News November 16, 2009

ECONOMY

Market’s expectations

The following table compares the “Relevamiento de Expectativas del Mercado” (market’s expectations survey) for the current year, published by the Central Bank (CB) during October and November.

The expectations for 2010 are:

Inflation

According to the Indec, during October the consumers price index increased 0.8 % and accumulates 5.8 % in the first 10 months of the year; an analyst commented, “…the official figures are closer to the private ones but the gap between them continues to be important -the consulting firms estimate the annual inflation at around 15 %-… the private analysts have estimated October’s inflation at between 1.1 and 1.3 %, and for 2010 they estimate an inflation level between 14 % and 15 %, a level which doubles the expected devaluation…”:

Expectations

A journalist commented, “…according to a survey prepared by UCA (a local university) and TNS Gallup (a consulting firm) during October, 56 % of the argentines considers that the economic situation is bad or very bad, 33 % think that it is neither good nor bad and 10 % that is good or very good… for the coming 6 months, 37 % expect the situation to worsen, 40 % does not expect changes and only 16 % expect improvements… the general opinion is that the unemployment and the poverty are the main economic problems…”.

An opinion on the economy

An analyst commented, “…if the economy starts to grow above 2 %, we could experience again a strong price struggle which will not find a solid anchor neither in the fiscal policy nor in the defense of the competition in the private sector… the government is only making cosmetic efforts to conceal the weak points, this is why for the time being the capitals outflow -initiated in2007- was detained and there are expectations that the debt in default be reduced, nevertheless, the inflation level will continue to deteriorate the model which the government is defending with a lot of words but with very few actions…”.

U.S., consumption and unemployment

An analyst commented, “…in the US the recession may have ended but the companies in the consumer sectors believe that they have to be prepared for a long period of frugality… the weak recuperations signs in the construction sector, manufacturing or the sale of cars, have not changed the humor of the consumers, who continue preoccupied with the 10.2 % unemployment, as a result they want to increase their savings and they are skeptic on the positive economic projections… the Conference Board published the consumers confidence index for October, which fell 6 points compared to September… the Federal Reserve affirmed that the consumption seems to be increasing but that it continues being limited by the persistence of the jobs losses, the weak increase in income, the reduced net worth of the households and the lack of credit… in summary, the companies´ outlook is mainly based on a more fragile future than anticipated…”. 

On the unemployment an analyst commented, “…by the end of the year the unemployment will reach 10.3 % and in the coming year it will remain above 9.5 %... even is the employment starts to increase in 2010 at a monthly level of 50000 new jobs it will not be enough to compensate the 100000 new jobs that are needed monthly to compensate for the new people coming into the job market… the economists estimate a 3 % growth for 2010, although this level may seem strong, it is really insufficient to allow for the recuperation of the 8 millions layoffs that we have accumulated up to now…”.

Europe and the crisis

An analyst commented, “…the official report announced that Europe came out of its worst crisis since the Second War World, after five consecutive quarters of contractions the region’s GDP increased 0.4 % during the third quarter… Germany and France, considered the motors of the economic block had already returned to growth in the second quarter and in the third expanded 0.7 % and 0.3 % respectively, Italy and the Netherlands have shown their first positive figures, they increased 0.6 % and 0.4 %, while Spain suffered a new 0.3 % contraction… the analysts coincide that the recuperation will be weak, in 2010 the governments will probably withdraw the stimulus programs, the unemployment continue to be high -it affects 22 million persons-, and the weakness of the dollar affects negatively their exports which were traditionally the drivers of the recuperations…”.

Our markets´ trends

In our country the indexes closed last week as follows: the index “Bonos IAMC” (Instituto Argentino del Mercado de Capitales – argentine capital markets bond index) increased 4.11 % last week and the country’s risk (EMBI Argentina) closed at 725 b.p. which compares with 733 b.p. on the prior week; with respect to the stock market, the Merval -an index based on a group of shares- closed at 2233.43 which compares with 2222.81 on the prior week.

The dollar closed at $ 3.82 ($ 0.01 less than the prior week) and at the Rofex the dollar futures´ market closed at $ 3.84 by the end of December and $ 4.16 by the end of November 2010; the CB´s international reserves are estimated at US$ 46721 million which compare to US$ 46512 on the prior week.

Last week the CB bid for $ 800 million in Lebacs and Nobacs, received offers for $ 3513 million and accepted $ 2702 million; the rates for the Lebacs were: 147 days 13.30 %, 175 days 13.73 %, 203 days 14.10 %, 231 days 14.35 %, 273 days 14.70 %, 357 days 15.10 %, 539 days 16.00 %, 721 days 16.28 % and for the Nobacs (private banks Badlar rate plus 2.50 % annual) the additional rate was 175 days 0.55 %.

The Banco Nación’s interest rates continued at the following levels: fixed term deposits for 30/59 days at 9.38 % annual, 60/89 days at 9.88 %, 90/179 days at 10.65 % and over 180 days 10.78 %, general loans at 20.57 % annual and overdrafts at 35.81 % also annual.

 
POLITICS

Political comments

Some of the political comments of last week were the following.

. “…the presidential couple does not admit that the vote in June 28^th was a rejection of the aggressive manners used, the absolutists intentions, the speeches full of confrontation and with a violent rhetoric… they do not recognize that the vote punished the degradation of the public faith, its best example is the manipulation of the Indec´s figures… they do not recognize that the vote punished the contradiction between a pseudo leftist rhetoric and their eagerness for increasing their power and richness…”.

. “…the government seemsto have given up administering the country, their only aim is to retain power, even if the legitimacy and the consensus are fragile, and they do no care the cost of their authoritarism… the government is not governing they are only trying to impose their own views…”.

. “… Aníbal Fernandez, the Cabinet chief, ratified the idea launched by the president, when she mentioned a supposed plan to destabilize the government, which is disguised behind the pickets… Fernández denounced that the recent social disorders, which originated a chaos in the Capital, were not casual and that the government is investigating them… he affirmed: if they are thinking that we will leave or that they will through us out, they should get these ideas out of their heads…”.

. “…on December 10^th not only Congress will change hands, at least will have the opportunity to see in their seats several of our main political leaders… but our collective dream is that this increased plurality, this loss of the automatic majority, will not result in an institutional paralysis but in a Republic of agreements on State’s issues, where everybody will have to yield something and where the quality of the dialogue be able to defeat the petulance of the monologue, a more normal Argentina, a more educated one, a country a little more similar to our neighbors…”.

. “…there is an increasing and preoccupying practice in several countries in our region, which consists in manipulating the norms with the hidden purpose to institute autocracies, with an authoritarian government style… these abuses weaken the institutions and affect our freedom, our rights and the guarantees… the responsibility for this “coup from within the State” includes not only the unscrupulous and obsequents who bestow or consent these extraordinary powers, but also those who procure and use these powers and deteriorate the Republic’s institutions …”. 

. “…the document of the Conferencia Episcopal (a bishops council), which alerted on the verbal and physical violence in the political arena, the increase of the social conflicts, the increasing poverty and insecurity, was well received by the opposition, who read in the Church’s words a direct reprimand to the Casa Rosada (our White House)…”.

Comments on the economic situation

Several of the comments made during last week referred to the difficulties faced by our economy and the need to recreate the conditions to foster new investments.

. “…Argentina is not headed towards a traditional crisis, given the positive international context for the raw materials, since this context creates conditions to avoid it, nevertheless, several economic sectors will have to face complicated situations… the benefits of the maxi devaluation of 2001 have evaporated and to this it has been added fiscal policies which have originated a significant distortion in the relative prices… this combination makes unsustainable the present fiscal policies and those related to prices, imports, exports and infrastructure …”.

. “…the present political and social conflicts will not allow our country to take advantage of the international economic recuperation… this is not happening in other countries such as Brazil, Chile, Colombia or Perú… unless a political agreement and commitment is reached, Argentina will not be able to take advantage of its potential… the political struggles create uncertainties, the investment decisions require legal security, macroeconomic stability and certainty on the rules and norms…” 

. “…our present challenge is to recuperate the basic conditions which would allow an inclusive growth, with increasing formal employment and reasonable distributive rules, and in order to achieve this it is key to recuperate the trust which is required to implement the investment opportunities…”.

. “…to emerge from the crisis does not depend on other people’s actions but on ours, and it requires more than mere changes to the economic polices, first we should be able to recuperate our institutions, we should respect clear and stable rules, and we should be slaves to our given words… if we do not respect the basic rights and guarantees, such as security, the defense of our lives, the private property, the freedom for industry and commerce, or the free will there will not be a formula able to take us out of our present…

  
REGION

Brazil

A journalist commented, “…Lula deserves the popularity he enjoys, but he was also a lucky president, he has received the benefit of the basic products´ booms, and has governed from the strong platform implemented by his predecessor, Fernando Henrique Cardoso… the next president will have to face some of the problems that Lula was able to ignore, thereby, the result of the presidential elections may affect the speed of Brazil’s advance, nevertheless, the country’s course seems to have been already determined, and its advance is even more admirable since it was achieved through a democratic reform and construction of consensus… everybody would wish to state the same on China…”.

The government published a list of 222 products on which import surcharges could be imposed, as retribution to the U.S.´s subsidies on cotton; last August the WTO defined the terms under which Brazil could apply sanctions to U.S. products and services. Last week the dollar closed at 1.72 reales, the same level of the prior week, and the Bovespa index at 65325.63 which compares with 64466.13 on the prior week.

Chile

A journalist commented, “…there are no surprises, the electoral survey prepared by the Centro de Estudios Públicos confirmed that the businessman Sebastián Piñera is the favorite to become president, -he leads with 36 %-, but he will have to face a ballottage next January, everything seems to indicate that the December elections will be the hardest of the last 40 years”. Last week the dollar closed at $ 502.00 pesos which compares with $ 523.75 in the prior week and the stock index closed at 15702.08 which compares with 15825.58 on the prior week.

Uruguay

During November president Tabaré Vázquez´s popularity reached a historical record, 71 %, which has no precedent since democracy was restored in 1985; the surveys continue to show José Mujica as the favorite, with voting intentions of between 47 % and 50 %, while those corresponding to Luís Alberto Lacalle vary between 40 % and 42 %. Last week the dollar closed at $ 20.55, which compares with $ 20.95 on the prior week.

   
LEGISLATION

Family allowances

The government issued Decree Nº 1729 which establishes a 33 % increase in the family allowances corresponding to workers formally employed.

NOTE: The purpose of this Newsletter is to summarize last week’s news and is based on information available in the press at the date it was issued. It can be accessed at our website or you can request that we email it to you in Spanish or English.  Visit our site www.deloitte.com/ar where you will find additional publications describing our economy, politics and legislation.