Latin American stock market roundup

www.upi.com By Bradly Brooks UPI Business Correspondent From the Business & Economics Desk Published 1/9/2003 10:03 AM

RIO DE JANEIRO, Brazil, Jan. 9 (UPI) -- Stocks were mixed across Latin America this week as investors were buoyed by optimism that 2003 will be better than the past disastrous year but remain well aware of the region's lingering economic dangers.

News from Brazil and Argentina, South America's two biggest economies, dominated the week.

In Brazil, markets have been lifted by new President Luiz Inacio Lula da Silva's continued moderate stance in regard to economic policies. Cracks, though, are beginning to show, and equities were hit late in the week.

For more than a year investors have fretted over Brazil's ability to stay current on its $240 billion debt. Lula and his team have repeatedly said maintaining debt payments is a top priority.

But this week foreshadowed a battle that may determine whether the country will surpass neighboring Argentina as registering the world's largest sovereign default.

State governments in Brazil are broke. Some key states have missed debt payments owed the federal government, and a majority of the governors are clamoring to have their debt renegotiated.

On Tuesday, Rio de Janeiro state won access to its federal tax transfers through a Supreme Court ruling, though the court said Wednesday it will review the case further.

The federal government had confiscated the cash in lieu of the state's debt payment.

Lula, as he is commonly known, has clearly stated he expects the states to pay up, as some $80 billion owed the federal government by the states is key to avoiding a national default.

On Wednesday, the business newspaper Valor reported that any renegotiating with the states will be done in a purely technical manner in accordance with the country's fiscal responsibility law, rather than falling into the trap of becoming a political debate.

"A political negotiation doesn't exist," Finance Minister Antonio Palocci told the newspaper. "The debt issues are technically dealt with between the Treasury Secretary and the finance secretaries of the states."

Investors will watch this fight closely, as it will largely signal the Lula team's appetite for austerity.

In Argentina, the local stock index was boosted nicely on thoughts that an interim loan agreement with the International Monetary Fund is imminent within weeks.

On Wednesday, the IMF's executive board met to discuss Argentina's situation.

"A fund mission will travel to Buenos Aires (on Wednesday) to pursue discussions with the authorities on their request for a transitional program with the IMF," the Fund said in a statement late Wednesday.

Argentina received a mixed review in the IMF statement.

"Directors recognized the greater economic and financial stability seen during the second half of 2002," the statement noted.

The fund signaled, though, that more progress must be made.

"Argentina should focus on achieving a clear political consensus in favor of reforms, building a sound fiscal framework, restoring confidence in the banking sector, increasing trade openness, and restructuring debt," the IMF wrote.

On the economic policy front, Argentina this week eased currency controls -- largely because of pressure from the IMF. The controls had been in place for more than one year.

Among other things, the Central Bank announced Tuesday that it was lifting restrictions for international companies sending abroad dividends and retained earnings from Argentina, as well as easing the ability of local companies to pay for imports.

The government, in addition to a yearlong banking freeze, severely restricted the ability of citizens and local companies to send money out of the country.

As for the markets, Brazil's Bovespa stock index gained 2.96 percent to 11,602 on the first day of this year's trading last Thursday. Investors seemed bullish on the newly installed government, and the continuing words of moderation coming from Lula.

Friday brought a slight loss to 11,600 for the index. Long-distance carrier Embratel gained 4.4 percent to lead the day. Monday saw a big gain for the Bovespa, as it added 3.6 percent to 12,020. Investors were cheered by a rally in the local currency, which gained more than 6 percent in the first three trading sessions of 2003.

On Tuesday, the Bovespa lost 1.2 percent to end at 11,876 as investors took profits. Aircraft manufacturer Embraer lost 1.2 percent, while Petrobras lost just over 2 percent.

Wednesday saw the Bovespa lose 0.75 percent to 11,787. The cellular company Telesp shed 3.67 percent and Embratel fall 1.88 percent as investors followed Wall Street down.

In Mexico, the IPC index ended last Thursday up 1.6 percent at 6,225, mostly on surprisingly good economic reports out of the United States. Volume, though, was low. Broadcasters led the way, with Televisa gaining 4.6 percent and TV Azteca adding 3.6 percent.

Friday saw the index up 0.45 percent to 6,253 in thin trade. Fixed-line phone company Telmex gained 1.12 percent. On Monday, the IPC gained 1.28 percent to 6,333 as investors finally returned to the market following the holidays. Wireless operator America Movil added 2.61 percent.

On Tuesday, the IPC lost 0.9 percent to 6,280, it first losing session after four gainers. Retailers were hit hard, with Walmex dropping 2.3 percent and Gigante losing 20 percent. Wednesday brought a loss of 0.2 percent to 6,266. Brewer Grupo Modelo was a rare winner on the day, as it gained 1.6 percent.

Argentina's Merval index lost 0.83 percent to 520.5 in quiet trade Thursday, then posted a 10-point gain to 530.6 on Friday.

On Monday, the Merval jumped 4.48 percent to 554.4 as Telecom Argentina gained more than 13 percent. Investors were cheered by the local currency's recent gains against the dollar, as the peso sat at its highest point in seven months.

Tuesday brought a gain of 0.94 percent to 559.7, as investors see-sawed, trying to weigh the possible outcomes of the IMF negotiating team likely to arrive this week. Electricity company Central Puerto gained 4.26 percent.

Wednesday saw the Merval up 1.83 percent at 569.9. Grupo Financiero Galicia, which controls the nation's largest private bank, added 2.5 percent, while Banco Frances gained 1.6 percent.

In Chile, the reconfigured IPSA index lost 0.05 percent to 999.5 Thursday. Each year, Chilean officials reset the stock index at 100 points after Jan. 1. This year, the index was set at 1,000 points and will no longer be reset. The supermarket chain D&S lost 3 percent on the day.

On Friday, the index closed up 0.9 percent at 1,009 as utilities led the day. Monday brought a gain of 1.16 percent to 1,020 as signs of optimism in neighboring Brazil and Argentina buoyed investors. Telecom Telefonica CTC gained nearly 5 percent.

Tuesday saw the IPSA down 0.5 percent at 1,015 as investors took profits. Telecom Entel shed more than 3 percent. On Wednesday, the index lost 0.9 percent to 1,005.7.

Venezuela's markets have remained shuttered for more than one month as a general strike paralyzes the country. Protesters are calling for the ouster of President Hugo Chavez, largely because of his handling of the economy.