South American economic overview – September 3, 2008

Argentina: For the first time this year the unofficial inflation rate has come down to 25.1% in July. It is still significantly over the government issued number but it is an encouraging sign. The government also launched a buy back program of government bonds. Because of inflation and falling soy prices, Argentina's biggest earner of foreign exchange, fears of financing shortfalls had emerged. The budget surplus increased to $4.02 bn in July before interest payments. Production in the automobile sector shot up 20.8% in July.

Steel Production: 529,000 mt in June, an increase of 48.3% over last year. In the first seven months of 2008, 3.4 million mt were produced, or 15.0% ahead of last year's pace

Brazil: Three successive rate hikes of the benchmark interest rate to 13.0% seem to have curbed inflation somewhat. Preliminary numbers for August show the slowest pace in five months. But unemployment rose for the first time in five months and the current-account-balance widened to $19.5 bn in July for the last 12 months. After publication of a World Bank report, President Lula himself turned the focus to Brazil's lagging educational system that could impede future economic progress. The adult literacy rate of 89% does not compare well with other emerging countries that compete with Brazil in the global economy. Russia's rate is 99% and China's 91%. Of all potential competitors only India has a lower rate with 61%. Brazil's high school students rank 53rd and 51st in mathematics and reading proficiency respectively. South Korea ranks number one in both fields.

Steel Production: 3.2 million mt in July or 11.5% more than last year. In the first seven months of the year 20.6 million mt were produced or 7.6% more than last year.

Chile: Interest rate increases have not yet had the desired effect on the inflation rate which stands at a 14 year high. The Central Bank expects no more than 4.0% in economic growth for the year even though data for the second quarter were encouraging. Private consumption increased 5.9% in Q2, production of Durable Goods went up 15% and Fixed Capital, or assets, grew 23% in Q2 from a year earlier.

Copper Price: $3.3793 per lb as of August 29 (quoted by the London Metal Exchange)

Venezuela: President Chavez' course of nationalizing "strategic industries" continues. After expropriating telephone companies, foreign oil interests, a Spanish owned bank and an Argentinean owned steel mill, the government has now taken over three cement companies. While France-based La Farge and Swiss firm Holeim Ltd. grudgingly agreed to the government's "purchase" price of their Venezuelan units, Mexico's Cemex is still holding out but will likely have no option but to accept the imposed upon terms. The public sector now contributes 29.1% of the GDP. The economic ministry issued an expected inflation number of 27% for the year. This is well above the official target of 19.5% and well below the actual rate.

Steel Production: 400,000  mt in July or 1.7% less than last year. In the first seven months of the year 2.5 million mt were produced or 17.1% less than last year.