Tuesday, May 27, 2003
(05-27) 16:18 PDT MEXICO CITY (<a href=www.sfgate.com>SFGate.com-AP) --

Mexican stocks closed higher in line with U.S. gains Tuesday, although trading volume was concentrated in a handful of companies.

Mexico's key IPC index ended up 104.53 points, or 1.6 percent, to 6,650.31. Volume totaled 112.8 million shares traded worth 1.5 billion pesos.

U.S. markets surged, making up for lost time due to the Memorial Day break Monday. Trading activity slowed to 10.9 million shares on the Mexican Stock Exchange, the bourse's lowest level year-to-date.

Financial group BBVA-Bancomer's B shares, which slipped 2 percent to 8.99 pesos, accounted for about 30 percent of the session's activity Tuesday.

Exchanges of phone operator Telmex's L shares, which rose 2.8 percent to 15.64 pesos, represented another 20 percent of trading volume.

Other gainers included media group Televisa's CPOs, which advanced 3.8 percent to 15.72 pesos.

Merrill Lynch raised its recommendation on Televisa shares Tuesday to "Neutral" from "Sell," citing the company's improved operating performance and cash management outlook.

However, the investment bank still prefers the stock of media competitor TV Azteca over that of Televisa. TV Azteca's CPO shares gained 4.5 percent to 3.92 pesos.

SAO PAULO, Brazil (AP) -- Brazilian shares made a strong showing Tuesday as the market digested a change in the central bank's debt management policy and New York markets registered large climbs.

The main Ibovespa index finished Tuesday's session up 3.1 percent to 13,246 points. Trading volume was a fairly heavy 724 million reals.

The market more than recovered from a 2.2 percent decline registered Monday following the central bank's announcement that it would no longer roll over all dollar-linked debt and forex swaps as they mature.

Brazilian stocks were also buoyed by strong gains on the New York exchanges.

Shares of long-distance carrier Embratel climbed 3.3 percent to 5.27 reals, Tele Centro Oeste rose 5.8 percent to 5.61 reals, and market bellwether Telemar ended the day 4 percent higher at 36 reals.

BUENOS AIRES, Argentina (AP) -- Argentine stocks rose slightly Tuesday edging near to their high point of the past five years, with the market remaining calm that new President Nestor Kirchner's government won't bring abrupt changes to the country.

The large-cap Merval Index edged up 0.3 percent, or 1.71 points, to 664.31 points, while the broader General Index gained 0.4 percent, or 110.91 points, to end at 29,972.03 points. Volume traded was a modest 37.6 million pesos.

That leaves the Merval near its highest point in the last five years when it reached 670.3 points on April 23.

Analysts say investors are seeing various signs that the Kirchner government -- which took over on Sunday -- is set to largely continue the economic policies of its predecessor.

On Tuesday, Economy Minister Roberto Lavagna -- who served in the same post in the previous administration -- announced his new team, keeping on many of the officials who had served him first time round.

Lavagna defended the creation of a new committee that will oversee the restructuring of Argentina's banking system. The Economy Ministry and the central bank will both serve on the committee, but the former will have the deciding vote for the first year, fueling concerns over an erosion in the monetary body's independence.

Financial stocks, which had risen Monday following the publication of the decree that established the committee, fell back Tuesday. Banco Frances slid 2.9 percent to 5 pesos and Banco Bansud lost 1.2 percent to end at 1.67 pesos.

SANTIAGO, Chile (AP) -- Share prices on the Santiago Stock Exchange closed slightly higher Tuesday, helped by gains in Coca Cola bottler Andina.

Chile's blue-chip Ipsa index ended up 0.2 percent at 1,205.09 points, while the Inter-10 index of more liquid, internationally traded shares rose 0.3 percent to 117.58. Volume plunged to 9.92 billion pesos.

Top gainers included Andina, whose B-shares surged 4.2 percent to 979 pesos on speculation it might buy Peruvian peer Embonor.

Banco Santander Santiago rebounded from Monday's declines, rising 1.8 percent to 13.90 pesos.

Utilities holding Enersis headed the other way, giving up in profit-taking after a sharp rise Monday. It lost 0.5 percent to 63.30 pesos.

CARACAS, Venezuela (AP) -- Venezuelan shares ended higher Tuesday following a 10 percent jump in the market's biggest stock, CA Nacional Telefonos de Venezuela, whose investors resumed conversions to American Depositary Receipts Monday for the first time in almost four months.

The transfer agent for CANTV, as the company is known, suspended conversions after the government declared capital controls in February, awaiting clarification of the new rules.

The IBC General Stock Index, of which CANTV accounts for 40 percent, closed 6.5 percent higher at 11,105 points, the highest since September 1997.

Total trading was equivalent to about US$1 million, of which CANTV accounted for about 75 percent.

Posted on Tue, May. 27, 2003 By Kevin G. Hall Knight Ridder Newspapers

BUENOS AIRES, Argentina - Cuban dictator Fidel Castro's ability to draw more than 10,000 Argentine supporters to an off-the-cuff outdoor speech on a cold night illustrates the aging communist strongman's resurgent appeal in Latin America.

In the 1990s, when Latin American nations undertook free-market reforms that yielded economic booms, most leaders kept their distance from Castro. But most countries in the region are now in economic crisis, poverty is rising and Castro's identification with efforts to lift the poor is back in vogue.

Leftists wary of privatization and unbridled open markets now rule in Chile, Brazil, Venezuela and Ecuador. Politicians described as center-left and populist rule in Peru, Paraguay and Argentina. Only war-ravaged Colombia and Bolivia have clearly conservative presidents.

Castro stole the show at Sunday's inauguration of Argentine President Nestor Kirchner. Two years ago in Mexico, Cuba's human rights record earned him cold shoulders from regional leaders. But on Sunday, Argentine lawmakers received Castro with thunderous applause, overlooking his recent jailing of prominent artists and dissidents and the summary trial and execution of three ferry hijackers.

On Monday night, Castro was to deliver an address at the University of Buenos Aires law school, known for promoting human rights in a country where 30,000 are believed to have been killed by military dictatorships in the 1970s and 1980s.

Hordes of listeners - thousands more than the law school's auditorium could hold - overran security guards and trampled those inside. That forced the postponement of what was to be the first address by Castro on the native soil of Cuban revolutionary icon Ernesto "Che" Guevara. The event was moved outside onto university steps, where hours later thousands arrived to hear a trademark fiery Castro speech that lasted more than two and a half hours.

What is Castro's appeal? One explanation is the failure of U.S.-espoused economic reforms to narrow social gaps, followed by the election of a new batch of leftist leaders in South America who are friendly to Castro's social views.

"The neo-liberal idea has received a colossal blow," Castro said Monday night, wearing a suit but no overcoat despite temperatures in the high 40s. Now 76, Castro was overcome by emotion several times during a rambling speech that ranged from blasting President Bush to eulogizing Guevara, who was killed in Bolivia in 1967.

Carlos Manfroni, a conservative Argentine political analyst, blames rampant corruption for the failure of the economic policies of the 1990s to improve the lot of the poor and for the gains of Castro supporters in South America.

"When countries fail because they cannot combat corruption effectively, this discredits the free market and leads to nostalgia for positions that are more statist and protectionist," he said. "This is what opens the microphones again for the left."

To most Americans, Castro is associated with Cuba's Cold War alliance with the Soviet Union and exiles fleeing his regime on makeshift rafts. In Latin America, he's revered for standing up to the United States and for providing universal access to health care and higher education.

"People are blaming the United States for their bad economic situations," said Yosdany Piloto, a Cuban living in Argentina who was upset by Castro's warm reception.

"They (the students) should go live in Cuba to see what it is like," he said.

Castro reminded his large crowd Monday that life is tough in the United States. He said the cost for getting a medical degree in the United States now was estimated at about $200,000, while Cuba has granted 10,000 scholarships for Third World students to study medicine under its respected health-care system.

By offering free medical training, "Cuba has saved Third World countries some $2 billion," Castro boasted to the cheering crowd.

Venezuelan President Hugo Chavez, Castro's closest Latin American ally and a political protege, called this week in Argentina for creating a new political and economic bloc in Latin America.

One of the first tests of whether that bloc can be formed may be the ongoing talks to create a Free Trade Area of the Americas by 2005. All nations in the hemisphere except Cuba began negotiating the trade pact in 1994, but Brazil, Argentina and Venezuela now have signaled they may want to strengthen regional economies before concluding a trade deal with the United States.

U.S. Trade Representative Robert Zoellick is in Brazil this week, in part trying to determine whether Brazil and its allies intend to stick to the timetables agreed to back in 1994.

May 27 (<a href=quote.bloomberg.com>Bloomber) -- Mexico's peso was headed for its biggest decline in four months after yields fell to near record lows at today's government Treasury bill auction, prompting some international investors to sell pesos to seek higher returns for their dollars in other markets in the region.

The peso fell 1.8 percent to 10.4250 per dollar from 10.2423 yesterday at 4:15 p.m. New York time, its biggest one-day decline against the dollar since Jan. 21. Brazil's real reversed a plunge to trade little changed while other regional currencies declined.

Short term rates hit an all-time low of 4.90 percent two weeks ago, below the trailing 12-month inflation rate, making Mexican assets less attractive to overseas investors. Adding to the peso's decline, Mexico on Friday said its trade deficit widened in April from a year ago on declining exports, which account for a quarter of its $600 billion economy.

``The short term is getting very unappealing with yields at around 5 percent -- it's the very low interest rates,'' said Guillermo Estebanez, a currency strategist at Banc of America Securities Inc. in San Francisco.

Last week, traders reduced their long positions in peso future contracts to 20,812, after hitting an all-time high of 23,942 the week before. A high number means the peso may fall further if those contracts are unwound.

The long positions are a little lower, but still huge,'' said Estebanez. Anytime you're so long, you have the risk of a correction.''

The peso fell to a record low of 11.2644 on March and is the 10th-worst performer among the 59 currencies tracked by Bloomberg in 2003.

Brazil

Brazil's real pared declines to trade little changed after exporters took advantage of its 5.7 percent plunge against U.S. currency to sell overseas dollar earnings.

The real weakened 0.1 percent to 3.0280 per dollar, after extending yesterday's 3.8 percent decline by falling 1.9 percent to open trading today. The real has gained 17 percent against the dollar in 2003, the second-best performance of the currencies tracked by Bloomberg.

Investors sent the real into a tailspin yesterday that continued today after the central bank said it will end a commitment to refinance all dollar-indexed securities used to hedge currency risk when they mature. Once the real's losses over the two sessions neared 6 percent this morning, a number of exporters sold dollar-export earnings with the U.S. currency at its strongest level in three weeks, traders said.

We have an excess of dollars in the market because exporters' sales of the currency,'' said Joao Medeiros, a partner at currency broker Pioneer Corretora de Cambio SA. What we see is that in reality exporters are selling dollars above the 3-real level and aren't interested in anything lower than that.''

Policy Mix

The bank's decision may increase the demand for dollars and signal the government wants to stem the real's gains to safeguard export growth, which may contribute more than half of Brazil's 2003 expansion now forecast by the government at 2 percent. The policy shift also serves to highlight a growing divide within the administration of President Luiz Inacio Lula da Silva over the benefits and liabilities of the real's resurgence in 2003.

The real's strengthening against the dollar this year pits supporters of a stronger currency to slow inflation and the cost of servicing dollar-denominated debt against those who believe a weaker real will promote exports and growth.

Support for a stronger real follows its 35 percent decline against the dollar last year that sent the cost of imports soaring, fueling an acceleration of inflation to a seven-year high, which has only begun to slow under the weight of lending rates at a four-year high of 26.5 percent.

The stronger real and high interest rates have slowed a surge in Brazil's 12-month inflation rate to 16.8 percent that revived investor concern Brazil's roughly $350 billion in debt, about two- fifths of which is dollar-linked, might prove unsustainable.

Export Competitiveness

Against lower inflation and investor confidence, some exporters and members of Lula's government have argued that the government should work to strengthen the dollar to sustain a revival by the country's exporters dating to last year.

Exporters' overseas sales of automobiles, soybeans and other products increased as the real's decline against the dollar made their goods more competitive on overseas markets.

Increasing exports would also lessen the dependence of South America's largest economy on foreign investment. Brazil's exports make up about a sixth of its gross domestic product, compared with more than a quarter for Mexico and a third for Chile.

The central bank has done everything not to call it a floor, but there's no other way to interpret their decision,'' said Alexandre Vasarhelyi, head of currency trading at ING Bank NV's Sao Paulo office. This as an important signal that may trigger an increase in dollar-demand, because until yesterday the government's stance was always in favor of a strong currency.''

Brazil's benchmark 8 percent bond maturing in 2014 fell for the first session in a week, losing 0.63 cents on the dollar to 89.25 cents, according to J.P. Morgan Chase & Co. The yield rose to 10.66 percent.

Regional Currencies

Argentina's peso declined for the third day in four, losing 1.1 percent to 2.8650 per dollar from 2.8350 per dollar.

Chile's peso weakened for the first day in five, losing 0.8 percent to 710.65 per dollar, while Colombia's peso weakened for the sixth day in eight, shedding 0.3 percent to 2,866.30 per dollar.

Peru's new sol was little changed at 3.4920 per dollar. Venezuela fixed its bolivar at 1,598 per dollar earlier this year. Last Updated: May 27, 2003 16:16 EDT

Tue May 27, 2003 03:16 PM ET By Pedro Nicolaci da Costa

NEW YORK, May 27 (<a href=reuters.com>Reuters) - The specter of deflation in the United States has intensified Wall Street's latest obsession with Latin America as an investment destination, but a persistent global slump in prices would be no fiesta.

As financial experts scramble for alternate ways of making money while U.S. interest rates languish at rock bottom, demand for Latin America's debt has soared, with yields so much higher across the region than in the United States.

If the feared deflation monster rears its head in the United States -- still a remote possibility but a scenario increasingly on the radar screen -- Latin America's commodity-driven economies would suffer disproportionately.

While consumers in the region may be heartened by the prospect of prices tumbling at the local neighborhood store, the longer-term impact on growth would be severe, analysts warn.

Companies faced with a stubborn decline in prices are sure to pass the deflationary pain onto their workers -- either through job cuts, wage decreases or both. Large debt burdens make Latin American nations especially vulnerable.

"Deflation is particularly harmful to countries that have lots of debt, because falling prices will inflate the real debt burden," said Christian Stracke, emerging markets debt strategist at CreditSights.

Brazil, with the region's largest economy, is a classic example. With an estimated $250 billion debt load, the country's large interest payments on external debt would magnify its woes under a scenario of global deflation as export revenues fall but interest costs stay put.

Mexico's close ties to the U.S. economy, which brought tremendous benefits during the boom years of the late 1990s, would bring just as much pain in a prolonged deflationary bust. Mexico startled economists with a surprise 0.41 percent decline in consumer prices for the first two weeks of May.

Chile, Argentina and Uruguay, with their heavy reliance on commodity exports, would also suffer.

BACK ON THE ECONOMIC MAP

Deflation reclaimed its importance in the economics lexicon in April after the Federal Reserve suggested for the first time since the Great Depression that it was worried about the risk of a persistent downturn in prices.

While reaffirming that the threat of deflation is still minor, Fed Chairman Alan Greenspan expanded on the point last week, arguing that price gauges require "close scrutiny and -- maybe, maybe -- action on the part of the central bank."

At first glance, deflation might seem like a blessing to Latin America, where not long ago, several countries grappled with triple-digit hyperinflation.

"The deflationary fears that are spreading around the world, and the growing likelihood that the monetary authorities in the U.S. and Europe will be forced to cut interest rates, are increasing the demand for high-yield assets" such as emerging market debt, Walter Molano, head of research at BCP Securities, said in a report to clients.

Yet a deflationary spiral that prevents a long-sought pick-up in U.S. economic growth would have severe consequences for Latin American economies, whose success often depends on the performance of their northern counterparts.

"The principal problem in Latin America today is not inflation," said Gray Newman, chief economist for Latin America at Morgan Stanley. "Growth is what this region needs, and I'm afraid that the damage of deflation to growth prospects would outweigh the benefits."

THE VALUE OF LABOR

A bout of U.S. deflation would also put Latin American economies at a serious disadvantage in global trade.

Capital goods like heavy machinery and factory equipment, manufactured primarily in rich countries, require more labor and are thus accompanied by higher wage costs. Agricultural or lightly manufactured goods, produced mostly in the developing world, require a much smaller input from workers.

A drop in capital goods prices usually requires wage cuts, which workers are loathe to accept without a fight, so industrial costs tend to fall more slowly than commodities prices, to the detriment of emerging market exporters.

Such imbalances would be less of a problem for some of the region's oil producers, like Venezuela and Ecuador, who could ride OPEC's price-supportive supply restrictions.

But the rest of Latin America would be in a tight spot if governments had no choice but to fight economic forces largely beyond their control.

<a href=www.voanews.com>VOA News 27 May 2003, 18:16 UTC

New Argentine President Nestor Kirchner has met with several regional leaders, pledging to "work with everyone" to help his country overcome its severe financial crisis.

Mr. Kirchner made the promise Monday in Buenos Aires, where he spent his first full day in office meeting with the presidents of Bolivia, Cuba, Colombia, Peru, Uruguay and Venezuela.

The presidents were among several regional leaders who attended Mr. Kirchner's swearing-in ceremony on Sunday. Mr. Kirchner is Argentina's sixth president since political turmoil led to the resignation of Fernando de la Rua in late 2001.

In his inaugural address, the new Argentine leader said the country must be opened to the world. He pledged to work for conditions where Argentina can create what he called a credible and serious economy.

Mr. Kirchner also called on international markets to be patient as he works to help the economy recover from the crisis that triggered widespread unemployment and social unrest.

Argentina has defaulted on $141 billion in public debt. President Kirchner says his administration will renegotiate the debt, but warned the country cannot pay back what it owes lenders at the expense of those in need of houses, schools, and health care.

Mr. Kirchner also says the priority of his new foreign policy is building a politically stable and prosperous Latin America with democracy and social justice as its foundations.