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External
balances improving.
Despite the continued downturn in prices on key Argentine export
commodities and the ongoing strength of the US$, export growth remains on
the rebound. Key factors behind the improvement in export
performance are the pickup in Brazilian demand and high oil prices.
According to INDEC, total exports were up 21.4% in July over the same
month last year, driven primarily by a 74.2% increase in fuel sales to
international markets. Imports experienced a 3.3% contraction over
the same month last year due to the continued sluggishness in domestic
demand. Capital goods and intermediate good imports remained in
negative territory, experiencing 9.5% and 2.8% contraction respectively.
As a result of the more favourable external environment, the cumulative
trade balance surplus from January through July reached US$ 1.1 billion.
Panellists anticipate exports to grow 3.1% this year, while imports are
expected to decline by 5.2%. As a result, the trade deficit is
expected to reach US$ 205 million, a substantial contraction from the US$
2.4 billion deficit registered in 1999. Exports are likely to
continue to perform well next year, with growth anticipated at 9.1%.
However, as the economy recovers import growth is expected to rebound as
well, reaching 8.7%. As a result, the trade deficit is likely to
narrow further to reach US$ 104 million by the end of 2001.
The
improvement in the trade balance will benefit the current account deficit
is expected to narrow, despite somewhat higher profit remittances this
year.
According to the most recent Economy Ministry data, the annual
current account deficit declined in the second quarter of this year to US$
11.4 billion (4.0% of GDP) from US$ 13.1 billion (4.8% of GDP) for the
same period in 1999 and is seen declining further to US$ 11.1 billion this
year.
Continued strong export performance is likely to continue to
benefit the current account next year as the deficit is forecast to
increase to US$ 11.8 billion.
Cabinet
restructured.
On 5 October, president De la Rua reshuffled his cabinet to replace
Cabinet Chief of Staff Rodolfo Terragno and Infrastructure Minister
Nicolas Gallo. The reorganization was generally perceived as a
strengthening of the president’s forces within the administration to the
detriment of the Frepaso forces led by Vice President Carlos Alvarez.
While the Ministry of Infrastructure was integrated into the Ministry of
Economy under Machinea, the Cabinet position was assigned to a close
political associate of De la Rúa, Chrystian Colombo. Instead of
being dismissed, as was expected by many observers, Labour Minister
Alberto Flamarique, who allegedly paid bribes to Senators in order to
facilitate the passage of the labour bill, was promoted to Chief of Staff.
As a result of what he perceived as government laxity on corruption - a
key agenda item in the last presidential elections - the Vice President
Alvarez resigned on 6 October. The Alvarez resignation is a
significant blow to the stability of the governing coalition Alliance and
is likely to hamper governability and the passage of essential economic
legislation.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Argentina. For more details please click here.
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