Latin American economic overview - July 18, 2006

Argentina: In a report, the World Bank recognized Argentina as the country with the lowest cost of living index in 2005 in South America (30 percent less than the South American average). Brazil, Chile and Uruguay had the highest cost of living index. Trade Balance: Trade surplus in May increased to $1.325 billion from $1.208 billion in May 2005 Unemployment: Fell to 9.8% in May, below double digits for the first time in 13 years. Inflation: Consumer inflation index rose only 0.5% in June, below experts' expectations and matching May levels. In the 12 months leading to June, inflation totaled 11.0% (compared to 9.0 percent in the 12 months leading to June 2005). For the first half of 2006, inflation slowed to 4.9% compared to 6.1% during the same period in 2005. Currency: 3.08 Pesos to US$1 on July 12 (compared to 2.87 Pesos to US$1 a year ago) Brazil: Growth: The Finance Ministry said Brazil's GDP will grow around 4% each year for the next 10 years. Lower interest rates will help Brazil's economy grow 4.5% this year (2.3% in 2005). Growth rate for Q1 was 1.4% over Q4 2005 and 3.4% compared to Q1 2005. The benchmark lending rate is expected to be cut back to 14.25% by year-end(It is currently 14.75%). Unemployment: 10.2% in May (10.4% in April) Automobile Production : Fell 6.7% in June (22,800 vehicles) from the previous month - 242,000 units; vehicle sales fell 9.6% (148,400 units) compared to the previous month (164,100 units). However, for the first six months 2006 automobile production rose 4.4% (1.3 million units) compared to the same period a year earlier, and domestic sales gained 7.6% (861,200 units). Industrial Output: + 4.8% in May compared to a year earlier, reversing the negative trend of – 1.9% in April. Durable goods orders (home appliances, cars and personal computers) jumped 8.1% in May. Consumer Prices / Inflation: Consumer prices fell 0.21% in June (0.1% increase in May), the largest decline in eight years as the cost of fuel, fruit and meat dropped. Ethanol fuel prices alone fell 8.8% in June. All of this brought down the annual inflation rate to 4.03%, the lowest rate since 1999. The overall inflation rate for 2006 is expected to come in at around 3.8% – 4% Trade Balance: Trade surplus in June rose to $4.08 billion compared to $3.03 billion in May and $3.09 billion in April. For the first half 2006, the trade surplus was $19.54 billion, compared to $19.65 same period 2005. Trade surplus in 2005 was $44.76 billion. Currency: The Real surged to 2.19 per US$1 as of July 12 (2.34 Real per US$1 12 months ago) Special Focus - Steel: The unabated strength of the Real and the January accident at Cia Siderurgica Nacional's (CSN) #3 blast furnace caused a significant increase of steel imports into Brazil in the first five months 2006. According to figures by the Brazilian Steel Institute (ISSB), semi finished products in particular rose to 203,000 mt (8,000 mt during the same period of 2005). Long products increased 190 percent during this period to 180,000 mt (62,000 mt for the same period a year ago). Total steel imports for the first five months more than tripled from a year ago to 612,000 mt (201,000 mt in 2005). Domestic steel production from January to May fell to 12.099 million mt from 13.437 million mt for the same period in 2005. Core data for Chile and Venezuela remains largely unchanged from our report dated June 23 and will be updated in the next report. It is noteworthy that Chile's accumulated trade surplus for the first half of 2006 rose to $10.167 billion, representing an increase of over 90 percent compared to the same period 2005. Copper anybody?