Latin American economic recap – week of October 17, 2005

Latin American economic recap – week of October 17, 2005

The past week was a largely uneventful week for the Latin American region with Brazil, as usual, heading up most of the headlines. Brazil’s currency continued to post gains this week after the central bank cut rates for the second month in a row. Earlier this week, Brazil’s monetary policy committee unanimously decided to cut the overnight lending rate from 19.5 to 19 percent. The rate cut was the largest since 2003. As a result, the real gained 0.2 percent as of Thursday further increasing the currency’s gains against the dollar to 18.9 percent. The real remains the best performing against the dollar of all 16 major currencies. Brazil’s main stock index, the Bovespa, has fallen hard to a six-week low on fears that creeping US inflation will slow investment into Brazil’s burgeoning markets. As of Thursday (October 20) the Bovespa had fallen 1.9 percent to 28’728. It was the second largest drop of all tracked world indexes. Colombia Colombian stocks and bonds posted modest gains upon news that President Alvaro Uribe had won court approval to seek reelection in 2006. Uribe has resounding support from the US Government because of his commitment to fighting drug trafficking and guerilla fighting. Colombia’s economy has recovered significantly since Uribe’s election four years ago as his crackdown on rebels has helped slash the country’s homicide rate spur growth. Colombia’s stock market gained 1.1 percent which has seen a 64 percent increase this year alone. Mexico Mexico is furthering initiatives to have private companies invest in that country’s infrastructure and provide public services in return for government paid fees. The contracts, totaling 40 billion pesos ($3.7 billion) will be to build and operate hospitals, schools, and a dozen roads. The contracts are expected to be awarded by the end of President Vincente Fox’s term in December 2006. The wealth of public-private partnerships is stirring a lot of attention in Latin America’s largest economy. One notable Mexican billionaire went so far as to set up a new company in order to bid on the projects. In other news, shares of Grupo Mexico, Mexico’s largest copper producer, fell on news that copper prices rose to record highs in New York and London. Venezuela Finally, Venezuelan debt yields fell to their lowest since 2001. The demand for local securities is attributed to government restrictions on dollar purchases. Furthermore, inflation in the country is on the rise after a 20 percent surge in Venezuelan oil has left the economy with ample cash. It is reported that inflation topped 16 percent in September, from 14.9 percent in August and will probably end the year around 15 percent. The government is banking on inflation to shrink to 10 percent next year and down into single digits in 2007.