooperation state-owned China Petroleum & Chemical Corp., also known as Sinopec, and state-owned Energia Argentina SA, or Enersa.
No details were released.
There was no word on a possible Chinese purchase of BP plc's stake in Argentina's Pan American Energy, an oil and gas producer.
News reports say BP might sell its 60 percent share to state-owned China National Offshore Oil Corp.,
which owns 20 percent of Pan American and wants to expand abroad.
Argentine exports of soy oil to China totaled $1.4 billion last year,
accounting for a sizable chunk of two-way trade that strongly favored Beijing.
China imposed the soy ban April 1, after saying it found shipments containing excessive levels of hexane, a potentially cancerous chemical used in soy processing.
The restrictions also came after Argentina last year imposed antidumping measures on some Chinese goods.
China has denied the soy ban is a retaliatory measure, while Argentina has said its soy products are not contaminated.
When asked during the visit by reporters about the soy dispute, according to this article in the New York Times,
a Chinese Foreign Ministry spokesman called Argentina an important partner in Latin America and said the problem should be resolved.
''Regarding the import of soybean oil to China, it's just a normal problem that comes with the development of trade and economic relations,'' said the spokesman, Qin Gang.
''I believe as long as the two countries follow the spirit of cooperation and mutual benefit and through friendly consultation, a proper resolution will be found.''
Source: www.economywatch.com
Thursday, November 11, 2010
SMEs representing fastest growing business for SAP unit - Central America, Mexico
SMEs have represented the fastest growing segment so far this year for the Mexico and Central American division of SAP (NYSE: SAP), the division's director general, Diego Dzodan, told BNamericas.
SAP Mexico and Central America currently boasts a client base of 3,200 companies, 70% of which are SMEs, according to Dzodan. BNamericas previously reported that the division started off 2010 with 3,000 clients and was expecting to increase that figure by 20% during the course of the year.
"Among SMEs, the biggest trend that we are seeing is the standardization of back office processes," he said. "There is a big focus on ERPs."
In the upcoming quarters, the division will continue to recruit new channel partners to target the SME segment, Dzodan said, adding that SAP is aware that the availability of financing can also make or break deals.
Meanwhile, the SAP unit is seeing very few large-scale ERP projects among large enterprises, but rather technology projects focused on specific areas.
Dzodan noted that, for example, manufacturing companies in Mexico are increasing their technology investments to improve logistics, while energy companies are looking to strengthen both the commercial and operational sides.
SAP Mexico and Central America's priorities include reinforcing the company's global strategy of offering solutions through traditional implementations, mobile devices and also cloud computing, according to Dzodan, who assumed his role last month.
Still, the executive acknowledged that cloud computing up-take so far in his division has been "marginal."
"Cloud computing is still not an area that has significant volume. It's very marginal," he said. "There is more of a conceptual interest than a concrete interest in projects."
Cloud computing provides value for specific components of a company's IT set-up, rather than "taking something out of the heart of a company and then putting it on the cloud," Dzodan said.
SAP Latin America saw software and related services revenues jump 21% year-over-year during the third quarter. Globally, the company saw profits jump 12% to reach 501mn euros (currently US$684mn), while revenues rose 20% to reach 3.0bn euros.
Source: Business News Americas
www.bnamericas.com
By Matthew Malinowski / Business News Americas
SAP Mexico and Central America currently boasts a client base of 3,200 companies, 70% of which are SMEs, according to Dzodan. BNamericas previously reported that the division started off 2010 with 3,000 clients and was expecting to increase that figure by 20% during the course of the year.
"Among SMEs, the biggest trend that we are seeing is the standardization of back office processes," he said. "There is a big focus on ERPs."
In the upcoming quarters, the division will continue to recruit new channel partners to target the SME segment, Dzodan said, adding that SAP is aware that the availability of financing can also make or break deals.
Meanwhile, the SAP unit is seeing very few large-scale ERP projects among large enterprises, but rather technology projects focused on specific areas.
Dzodan noted that, for example, manufacturing companies in Mexico are increasing their technology investments to improve logistics, while energy companies are looking to strengthen both the commercial and operational sides.
SAP Mexico and Central America's priorities include reinforcing the company's global strategy of offering solutions through traditional implementations, mobile devices and also cloud computing, according to Dzodan, who assumed his role last month.
Still, the executive acknowledged that cloud computing up-take so far in his division has been "marginal."
"Cloud computing is still not an area that has significant volume. It's very marginal," he said. "There is more of a conceptual interest than a concrete interest in projects."
Cloud computing provides value for specific components of a company's IT set-up, rather than "taking something out of the heart of a company and then putting it on the cloud," Dzodan said.
SAP Latin America saw software and related services revenues jump 21% year-over-year during the third quarter. Globally, the company saw profits jump 12% to reach 501mn euros (currently US$684mn), while revenues rose 20% to reach 3.0bn euros.
Source: Business News Americas
www.bnamericas.com
By Matthew Malinowski / Business News Americas
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