South American economic overview – July 29, 2008

General: Inflation, the old nemesis of this continent, has made a comeback. It is too early to call it hyperinflation, but Venezuela and Argentina (at least by its unofficial rate) are approaching rates of dizzying heights. As always, inflation is hitting the poorest population segment the hardest. The International Monetary Fund (IMF) reckons that 20% of the people in South America now live on $2.00 or less per day.

Argentina: The government lost a crucial vote in parliament on a compromise farm bill which means that the tax issue for soybeans and oilseeds remains unresolved. In the meantime, the ever more credible unofficial inflation number has reached +32.6% in June.

Steel Production: 494,000 mt in June, an increase of 10.7% over last year. In the first six months of 2008, 2.862 million mt were produced or 10.4% ahead of last year's pace.

Brazil: The June inflation figures were not good and the preliminary number for July is higher yet. The Central Bank took dramatic action and increased the benchmark interest rate by 75 percentage points to 13.0%. Partially because of the strong currency, Brazil's trade surplus in the first six months of 2008 fell by 44.7% compared to last year.

Steel Production: 2.934 million mt in June or 7.4% more than last year. In the first six months of the year 17.4 million mt were produced or 6.9% more than last year.

Chile: The economy is slowing down significantly and the inflation rate is approaching double digits. Moreover, an ill-conceived government initiative to purchase US dollars caused the Chilean peso to tumble 11.8% in the last three months. Energy supply problems are expected to further weigh down economic growth. Some experts expect a GDP growth of 4.2% only by the end of the year and 2.5% next year.

Copper Price: $3.6575 per lb as of July 23, quoted at the Comex in NY. Copper prices gained 20% this year and tripled in the past four years.

Venezuela: Confidence in the Venezuelan economy is steadily shrinking. Foreign Direct Investments (FDI) fell by 90% from the 1997 level to $646.0 million in 2007. The private sector shrank 2.3% in Q1 whereas the government sector roared ahead by 22%. Manufacturing growth for Q1 was just 1.4% ahead of last year. Inflation is out of control; but that has become the norm in Venezuela.

Steel Production: 365,000 mt in June or 16.5% less than last year. In the first six months of the year 2.1 million mt were produced or 19.6% less than last year.