Venezuela Debuts As Full Mercosur Member

Venezuela made its debut appearance as a full Mercosur member Friday at the 30th summit of the trade bloc, held in Córdoba, Argentina. Regional energy integration was one of the much discussed topics, as was the proposed establishment of a regional development bank, the so-called Banco del Sur, which would be set up to fund infrastructure and development projects in the southern cone. Argentina’s president, Nestor Kirchner, urged Mercosur to consider opening up membership to Bolivia and Mexico, provoking criticism from some quarters that the regional trade bloc is becoming less about free trade and more about politics. The event was lent some added glamour by the visit of Cuba’s veteran leader, Fidel Castro, who kept his address to the delegates brief at three hours. He also took the opportunity to visit the childhood home of his former comrade in arms and iconic revolutionary, Ernesto“Che” Guevara.


Mercosur or Mercosul (Spanish: Mercado Común del Sur, Portuguese: Mercado Comum do Sul, English: Southern Common Market) is a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela, founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, peoples, and currency.

Bolivia, Chile, Colombia, Ecuador and Peru have associate member status. On 30 December 2005 it was announced that Bolivia would be invited to join as an associate member. Venezuela signed its membership agreement on 17 June 2006, and became a full member on 4 July of the same year.

Official Languages: Spanish and Portuguese.

Official website

Colombia Tax Reform Bill Heads To Congress

Colombia’s government will send its tax bill to Congress this week, seeking to reform and streamline taxes and promote investment. One of the main pillars of the bill is the reduction of Colombia’s corporate income tax rate – currently one of the highest in South America – from 38.5% down to 32% by 2009. It also seeks changes to value-added tax (VAT) by introducing an additional level of VAT, rated at 10%, on staple foods. The VAT change is likely to meet resistance in Congress as it will affect all levels of society. The financial transaction tax of 0.04% looks set to remain, despite talk of it being reduced or even scrapped. There is also likely to be a new assets tax, perhaps at around 0.3%, for assets above the $0.5 million mark. The tax reforms, which overall will help to simplify and streamline the tax system in Colombia, is seen as a positive step forward by the markets.

Argentina’s Growth Trends Up Again

After a slight slowdown in April, Argentina’s economic growth rate is accelerating once more, up 8% - year on year - in May, according to official figures. In April, the economy registered year-on-year growth of 6.3% after GDP expanded by 8.6% between January and March, compared with the same period in 2005.

Mercosur And Cuba To Sign Agreement

Almost a quarter of all products traded between Mercosur countries and Cuba will soon be free of all duty, following an agreement between the trading bloc and the Caribbean country. The accord, due to be signed today, July 20, at the Mercosur meeting in Córdoba, Argentina, doubles the number of goods currently exchanged, tariff free, between the trading partners. This week, Argentina will be handing the Mercosur chair for the next six months to Brazil.

Brazil Lowers Interest Rate To 20-Year Low

Brazil’s Central Bank has lowered the benchmark interest rate to its lowest level in 20 years as it moves to spur growth. The Bank cut the overnight interbank (Selic) rate 50 basis points from 15.25% to 14.75% reflecting the current benign inflationary environment. Last month, inflation fell to a seven-year low of 4%. This is the ninth consecutive reduction in the rates since September and the low rates have prompted a boom in consumer lending as Brazilians begin to tap accessible financing.

Argentina’s June Output Exceeds Expectations

Argentina’s industrial output in June was higher than expected at 8.9%, compared with the same month the previous year. Overall output was driven by automotive production and cement sales, the latter reflecting a booming construction sector.

Argentina Attracts Biodiesel Investors

Argentina’s abundant supply of vegetable-based oils – such as that from soybeans – is attracting foreign investors, in particular from Europe, in search of the increasingly scarce and expensive biodiesel energy to comply with EU norms. Biodiesel is a renewable energy derived from vegetable oils. After several months of negotiations, German investor Neckermann-Gate has agreed with Argentina’s Oil Fox to invest $27 million in a biodiesel plant in San Nicolás, which will supply 25 million litres a month. If the project is successful, Neckermann-Gate is reportedly interested in investing in further plants in Argentina and perhaps beyond into other parts of Latin America.

Colombia Starts Final Bank Privatization

The Colombian government has started the privatization of its last remaining financial asset, Granbanco-Bancafé. The bank, the country’s seventh-largest in terms of assets, is expected to bring to the country’s coffers around $450 million and will give the successful buyer around 6% of the country’s banking assets. In this initial phase of privatization, and according to national law, the assets of the bank will be offered to the country’s pension funds, unions, cooperatives and other sectors of the so-called “solidarity” public sector. After this initial two-month phase, the bank will be offered up to other buyers. Of the local bidders, Grupo Colpatria, Grupo Bolívar, the mayor shareholder of Davivienda, and Bancolombia are all expected to participate in the sale. Foreign bidders may well include Spain’s Grupo Santander, Citibank and HSBC.

Ecuador Presidential Campaigning Begins

Campaigning in Ecuador’s presidential elections, slated for October 15, has begun amongst uncertainty and continuing political upheaval. Left-of-center lawyer León Roldós is thought to be the early frontrunner facing right-of-center Cinthya Viteriand also, perhaps, former president Lucio Gutiérrez. The latter has registered his candidacy to run despite a ruling last month by Ecuador’s electoral court that Gutiérrez would not be able to hold public office for at least two years because of campaign irregularities in 2002. If no candidate wins more than 50% of the vote in October, a second round is scheduled for November 26. Ecuador has had seven presidents in the past 10 years, with the most recent change of leader in April 2005 when former president Lucio Gutiérrez was ousted from government by Congress and replaced by an interim leader, the incumbent Alfredo Palacio.

IADB Approves $200 Million For Colombia

The Inter-American Development Bank (IADB) has approved a $200 million loan for Colombia to help improve its competitiveness. The 20-year loan is to be spent improving the business environment and help break down legal, regulatory and institutional barriers to foreign trade.

Chile Raises Benchmark Rate To 5.25%

Chile’s Central Bank has raised the benchmark overnight lending rate a quarter of a percentage point to 5.25%. Economic growth of 6.1% and inflation ending June at 3.9% prompted the Bank to raise the rate, in line with market expectations. This is the first time the Bank has raised the rate since April, when it was lifted by 25 basis points to 5%.

Mexico To Launch 30-Year Peso Bond

Mexico is to launch a 30-year local-currency denominated bond before the end of the year as part of a strategy to move more of the country’s debt into the domestic market. Borrowing in local currency rather than foreign currencies will lower the country’s costs. Since 1995 Mexico has reduced its foreign-currency debt as a ratio of GDP from 32% to its current low of 8%. The sovereign is likely to issue around $90 million worth of the bond each year, according to deputy finance minister Alonso Garcia Tames, and will target Asian investors in particular.


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Bolivia: Best Economic Performance Since 1998

Bolivia’s GDP expanded 4.3% in the first quarter of 2006, compared with the 3.9% expansion seen in the same period last year and the best rate of first-quarter growth seen since 1998. Growth was driven by the mining sector, which expanded by 18% and hydrocarbons, which were up 12%. Inflation for the first half of the year stood at 2.05%, compared with 3.45% for the same period last year. The new government of Evo Morales took office at the end of January and has moved to increase revenues from abroad by nationalizing the hydrocarbons industry and renegotiating the price of exported energy.


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Court Rules In Uruguay’s Favor

The International Court of Justice in the Hague yesterday, Thursday, ruled in favor of Uruguay in a dispute with neighboring Argentina over planned pulp and paper mills on the border region. The court rejected Argentina’s claims that the mills were an imminent threat to Argentina’s environment and will not act to stop construction of the plants. The $1.7 billion project along the River Uruguay, which separates the two countries, represents the largest ever single foreign investment in Uruguay. Presiding judge, Rosalyn Higgins, said however that the Court would look further into the dispute and that, by not ordering a suspension of work: “Uruguay necessarily bears all risks relating to any finding on the merits that the court might later make”.


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Argentina Debates Presidential Superpowers

Argentina’s Senate was due to vote yesterday, Wednesday, whether to approve the proposal by president Nestór Kirchner to be granted the power to allocate around $4.5 billion of budgetary funds without approval from the nation’s lawmakers. Greater flexibility in budgetary allocation is not a new concept for Argentina’s governments but Kirchner’s critics are worried about the increasing control being exerted by the president over the country’s institutions and his tendency to govern“by decree”. The president has countered that greater control is needed if anything is to be done and has accused some lawmakers of holding him to ransom and stopping him from governing effectively.


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Venezuelan Banks Downgraded

Ratings agency Fitch has lowered the credit rating of several Venezuelan banks, citing “the sustained decrease in capital ratios, due to the significant increase in assets, lower expected profitability and growing government intervention over the system”. The agency said it believes the current minimum capital requirements could prove insufficient to cope with the historic volatility of the Venezuelan market. The agency downgraded the ratings of Banco Mercantil, Banco Exterior, Banco Provincial and Banco de Venezuela from C/D to D. And the rating of Banesco Banco Universal was lowered from D to D/E.


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Argentina Lowers Debt Limits

Argentina’s Central Bank has said that banks will have to lower the amount of government paper they hold from 40% to 35% of assets by July of next year. The move is aimed at encouraging banks to increase their private loans portfolios. The increase in lending to the private sector and consumers will, in theory, help to stimulate economic growth.


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Costa Rica Rejects Parlacen, Again

Costa Rica’s government has chosen to keep the country out of the Central American parliament, Parlacen, saying it is a costly institution that brings no benefit. Guatemala, which plays host to Parlacen, had asked the new government of Oscar Ariasto reconsider the country’s decision to remain out of the parliament. Costa Rica has earned criticism from its neighbors and has been accused of isolationism for its stance. Permanent members of the parliament are Dominican Republic, El Salvador, Guatemela, Honduras, Nicaragua, Panama.


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Peru Holds Rate Steady; Growth Cools

Peru’s Central Bank left the benchmark interest rate unchanged at 4.50% for the second month in a row, in line with market expectations. Meanwhile, preliminary figures showed economic growth for the first half of the year slowed to 6%, down from 6.8% recorded in the first quarter.


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Brazil Records Deflation

Brazil’s consumer prices fell 0.21% in June, the largest fall in prices in eight years and the first time this year the country has recorded deflationary figures.The drop was a result largely of a decline in energy prices, said the government. Inflation has been easing off since the start of the year and the rate for the first six months was 1.54%, compared with 3.16% for the same period last year. Prices for the first 12 months to June were up 4.03%, suggesting the annual government target of 4.5% will be hit with ease.


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Mexico Inflation Below Forecast

Mexican consumer prices rose only 0.09% last month, below economists’ forecasts and took annual inflation to 3.18% as at the end of June. However, core inflation rose 0.33%, slightly above average predictions. Continuing election uncertainty may mean the Central Bank may wait to cut interest rates further.


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AMLO Rallies Crowds

The loser of last Sunday’s Mexican presidential elections, Andrés Manuel López Obrador (AMLO), rallied thousands of supporters in Mexico City at the weekend to demand a manual recount of the votes. AMLO believes a vote-by-vote recount will find him victorious against rival ruling party candidate, Felipe Calderón, who has been declared the winner. AMLO has until July 10 to file a complaint with the electoral court which must then settle all claims by end-August in order to declare the next president by September 6.


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Calderón Scrapes Home

Felipe Calderón, Mexico’s ruling party candidate, has scraped home to win the presidential election. Following Wednesday’s recount, the pro-business, PAN party leader won the backing of 35.88% of the electorate against 35.31% earned by his nearest rival, left-of-center Andrés Manual López Obrador (AMLO). However, AMLO has said he will challenge the result. The electoral court must settle any challenges by the end of August and must announce a new president by September 6.


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Brazil Presidential Campaigning Starts

Meanwhile, presidential campaigning has officially kicked off in Brazil, with seven candidates running for office. Frontrunner for the October 1 elections is incumbent president, Luiz Inácio Lula da Silva of the PT party, who has weathered a brutal year of political scandal and corruption to survive unscathed. Lula’s nearest rival is the former governor of São Paulo state, social democrat Geraldo Alckmin of the PSDB.


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Ecuador Records Second Month Of Deflation

Ecuador has registered its second consecutive month of deflation. Official figures for June just released show deflation of 0.23%, after a decline in prices of 0.14% in May. The fall in consumer prices was attributed in large part to retail promotions; government officials deny it signals a recession. The government has targeted inflation this year of 3.1%. Inflation to May was running at 1.54%.


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Chile Exceeds Growth Forecast

Chile’s economy expanded faster than expected in May, growing 6.1% year on year. The increase took the accumulated growth figures to 4.8% for the year. May’s rate of expansion followed April’s growth of only 2.8%. Manufacturing and retail activity drove the rise, according to the Central Bank.


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Argentine Investors Continue To Favor Trust Securities

Domestic investors in Argentina continue to favor financial trusts (fideicomisos financieros) as their instrument of choice. According to financial services company Gainvest, during the first half of the year, $1 billion of the instruments were traded, a year-on-year increase of 100%. Of the total transacted, $712 million corresponded to securitizations with underlying private risk, with most growth seen yet again in the securitization of consumer loans.


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June Inflation Round-up

Argentina’s inflation for June is expected to be up at around 0.7%, putting the rate for the first half of the year just above 5%. Prices were driven by a rise in the cost of services, such as rents, education and medical cover. Consumer prices in Chile meantime rose 0.6% last month, more than expected, and took annual inflation to 3.9%. Peru’s inflation headed downwards for a second consecutive month, dropping 0.13% on the back of falling food prices. And prices fell too in Uruguay, declining from 0.63% in May to 0.32% in June. Inflation for the year is now running at 3.88%.


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Morales Wins, But Divisions Remain

Despite being heralded as a great victory for the ruling MAS party, Bolivia’selections Sunday have not gone entirely president Evo Morales’ way. Preliminary results show that MAS failed to gain a two-thirds majority to control the constituent assembly charged with drafting a new constitution for the country. And the issue of autonomy has underscored the social division in Bolivia: the four wealthiest provinces voted “yes” to more autonomy.


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AMLO Demands Thorough Recount

Presidential candidate Andrés Manuel López Obrador (AMLO), who appears to be trailing in Mexico’s Sunday election, has demanded a thorough recount of the votes. A preliminary count gives AMLO’s rival, ruling party candidate Felipe Calderón, a 0.64% advantage. The Mexican electoral institute, IFE, said it hoped to have a final result by Sunday.


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Chávez And Kirchner Unveil Southern Bond

Venezuela and Argentina are to launch a bond together, the presidents of both countries announced yesterday, Tuesday, in Caracas. The announcement of the so-called “Bono del Sur” came on the day Venezuela officially joined trade bloc Mercosur as a full member. The bond is due to be launched within the next three months and will reportedly be for $1 billion and is to be the first step towards the creation of a bank of the south to offer regional financing. Some analysts are dubbing the bond a “tropical Brady” as it is effectively a bond guaranteed byVenezuela in the event of default.


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Mexico Awaits Result

Mexican authorities begin a recount of votes today, Wednesday, in a presidential race that has become too close to call. Felipe Calderón of the ruling PAN party and Andrés Manuel López Obrador (AMLO) of the PRD party are neck and neck, although the preliminary vote count showed Calderón had a 1% advantage over his rival, gathering 36.38% of the votes against AMLO’s 35.34%. Early results also show that Congress will, once again, be divided.


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Mexico Decides

Mexicans cast their votes yesterday, Sunday, to decide who will succeed Vicente Fox as the country’s next president. The two frontrunners out of the five candidates standing in the hotly contested race are left-of-center former mayor of Mexico City, Andrés Manuel López Obrador, and right-of-center former energy minister, Felipe Calderon of the ruling PAN party. Mexicans also voted for 500 members of the Chamber of Deputies and 128 members of the Senate, as well as governors in the states of Guanajuato, Jalisco and Morelos and the mayor of Mexico City. Mexicans abroad, including an estimated 35,000 based in the US, were eligible to vote in elections for the first time.


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Colombian Pension Funds Offer $285 Mln For Gas Distributor

A group of Colombian pension funds bid $285 million for the company’s main natural gas distributor, now called Transportadora de Gas del Interior (TCI). The new company springs from the sale of state utility Empresa Colombiana de Gas Natural, which operates 3,644 kilometers of gas pipelines. The sale is part of the Colombian government’s privatization program.


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Brazil’s TAM to Buy 37 Airbus Planes

TAM, Brazil’s largest domestic airline, announced it will buy 37 planes from Airbus to replace its ageing Fokker fleet and expand operations. The company did not say how much it will spend but press reports estimate the final bill will be $2.4 billion. The company, which operates 40 percent of all domestic flights, is looking to expand its international business with larger planes like the Airbus A330. Its main competitor for the overseas routes, Varig, is close to bankruptcy with $3 billion in debt.


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