THE ARGENTINE EMBASSY IN THE UNITED KINGDOM
ECONOMIC & COMMERCIAL SECTION
65 Brook St.
London W1K 4AH
Tel: 020 7318-1300
Fax: 020 7318-1301
[email protected]
www.argentine-embassy-uk.org
NEWSLETTER
SEPTEMBER 2007
Content
ARGENTINE ECONOMIC OVERVIEW
1.- Extracts from the closing address made by the Argentine Finance Secretary, Sergio Chodos, at the “Argentine
Investment Forum” (London, 13th September)
2.- Recent macroeconomic data
*The Argentine economy grew by 8.7% in second quarter 2007
*Industrial activity rose by 9.8% in August 2007
*Primary fiscal surplus grew by 23.1% in August 2007
*Tax collection rose by 37.4% in August 2007
*Consumer prices index (CPI) increased by 0.9% in August 2007
ARGENTINE TRADE
INVESTMENTS IN ARGENTINA
*The mining sector will get investments of 38.5bn pesos (US$12.1bn) over the next five years, according to official
sources
*American company Brinks to invest 7.6 million pesos (US$2.4 million) over three years
*Crowne Plaza to invest US$15 million in new hotel
*Aluar to invest US$400 million in the aluminium sector
*Techint to invest US$800 million over four years in the steel sector
*Brazilian group PDG Realty to invest US$100 million in real estate
*Peugeot-Citroën to invest 700 million pesos (US$220 million) over four years
*Dow Argentina to invest US$ 13 million in the agricultural sector
OTHER NEWS
*Public spending increased in 2006 but it is still lower than in 2001, according to an official report
*Fiscal income to increase by 17.3% in 2008 according to the government’ s draft budget
*Record harvest in Argentina
*Argentine network of public laboratories
*Argentina became full member of the Andean corporation “CAF”
*IDB approves conditional credit lines for investment projects in Argentina
ARGENTINE ECONOMIC OVERVIEW
1.- Extracts from the closing address made by the Argentine Finance Secretary,
Sergio Chodos, at the “Argentine Investment Forum” (London, 13th September):
- The policies adopted during the last decade tended to exacerbate the variability of the
macroeconomic cycle. The excessive dependence on volatile external capital inflows
transpired into a macroeconomic configuration characterised by unsustainable debt
dynamics and a pronounced vulnerability to external shocks, which led to a severe
financial and balance of payments crisis when the direction of those flows was reversed.
However, the current macroeconomic context protects the economy from the repetition of
similar boom and depression patterns. The solid macroeconomic balances recorded for
over four years now, in addition to a policy avoiding over-appreciation, together with
consistent and sustained fiscal surplus and an increased investment rate (23% of GDP, at
current prices), open up opportunities to achieve lasting growth and an economy that is
better prepared to face adverse changes in the international context.
- The steely policy of achieving primary surplus in the public sector will in turn ensure
that the Government maintains a solid fiscal position without thereby detracting from its
role in the recovery of social and productive infrastructure. Also the accumulation of
reserves at the Central Bank is an additional preventive mechanism against global
markets’ volatility as we could verify it during the recent financial turmoil.
- A solid and sound fiscal policy requires that the debt structure be in line with payment
capacity. In this sense, from recurrent crises and unsustainable debt load and collapse,
Argentina has transformed into a sustained growth path and healthier debt dynamics.
2.- Recent macroeconomic data:
*The Argentine economy grew by 8.7% in second quarter 2007:
According to official data, the Argentine economy grew by 8.7% during the second
quarter 2007, compared with the same period of 2006. Nearly all sectors recorded
positive figures, but the main reasons for the good performance were the farming sector
(+16.6% y-o-y), followed by construction (+9.7% y-o-y), services (+8.4% y-o-y) and
industry (+6.5% y-o-y). As a result, the economy has already recorded five consecutive
years of strong growth (at an annual average of 8.3%), unprecedented for the country
since the First World War.
*Industrial activity rose by 9.8% in August 2007:
According to official data, industrial activity in Argentina rose by 9.8% in August 2007,
compared with the same month of 2006, above private estimates and recovering from the
sharp slowdown that took place in July (see Newsletter of that month). The automotive
sector was the main driving force behind this good performance, increasing its output by
31.2%. With August’s result, the first eight months of 2007 have recorded a growth in
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industrial activity of 6.3%.
*Primary fiscal surplus grew by 23.1% in August 2007:
According to official data, the national public sector recorded a primary fiscal surplus of
2.7bn pesos (US$857 million) in August 2007, an increase of 23.1% over the same month
last year, and has an accumulated surplus of 19.6bn pesos (US$6.19bn) in the first eight
months of the year, a rise of 16.2% over January-August 2006 and 23.9% above official
estimates. Private analysts are currently forecasting a primary fiscal surplus of over 3% of
GDP for 2007.
*Tax collection rose by 37.4% in August 2007:
August’s tax receipts grew by 37.4% compared with August 2006, reaching nearly 17.9bn
pesos (US$5.6bn), led again by a very good achievement in VAT (+43.3%), due to strong
economic activity and better tax compliance, followed by income tax (+33.4%),
employers´ contributions (+33.1%) and current account tax, the so-called “cheque tax”
(+35.7%), which all together can explain 74.4% of the increase. As a result, tax collection
reached nearly 127.4bn pesos (US$40.2bn) in the first eight months of 2007, an increase
of 32.7% over the same period last year.
*Consumer prices index (CPI) increased by 0.9% in August 2007:
August’s national average inflation rate rose by 0.9% compared with the previous month,
led again by higher prices in San Luis (3.3%) and Mendoza (3.1%) provinces, followed
by Santa Fe and Catamarca, both with 1.1%. The main sectors that had price increases
last month were education (1.7%) and food/beverages (1.5%). With August’s result, the
national cumulative inflation rate reached 6.7% (average) in the first eight months of
2007 and Mendoza has been the province most affected, with a cumulative inflation rate
of 15.9%.
ARGENTINE TRADE
Since 2002, when the convertibility regime was replaced by a floating exchange rate,
Argentine trade (imports & exports) has been growing without interruption. Strong
international demand for commodities and food, driven mainly by China and India, has
encouraged a substantial increase in the country’s agricultural exports. The technical
advances in this particular sector have also allowed, year by year, a rise in harvests and
have therefore improved Argentina’s ability to supply international markets, not only with
cereals and by-products but also with agricultural machinery and equipment. The
economic crisis of 2001/02 meant a decrease in Argentine imports of around 50%,
compared with previous years, but since 2003 they have started to rise again, a process
based on domestic demand recovery and an increasing need for capital and intermediate
goods.
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In the first half 2007, Argentine exports reached nearly US$24.6bn, a rise of 12% over the
same period last year, which was due to an increase in prices (+8%) and quantities (+4%).
On the other hand, imports amounted to US$19.4bn, 24% higher than in January-June
2006, primarily due to a rise in quantities (+22%). As a result, Argentina recorded a trade
surplus of US$5.1bn, 18% lower than the same period of 2006.
Agricultural and industrial manufacturing represented 63% of total Argentine exports, but
whilst in the first case (AM), as well as in primary products, the rise in foreign sales was
due to higher prices, in the case of industrial manufacturing (IM) the good performance
was primarily due to an increase in volumes (+12%).
Among AM exports, the best performers were fats, oils and food industry residues, both
groups of products representing 60% of total AM exports. Exports of meat have also
increased during this period, by 24%.
Among IM exports, the most dynamic goods were chemical products, transport
equipment and base metals, representing all together 62% of total IM exports.
For further information about Argentine trade figures, please visit www.cei.gov.ar.
INVESTMENTS IN ARGENTINA
The mining sector will get investments of 38.5bn pesos (US$12.1bn) over the next
five years, according to official sources:
The Mining Secretary, Jorge Mayoral, has recently announced that the sector will get
investments of 38.5bn pesos (US$12.1bn) over the next five years, meaning the creation
of 400,000 new jobs. He also stressed that exports of Argentine mining products have
increased by 140% in the last three years (2003-2006) and by 71% last year. Mayoral
finally said that mining exports will represent 15% of total Argentine exports by 2015.
American company Brinks to invest 7.6 million pesos (US$2.4 million) over three
years:
According to the Chairman of Brinks Argentina, the company will invest 7.6 million
pesos (US$2.4 million) over three years in technology and new trucks with the purpose of
expanding its business in the country. Brinks, a global leader in security services, has
already invested US$30 million in Argentina since 1997. It has a fleet of 150 trucks and is
currently working in 15 provinces. The company is estimating an annual growth of 20%
in business volume and Brinks Argentina is the branch that is recording the highest
productivity, having recently received an award from its American headquarters for this
achievement.
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Crowne Plaza to invest US$15 million in new hotel:
Crowne Plaza has decided to invest US$15 million in the building of a 100-room hotel in
the south of Greater Buenos Aires, 15 minutes from Ezeiza International Airport. Crowne
Plaza belongs to the IHG Group, owner of more than 3800 hotels and 560,000 rooms
around the world.
Aluar to invest US$400 million in the aluminium sector:
Aluar has announced a new expansion of its aluminium facility in Puerto Madryn,
implying additional investment of US$400 million, which will allow the company to
produce 515,000 tonnes per year by 2009. Aluar is the only producer of primary
aluminium in the country and one of the most important in the world.
Techint to invest US$800 million over four years in the steel sector:
The steel group Techint has recently announced that its company “Ternium Siderar” will
invest US$800 million over four years in the expansion of its facility in San Nicolás
(Buenos Aires province). It will allow the company to increase annual steel production
from 2.8 million to 4 million tonnes.
Brazilian group PDG Realty to invest US$100 million in real estate:
Brazilian real estate developer Pactual Desenvolvimento e Gestao Realty (PDG) has
recently increased to 30% its stake in Argentine real estate company TGLT and has
announced an investment plan of US$100 million, which includes a housing project in
Rosario, next to River Paraná, and a similar initiative in the north of Greater Buenos
Aires.
Peugeot-Citroën to invest 700 million pesos (US$220 million) over four years:
Impelled by the increasing growth in the Argentine automobile sector, Peugeot-Citroën
Argentina has recently launched a new investment programme of 700 million pesos
(US$220 million) for the 2007-10 period and has announced that the company will be
hiring another 1,000 workers for a third shift at its Palomar plant beginning on 1st
October. With these new measures, production capacity at its Palomar facility will rise
from 120,000 to 170,000 units per year.
Dow Argentina to invest US$ 13 million in the agricultural sector:
Dow Argentina has recently announced investments of US$ 13 million to expand its
seed-processing plants in Venado Tuerto (Santa Fe province) and Colón (Buenos Aires
Province) and its agro-chemical plant in San Lorenzo (Santa Fe province).
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OTHER NEWS
Public spending increased in 2006 but it is still lower than in 2001, according to an
official report:
Even though public spending has recently increased (primarily due to growing subsidies
to certain activities such as transport and energy) it is still lower than in 2001, according
to an official report. The report says that total spending in 2001 reached its highest level,
representing 35.72% of GDP, because the economy was emerging from a long recession
and debt interest was playing an important part. Then devaluation, inflation and the
subsequent crisis provoked a strong adjustment of nearly 6 points of GDP, but after
decreasing to 28.9% of GDP in 2004, public spending rose to 32.3% in 2006 thanks to the
economic recovery. The main differences with 2001, according to these figures, is that in
2006 social public spending and interest payment on the national debt were lower than
five years ago, whilst “economic services” (e.g. subsidies) grew from 1.78% to 3.68% of
GDP in that period.
Fiscal income to increase by 17.3% in 2008 according to the government’s draft
budget:
According to the 2008 budget that was recently submitted for congressional approval, the
government is expecting a rise of 17.3% in fiscal income next year, whilst public
spending would increase by 15.9%. In addition, it forecasts an economic growth of 4%
and an inflation rate of 7.3%, both below private estimates of 6.3% and 10% respectively.
Primary fiscal surplus would reach 3.15% of GDP, interest payment on the national debt
would rise by 14.5%, public investment would increase by 15.6% and the trade surplus
would be US$11bn, with exports reaching US$57bn. Of every 100 pesos that the national
government will spend in 2008, according to this document, 61.10 will be on “social
services”; 16 pesos on “economic services”; 12 pesos on public debt service payments;
6.10 on defence and security; and 4.80 on public administration.
Record harvest in Argentina:
A record harvest of 95 million tonnes has recently been confirmed in Argentina for
2006/07, lead by cereals and soyabeans, which grew by 32.5% and 17.5% respectively,
compared with 2005/06. Total oilseeds production will be above 51.8 million tonnes, a
rise of 16% compared with last season, of which 47.6 million tonnes is going to be
soyabeans.
Argentine network of public laboratories:
For the first time Argentina will have a national network of public laboratories, which
will coordinate the work of 21 labs from different regions of the country. One of the main
objectives is to stimulate cooperation between labs and the scientific-technological sector.
The initiative has received the support of INTI (National Institute for Industrial
Technology), Buenos Aires University and the Health Special Programme of the Science
and Technology Secretariat.
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Argentina became full member of the Andean corporation “CAF”:
The Argentine Minister of Economy, Miguel Peirano, has recently announced that
Argentina has decided to become a full member of CAF (Corporación Andina de
Fomento). The new capital contribution agreed will be US$543 million, which, added to
the US$100 million subscribed previously, brings Argentine participation to a total of
US$643 million. Callable capital for a total of US$126 million will also be established.
According to CAF President & CEO Enrique Garcia "This decision is a milestone in the
institutional life of the Corporation. Argentina will be the first country to become a full
member under the recent amendment to the CAF Establishing Agreement which permits
Latin American and Caribbean countries that are not members of the Andean Community
to accede to this category on conditions similar to those of the founding countries". Full
membership for Argentina will expand CAF’s financing allocation in her favour, making
possible new approvals of substantial amounts for economic and social infrastructure
projects, as well as support for micro, small and medium-sized enterprises in public and
private sectors. It will also give an important boost to the regional integration process.
For further information, please visit www.caf.com.
IDB approves conditional credit line for investment projects in Argentina:
- On 5th September, the Inter-American Development Bank announced the approval of a
US$360 million Conditional Credit Line for Investment Projects (CCLIP) to Argentina to
improve water supply and sanitation in small communities. The IDB Board of Executive
Directors also approved the first individual loan under the credit line of US$120 million,
which will help finance some 45 projects (including 15 water supply systems and 30
wastewater collection, treatment and final disposal systems) as well as measures to
strengthen the management capacity of service operators and the institutional capacity of
national, provincial and local agencies in the sector.
- On 13th September, the IDB announced the approval of a US$60 million Conditional
Credit Line for Investment Projects (CCLIP) to Argentina to improve the allocation of
public investment funds in support of the country's economic and social development.
The Bank also approved the first individual loan under the CCLIP of US$20 million.
For further information about these programmes, please visit www.iadb.org.
If you also want to receive the Cultural Bulletin of this Embassy, which includes a
list of Argentine cultural activities in London and UK, please send an e-mail to
[email protected].
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