Latin America economic recap – week of September 19, 2005

Latin America economic recap – week of September 19, 2005

Over the previous week it was relatively quiet in the Latin American region, however, there were some events of note. The Venezuelan government announced it will invest $1 billion in a new state iron and steel production company. The intention of the new company is to use the country's natural resources wisely and efficiently as well as create thousands of new jobs. Venezuela wants to reduce the amount of primary aluminum and iron it sells abroad and instead promote local manufacturing. The country is also leading an initiative that would lessen its dependence on exporting petroleum to the US and instead strengthens its energy ties within the region. The overall aim is to foster economic development and reduce poverty. Venezuela is the fifth largest exporter of oil in the world. In Brazil, its main stock index, the Bovespa, saw the single largest rise of any of the world’s indices. Companhia Vale do Rio Doce led the charge after it was announced that raw materials prices should increase by as much as ten percent due in large to increasing demand from China. The company recently signed new annual supply contracts worth over 71 percent more than last year. Iron ore prices, which have risen for three consecutive years, should be expected to stay at record levels as China may import nearly 30 percent more in 2005 and almost 20 percent more in 2006. Meanwhile it was revealed that Brazil’s central bank has no plans to take monetary action to stem the real’s meteoric rise against the US dollar. Since May 2004, Brazil’s currency has risen 42 percent. Mexico’s main stock index, the Bolsa, rose to a record high last week and has risen 11 percent thus far in September. Mexico’s central bank also reduced its overnight lending rate a quarter point to 9.25 percent. It was the second consecutive reduction and comes as the government tries to spur economic growth. Inflation stands at 3.95 percent. Banco de Mexico is aiming for rate of three percent by the end of the year and is confident it will reach that mark. Mexico’s economy grew at a rate of 2.8 percent for the first half of 2005. Projections were for it to grow another 3.75 percent but Hurricane Katrina prompted the central bank to tempers its predictions to a more modest 3 percent.