Argentina’s Monthly Trade Balance (USD millions)

RGE expects the trade balance to register a US$1 billion surplus in October, compared with surpluses of US$1.15 billion in October 2009 and US$1.1 billion in September 2010, slightly shrinking the 12-month rolling basis trade surplus to US$13.97 billion from US$14.1 billion in September. Slowing demand from Brazil, despite high soft commodity prices, likely eased export growth to 34% y/y, while an over-stimulated and unsustainable domestic demand growth likely kept pushing imports up by 48% y/y.  

Dilma Rousseff Promises Continuity

Dilma Rousseff was elected as the first female president in Latin America’s largest economy by winning the run-off presidential race on October 31 with 56.1% of the vote, compared with 43.9% for her opponent, Jose Serra. The result was expected given recent poll results. The new president will take office on January 1, 2011.

RGE’s Wednesday Note – Uncertainty Now, Stability Later for Argentina

The sudden death of former president Néstor Kirchner, widely considered Argentina’s most powerful politician, has called into question the sustainability of the current administration’s mandate. In the short term, Kirchner’s death will fuel political uncertainty, especially regarding who will represent the Peronist Party in next October’s presidential elections. In the medium term, however, the death of the man widely thought to be the power behind the current president—his wife Cristina Fernández de Kirchner—opens the door for greater political stability.

Argentina’s Spending Continues to Grow

RGE anticipates Argentina’s tax revenues to increase by 38% y/y to ARS36.5 billion in October (37% y/y three-month moving average, 3MMA). Argentina’s economic recovery and elevated inflation, together with a low base, are likely to continue to drive up income (25% y/y) and VAT revenues (39% y/y). Moreover, income captured from the nationalized pension system (31% y/y) should continue to contribute considerably to fiscal revenues, while international trade taxes should have grown at a strong pace (62% y/y) on the back of high grain prices and import growth.

Chile’s Industrial Production Lower than Expected

Chile’s industrial production in September came in lower than expected by the markets (6% y/y) and RGE (5.2%) at 3% y/y, falling short of its 4.4% y/y three-month moving average (3MMA) through August and showing a continued normalization of industrial activity. Consumer durables cooled to 13.3% y/y (34.9% y/y 3MMA), consumer non-durables eased to 1.5% […]

Dilma Rousseff’s Support Reaches 50%

The last Datafolha poll indicated that presidential candidate Dilma Rousseff’s support reached 50% against 40% for her opponent Jose Serra, making her the most likely candidate to win. This is despite accusations of corruption against her and her team and negative reactions from her declarations about legalizing abortion in Brazil, among others. Eliminating blank or null votes, Rousseff obtains 56% of the valid votes against Serra’s 44%. Compared with the previous poll, Rousseff gained two points, the same amount that Serra lost.

Argentina’s Tax Revenues Increase

RGE anticipates tax revenues to increase by 31% y/y to ARS34.1 billion in September 2010 (39.6% y/y three-month moving average, 3MMA). Argentina’s economic recovery and elevated inflation, together with a low base, are likely to continue to drive up income (26% y/y) and VAT revenues (30% y/y). Moreover, income captured from the nationalized pension system (29% y/y) should continue to contribute considerably to fiscal revenues, while international trade taxes should have grown at a strong pace (61% y/y) on the back of high grain prices, especially wheat, and import growth. However, as long as fiscal spending continues to grow at rates above 30%, which has been mostly due to upcoming presidential election in October 2011, strong tax revenues will have a limited effect on Argentina’s primary fiscal standing. Needless to say, large transfers from the central bank are making fiscal accounts look better than they actually are. We maintain our forecast for a primary fiscal surplus of 1.1% of GDP in 2010 from 1.7% in 2009.

Venezuela’s Chavez Needs the Opposition

The results of the September 26, 2010, National Assembly elections in Venezuela were very interesting for the country’s future. Although claiming over 52% of the votes, the opposition managed to obtain only 38% of representation in the Assembly. This disparity was a result of the new electoral law, which re-allocates vote representation in the different states. Without two thirds of the Assembly, President Hugo Chavez will have to reach consensus with the opposition in order to approve major laws, enhancing political debate in the country and addressing concerns of a greater share of the population.

Colombia’s Central Bank Stays on Hold

The Colombia’s central bank (Banrep) left its benchmark interest rate unaltered at 3% at its September 24, 2010, meeting, along with the market and RGE’s expectations. Although the latest inflation data was above Banrep’s expectations, inflation remains in line with Banrep’s technical studies, which show that inflation will probably rest within the target range in 2010 and 2011. According to the Banrep’s press release, core inflation remains stable and inflation expectations rest at low levels. The economic recovery is evolving as expected, and is not generating inflationary pressures. Recovering growth is witnessed through consumer confidence, private investment and the recovery of the financial system. With respect to the global economy, the press release mentioned that growth in Europe and in the U.S. will be less than previously forecast, while Asia and Latin America show better dynamics. Conditions are favorable for the sustainability of Colombia’s growth.

Argentina’s Current Account Surplus Narrows

Argentina’s current account surplus narrowed to US$3.1 billion in Q2 2010 from US$4.6 billion in Q2 2009, but it reversed from the US$0.3 billion deficit registered in Q1 2010. The result was worse than consensus expectations of US$3.3 billion, but broadly in line with RGE’s US$3 billion. The narrowing of the trade surplus to US$6 billion in Q2 2010 from US$6.8 billion in Q2 2009, as imports grew (51% y/y) faster than exports (24% y/y), together with a larger deficit in investment income to US$2.5 billion from US$2 billion in Q2 2009, shrunk the current account surplus. In H1 2010, the current account surplus narrowed to US$2.78 billion from US$ 6.1 billion in H1 2009.