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Export engine not gearing up
According to the Ministry of the Economy, annual exports dropped 4.2% in
June over the same month last year, despite the more competitive exchange
rate. Nevertheless, the depressed domestic demand provided for an even
more pronounced 47.0% contraction in annual imports. As a result, the
annual trade surplus widened further from US$ 12.4 billion in May to US$
13.4 billion in June. A more pronounced export recovery continues to be
hampered by a number of factors, most notably the domestic financing
crisis but also the slowdown in regional markets and by the fact that
Argentine businesses require time to re-enter export markets where market
share had been lost during the decade of convertibility. Panellists expect
exports to pick up in the second half of the year but to contract 1.0%
over last year. Similarly, imports will drop sharply over last year, which
should help lift the trade surplus further by the end of the year.
Inflation moderating but uncertainty persists
In July, consumer prices rose 3.2%. The July increase was half the level
expected by the market and raised annual inflation from 28.4% in June to
32.9% in July. Entertainment, food and beverage as well as household items
prices were the key drivers behind the July price spike, as
state-controlled prices, such as health, basic services and education
remained contained. Even though depressed domestic demand is likely to
contain consumer price increases for the time being, the lack of a
transparent policy towards public service tariffs also seems to be
moderating consumer price increases. In fact, wholesale price developments
continue to indicate that inflation is likely to accelerate at a more
rapid pace in the coming months, as the variation in the wholesale price
index (which includes import prices) rose at a stronger 4.7% over June and
brought the annual rate to 97.5%. If the currency strengthening observed
in July persists - the peso appreciated 1.9% over June – inflation may
benefit. Consensus participants expect inflation to continue to rise
throughout the year. Given continued currency and economic policy
uncertainty, the forecasts continue to display a large divergence in the
expected inflation for this year, as the consumer price increase
anticipated for this year varies largely.
President signs decree outlining electoral
schedule
On 6 August, president Duhalde signed a decree that calls for presidential
and legislative elections in March 2003. According to the electoral
schedule, primaries will be held in November. The government decree does
not contemplate a full renewal of all political positions nationwide,
including the 24 provincial governorships and municipalities, as had been
proposed by a broad range of non-government organizations, but instead
mandates presidential, vice-presidential and legislative (half of the 257
chamber of deputies and one third of the 72 senate seats) elections.
Strong opposition from both major established parties, the Peronist Party
and the Radical Civic Union (UCR, Unión Civica Radical) curtailed a
more profound regeneration of the political system.
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