News November 2, 2009 |
ECONOMY
Indec and the industrial activity
The Indec reported that the Estimador Mensual Industrial (EMI – monthly industrial activity indicator) increased in September 0.1 % with respect to the same month of last year and 1.5 % compared to August; a journalist commented, “…most of the projections by the private sector show year to year decreases between 8 and 10 %, Fiel (a local think tank) reported a 8.2 % contraction and the consulting firm Orlando Ferreres a 10.5 % fall, even the UIA (association of manufacturers) had reported for August a 9.7 % fall… it seems that nobody, except the Indec, believes that September could show a positive variation, the good news is that the fall seems to have stopped, the bad news is that the recuperation may not be V type …”.
Construction sector
The Indec reported that during September the construction activity decreased 1.9 % with respect to the same month of last year but increased 0.3 % compared to August; in the first 9 months of the year the accumulated contraction is 2.7 % with respect to the same period of 2008. September’s contraction in the third year to year consecutive contraction and the seventh of the year; in the monthly comparisons September is the third consecutive month showing an expansion.
Expectations
At IDEA (a businessmen association) annual meeting s survey on executives expectations was published, 228 member participated; a journalist commented, “…despite this year’s contraction in almost all activities the businessmen were more optimistic on the economic expectations for the coming months… the level of these expectations is the higher of the last 6 surveys and similar to that made at the end of 2006, 51 % anticipates increases in sales and 43 % more exports… on new investments and employment the expectations are more moderate, 27 % anticipate investments, 26 % increases in the staff numbers compared with 20 % who expect decreases… these expectations, despite being moderate, are better than in prior surveys…”.
A journalist commented the report issued by the Universidad Torcuato Di Tella on the inflationary expectations, "...for the coming 12 months, the expectations in the Capital reach 20 %, in the Great Buenos Aires 30 % and in the interior of the country 25 %... in October the expected inflation was more homogeneous among the different social groups, the median for the poorer sector increased to 25 %, the same percentage that applies to the group with the highest purchasing power...".
The Universidad Nacional de Tres de Febrero published their report on expectations, a journalist commented "...during October the general index improved 3 % compared to September -this represents a change in the prior trend-, the year to year comparison registered a fall of 11.6 %, while compared with January the decrease was 11.3 %... the sub indexes, which measure the consumers expectations and the expectations on the economic situation, have also recuperated, these increases may anticipate an improvement of the consumption in the immediate future...".
An opinion on our economy
A well known economist commented, "...this year the economy will register a fall of 2.5 %, but the prospects for the coming year are brighter due to a more expansive international context and the prospects of a 60 % increase in the soybean crop… this is why we project a 3 % growth for 2010... this growth will not be enough to reverse this year’s contraction of the private investments (12 %)… to increase the investments it is required local and foreign credibility so as to regain access to the financial markets… two issues preoccupy regarding 2010: an increase in the inflation rate driven by the economic recuperation and the need to correct the distorted relative prices which have been accumulated… the government will try to neutralize the inflationary expectations by devaluing the peso below the inflation rate… the second issue is related to the fiscal accounts, we passed from a primary fiscal surplus of 3 % in 2008 to 0.6 % this year and this is due to the increase in public expenditures... the projections for 2010 confirm this new fiscal context, we project a surplus of US$ 1200 millions vis-à-vis payments for interest and capital of US$ 7200 millions… if the government does not have access to the voluntary credit markets this gap would be closed with the CB, the Banco Nación, the Anses (pension funds administrations) and the reserves… sooner or later the government will have to correct this imbalance and we do not believe that they will be ready to do it before the 2011´s elections, therefore the next government will have to assume the political costs... history will repeat itself, De la Rúa had to assume the political costs of the convertibility’s trap...".
Krugman in Argentina
Paul Krugman participated at a seminar in our country, a journalist referred to his comments, “…the Nobel prize winner showed he was heterodox but not Kirchnerist, he praised the hard renegotiation of the debt, commented that Argentina’s economy had started to recuperate, but questioned the government’s intervention in the micro economy, according to Krugman the price controls were never a good decision… he stated that he understood that it could be a reason for the tax retentions on exports, to capture the raw materials´ boom, but he recommended to be careful since the history on the intervention in the exports was not good… when commenting on the retentions he preferred to be cautious, he stated that he did not know what other alternative there was… he praised the heterodox measures used to come out of the crisis between 2002 and 2005, but criticized maintaining these policies after the crisis, instead of cultivating a reputation of being reasonable in order to be heterodox when it is really necessary… on the reopening of the swap he said that it was a good sign, that at one moment it was necessary for the government to be hard with the bondholders but that it was not good to maintain an irreconcilable relationship with the holdouts… on the global crisis he commented that the extreme phase was over but warned that despite the recuperation of the U.S. economy in the third quarter, in the coming 6 or 8 month a relapse could occur, he did not know if this was to be a recession but he was sure that the growth rate will be lower… according to Krugman the present situation is far from being able to state that we have already returned to a prosperity phase…”.
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 4.67 % last week and the country’s risk (EMBI Argentina) closed at 711 b.p. which compares with 679 b.p. on the prior week; with respect to the stock market, the Merval -an index based on a group of shares- closed at 2115.76 which compares with 2295.88 on the prior week.
The dollar closed at $ 3.83 (the same level of the prior week) and at the Rofex the dollar futures´ market closed at $ 3.83 by the end of November and $ 4.00 by the end of June; the CB´s international reserves are estimated at US$ 46297 million which compare to US$ 46032 on the prior week. A journalist commented, “…the combination of a better international context and the expectations that the government be able to access the voluntary markets ended with the capitals outflow… the CB recuperated all the dollars it had sold to the private sector since the beginning of the year, when it was fighting the threats of a higher devaluation…”.
Last week the CB bid for $ 800 million in Lebacs and Nobacs, received offers for $ 3992 million and accepted $ 3216 million; the rates for the Lebacs were: 154 days 13.39 %, 182 days 13.79 %, 271 days 14.25 %, 245 days 14.58 %, 287 days 15.00 %, 336 days 15.35 %, 483 days 16.34 %, 546 days 16.80 % and for the Nobacs (private banks Badlar rate plus 2.50 % annual) the additional rates were 154 days 0.60 % and 266 days 0.90 %.
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
Businessmen and the government
On the Coloquio Anual de Idea (an annual summit organized by a businessmen association), a journalist commented, “…at the meeting it became clear the distance that today separates the Kirchnerism from the business world, applauses when the government was criticized, unexpected absences of officials or businessmen close to the government, people who speak aloud opinions which before were silenced, everything signals a distance which seems increasingly irreparable… the executives showed their sentiments and reactions every time they could… the more eloquent were two standing applauses for former Peru’s president, Alejandro Toledo, after he had made several critical comments on Néstor and Cristina Kirchner, although without mentioning them…”.
Political reform
The government submitted to Congress a project on a political reform, a journalist commented, “…the sudden submission of a project which was not discussed with the political opposition originated a generalized rejection among these parties, moreover given that the project clearly favors the electoral aspiration of the former president Néstor Kirchner… the rejection materialized in the absence of the opposition leaders at the meeting when the president announced the project… once more, the government’s rush is due by their need that the Congress approves the law before the change of legislators takes place on December 10th… the Kirchnerism shows again its shortsightedness and their urge for taking advantage of all the constitutional resorts for their perpetuation and protection, this is what they have already done with the audio visual media law… the needs of the people and of the institutions have only become an excuse to comply with the ambitions of the presidential couple...”.
Other opinions on the government and our institutions
Follows other opinions reflected in the press on our government and institutions.
. “…Argentina’s society is witnessing the government’s efforts to substitute social consensus by an arrogant power machine… the strong warning that the government received with the electoral defeat did not translate in an administrations more open to the opinions, the demands and the expectations of our society… on the contrary the government’s response was to become more hermetic, with a significant doses of resentment and a certain level of aggression… they did not show any sign of being inclined to analyze the true reasons for the defeat and the fall of their among our people… they think that the lack of support was the consequence of a perverse manipulation orchestrated by the press, the opposition, part of the businessmen and some other sectors which are conspiring against their administration… Kirchner has decided to organize with the State’s resources a powerful apparatus to subdue the people’s will in a more efficient manner, to this task he is devoting the best part of his time and energies…”.
."...in Argentina the offenses are increasingly clear, in our country the Constitution is subdued by the power and the power to the private interests of those that hold them... the State is an insuperable launching pad towards illicit enrichment… among us the law has become the preferred tool for corruption, the Executive Power has placed the law at its service, it skillfully manipulates the law… those that promote this degradation do not hide their despise for misery and pain, on the contrary they brag about what they are doing, they boast their impunity, they affirm that it is not happening what it is really happening and those that dare to say the contrary are pressured, and the intents of extortion increase...".
. “…what happens that the business people are showing such impotence and frustration?, it happens that the confidence has evaporated, that the reaction of the government after the electoral defeat could not had been worst.. that the signals issued by the government as from that moment bewildered everybody… the businessmen coincide that the government has stopped listening to those that invest, on the contrary the government insists in exercising an inflexible absolute power, which has developed an asphyxiating and toxic climate… what it is being said is that a business climate will not be possible, that is new investments, if the government does not completely review their views on a democratic coexistence…”.
Santa Cruz and the Sosa case
A journalist commented, "...for the sixth time in 8 years the Supreme Court ordered Santa Cruz´s government to reinstate Eduardo Sosa in his post as general prosecutor of the province, a job from which he was displaced 14 years ago by the then governor Néstor Kirchner... the Sosa case brings proof on Kirchner´s history and illustrates his old authoritarian roots, his eagerness to control all the institutional powers and finally, it confirms the Nation’s Supreme Court independence… since he assumed as governor of Santa Cruz, Kirchner instituted a government’s model which he later on repeated as president, the intention to control the legislative and judicial powers, the cooption of those in the opposition, and a fight without limits to those who continue to oppose... the Sosa case, in addition of representing a significant arbitrareity, constitutes a reiterated mockery of the Justice power and the best example of how a province becomes a feud, of how the judicial regime becomes a formality and as a result anything can happen...".
Opposition
An analyst commented, "...those that in the opposition affirm that they are discussing the country’s future will have to prove that they are privileging operative ideas, the first of this indispensable ideas is that of a project for the country, basic and with consensus… without this the opposition will continue not to represent anything that may be associated to an authentic renovation... what it is demanded are measures capable of stopping the avalanche of transgressions to the law in which the government has been so successful... it will not be enough to be able to defeat the government again in new elections, it will be necessary to demonstrate something which is still missing, that the opposition have clear ideas on what to do after the victory, to end with the misery, backwardness, ignorance and incompetence...".
Growth and investments
An analyst commented, “…the key for growth is to promote the investments and to achieve this the context it is necessary profitability and trust, the opposite of what the government has been doing… how long will the government be able to resort to expropriations such as the Afjps funds?, these measures end by convincing those that have money to keep it in a safe place… if in addition the tax and custom’s measures limit the profitability of the productive activities, and for the government not meeting the commitments is promoted, who is going to invest in a context of mistrust?... if the price at which a product or service is forced to be sold, does not cover the costs or the expectations, nobody can be attracted to invest and produce… the mere fact that somebody is forced to sell at a certain price scares away any possible investors… without the prerequisites of profitability and trust Argentina will never recuperate sustained investments levels… the dilemma is that if the economy is freed from the present restraints the prices will increase and the consumption of the workers will decrease, will it be possible to face the consequences?, when our society aspires to consume more and the union leaders influence increases, while political and social leaderships become weaker?... the transition from a consumption model to an investment model will not be an easy task, it will require international help, patience, sacrifices and understanding by the workers on the timing and size of their aspirations… the investment model should not be implemented for the businessmen to become rich -although this is a consequence that our society has to start to tolerate-, but to eliminate poverty and for the argentines to improve their standard of living …”.
Our economy and the challenges for the 2011´s administration
A well known economist commented, “…the economy has started to come out of the crisis, with the help of favorable international conditions, after a 4.6 % recession this year the GDP would increase 4.5 % in 2010… this brighter short term outlook contrasts with the difficult legacy to be received by the government assuming by the end of 2011… the first challenge will be the fiscal situation, between 2003-9 the public expenditures have increased at an annual rate of 15 % in real terms, well above the growth of the economy… this made the size of the State to increase from 30 % to 40 % of GDP and this was the result of an increase in the fiscal burden which can not be repeated in the future and it will be dangerous to finance the deficits with debt… the fiscal weakness and the deterioration of the natural gas reserves suggest that it will be necessary to correct the distortion in the relative prices, the magnitude of this imbalance can be observed by highlighting that most of the consumers is paying a tariff which is less than one tenth of the prices that it is being approved for the new investments under the Gas Plus regime… there are also subsidies to the public transportation in Buenos Aires, to several food products and other public services, at some time this will have to be corrected… other countries with public expenditures levels well below those of Argentina have better indicators on income distribution and poverty, this suggests that we are spending too much and inefficiently… in the international measures of corruption Argentina appears at the same level of Africa’s countries and when the business climate is measured we appear well below that level suggested by our development… in summary, the challenge for the next administration will be to change from a policy of slogans to one that improves the intervention of the State, and this will not be an easy task, but it can be done with political support…”.
Banks, remuneration packages and risk taking
An analyst commented, "...the Treasury and the Federal Reserve announced rules and restrictions to the remuneration packages of the executives in the banking sector, this is a milestone in the State’s intervention in the private sector... the Fed intends to regulate more aggressively the banks remuneration practices, in order to associate the rewards with the long term results and avoid undue risk taking… limitations were announced to the cash remuneration of the 175 highest executives in the 7 firms which have received significant assistance from the government, and these limitations will continue while these firms continue to use funds from the government’s rescue packages… the Fed will also review the salaries in the 28 largest banks and regional banks, to make sure that excessive risks are not promoted...".
REGION
Brazil
On the government’s presidential candidate for the 2010´s elections a journalist commented, "...president Lula was able to obtain the support of the country’s main political force, the Partido del Movimiento Democrático Brasilero (PMDB), to promote that candidacy of Dilma Rousseff... the PMBD will support Rousseff and will name the candidate for the vice presidency, this electoral alliance will be submitted to the approval of both parties conventions at the end of the year… the strength of the PMDB was demonstrated during the states´ elections of 2006 and the municipal elections of 2008, in which this center right party was the most voted in the country… notwithstanding, Lula has not yet been able to transfer his significant popularity (it reaches 80 %) to Rousseff, she has only a 15 % voting intention, while José Serra, the governor of Sao Paulo and probable candidate for the opposition (the Partido de la Social Democracia Brasilera - PSDB), has a 35 % acceptance level...".
The CB reported that during September the current account deficit increased to US$ 2310 millions, compared with US$ 822 millions in August, reflecting the strong contraction in the country’s trade surplus. The statistics office (IBGE) reported that in September the unemployment rate decreased to 7.7 %, and compares with 8.1 % in August, this improvement exceeded the expectations of the analysts which anticipated a stable unemployment level. The supermarkets association reported that during September the sales increased 6 % when compared with the same month of last year, demonstrating a sustained demand from the low income consumers. Last week the dollar closed at 1.76 reales, which compares with 1.72 reales in the prior week, and the Bovespa index at 61545.50 which compares with 65058.84 on the prior week.
Chile
A journalist commented, “…several surveys indicate that at the elections on December 13th there will be a close fight between Enríquez-Ominami and the government’s candidate, former president Frei… the candidates are 4 but those 2 which obtain most votes will face each other in a ballottage, if none of them obtains a majority… the analysts agree in that the campaign of Enríquez-Ominami will have lasting impacts on the country’s political culture, promoting more democracy and more open debate on the social issues, notwithstanding, in the economic arena the ideas of the youthful candidate and of his economic team do not imply a radical change from the prevailing policies…”.
The statistics office reported that during September the industrial production contracted 5.2 % when compared with the same month of last year, after a 3.8 % fall in August, and the production of cooper increased 8.5 % in September in the year to year comparison. Last week the dollar closed at $ 531.20 pesos which compares with $ 532.60 in the prior week and the stock index closed at 15653.08 which compares with 16069.43 on the prior week.
Uruguay
A journalist commented, "...those that opposed the amnesty to the military and policemen failed for the second time in their intent to annul it through a referendum… the law had been ratified by a prior referendum back in 1989, and in these elections, to succeed, they should have reached half plus one of the votes and they only gathered 47.4 %... initially the leftist coalition had not agreed on a second plebiscite for two reasons: the law had been ratified by the electorate in 1989 and the concept of an annulment was not in accordance with the Uruguayan judicial system… that this mean that the issue has ended?, no, the lawyers of the victims of the military have found legal loopholes which allow them to continue with the investigations and the indictments… Tabaré Vàzquez government has set up a special institution in which are jailed former president Gregorio Alvarez and other accused, in addition the Supreme Court has recently declared unconstitutional the pardon law, which opens the door to continue prosecuting other cases…”.
Government’s officers commented, "...there are no changes under study with respect to the banks secrecy laws, what Uruguay is doing is to sign a few treaties on double taxation with central countries in the northern hemisphere, in which it commits to exchange information without resorting to the banks secrecy rules...". Last week the dollar closed at $ 20.80, which compares with $ 20.85 on the prior week.
LEGISLATION
Afjps
The Anses (pension funds administrator) issued Resolution Nº 290/2009 on the options available to those affiliates of the Afjps (private pension funds administrators) who had made contributions on a voluntary basis. Also, the Cámara Federal de la Seguridad Social ordered the State to reimburse a prior affiliate of an Afjp the voluntary contributions made on his personal account.
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.