- The Washington Times - Thursday, February 13, 2003

RIO DE JANEIRO, Brazil, Feb. 12 (UPI) — It was a down week for Latin American markets as concerns about war in the Middle East drove indexes. A vacuum of any positive domestic news gave traders no reasons to cheer.

"Iraq is the main focal point of the markets right now," said Aryam Vazquez, Latin American analyst for IdeaGlobal in New York. "The main thing is the war, global markets, and how the markets react once the U.S. takes action."

Vazquez said Brazil, Latin America's biggest economy, stands to lose the most should war break out as investors have also been keeping their eyes on inflation indicators, which have been rising.

Analysts are expecting Brazil's January inflation to be more than 2 percent, high enough that another increase in interest rates could come next week at the Central Bank's meeting. Rates in the country are already sky-high at 25.5 percent. The government will release the inflation data Thursday.

A 35-percent drop in the value of the local currency last year is still fanning inflation in Brazil, though investors have welcomed quick and austere financial moves by new President Luiz Inacio Lula da Silva. But there is little Lula, as he is known, can do about the effects of a war in the Mideast.

"Brazil will fare the worst in the region, given that they're exposed to capital flows and investor risk," Vazquez said. "And, they have to import oil."

Yet despite the exposure the region has to global market sentiment, it is possible a war may eventually help the region's struggling economies.

"Overall, there won't be a drastic reduction in investment flows into the region once the war hits, to the contrary," Vazquez said.

"I think the U.S. will be seen as a safe haven — people would rather be invested in dollar risk. And that ultimately favors Latin America, because the economies are so intertwined."

Some worrying news for investors came Wednesday as Brazil's government decided to delay bidding by a few weeks on a $1 billion oil platform project for Petrobras in an attempt to give domestic companies a better chance of winning the job.

The state-run Petrobras is being watched closely by investors as an indicator of Lula's future policies on privatization and state-controlled industries.

During his campaign for the presidency last year, Lula railed against Petrobras for awarding such contracts to foreign firms who would build more cheaply, saying the projects should stay in Brazil to provide jobs.

Brazil's Finance Minister Antonio Palocci Wednesday told reporters at the O Estado de Sao Paulo newspaper he wants to move away from reliance on the International Monetary Fund. He said he will talk with IMF officials about removing some commitments in the country's $30 billion loan agreement with the Fund, and Brazil may forego drawing some $6 billion of loans as it may not need the money.

"We still have to determine whether using the money is necessary or not," Palocci said. "I want to slim it down, and just leave the indispensable macroeconomic goals in place and gradually reduce negotiations."

While financial independence from the Fund is not a bad thing, the comments did scare some investors, who interpreted the comments as the beginning of Brazil's new government charting a new, unknown economic course.

As for the markets, Brazil's Bovespa stock index ended last Thursday down 0.3 percent at 10,565. The threat of war in Iraq soured investors. Oil company Petrobras lost 3 percent while utility Eletropaulo dropped 4.3 percent. On Friday the index lost 1.7 percent to 10,380, despite the government's announcement of a higher primary budget surplus target. Varig airlines fell 8.5 percent.

The Bovespa gained 0.9 percent to 10,479 Monday as the Central Bank rolled over a large chunk of $2.5 billion in debt due later in the week. Petrobras gained 4.4 percent, as long-distance provider Embratel added 2.6 percent.

Tuesday had the index up 0.3 percent at 10,509, in a day that saw the local currency strengthen. Telemar gained 1 percent. Wednesday saw the Bovespa flat at 10,510 with no notable movement.

In Mexico, the IPC index ended last Thursday down 1.2 percent at 5,894. Beverage companies were hit hard, as brewer Modelo lost 4.1 percent and bottler Femsa shed 2.9 percent. Friday saw the index follow Wall Street down, as it lost 0.5 percent to 5,866. Cement maker Cemex shed 2.9 percent.

On Monday, the IPC shed 0.5 percent to close at 5,838. Fixed-line phone company Telmex lost 1.2 percent, as did broadcaster TV Azteca. On Tuesday, the index lost 1 percent to 5,779 as Telmex shed 0.5 percent. Latin America's biggest wireless company America Movil slipped 3.6 percent.

The IPC lost 0.27 percent to 5,764 Wednesday. America Movil lost 3.85 percent, industrial group Alfa shed 1.25 percent and retailer Elektra slipped 2.25 percent.

Argentina's Merval index lost 0.6 percent to 559 Thursday. TGS — which transports natural gas — lost 2.6 percent. Friday brought a gain of 1.04 percent to 564.9 for the index. Energy company Perez Companc rose 1.3 percent, while Banco Frances climbed 4.7 percent.

Monday saw a gain of 1.16 percent to 571.5 for the Merval. Banco Frances added 2 percent. Telecom Argentina climbed more than 7 percent. On Tuesday the index gained 0.4 percent to 573.9. Banco Frances continued its winning streak, adding another 3.4 percent.

Wednesday saw the Merval up 1.41 percent at 582. Steelmaker Acindar climbed 4 percent while Grupo Financiero Galicia — which controls the country's biggest bank — gained 2.8 percent.

In Chile, the IPSA index ticked down 0.3 percent to 1,010 Thursday. Supermarket chain D&S; lost 3.2 percent after competitor Cencosud said it was buying the Santa Isabel grocery chain to double its presence in the country. Friday saw the index up 0.5 percent to 1,015. Banco Santander-Chile gained 1.2 percent.

he IPSA ticked down to 1,014 Monday in sluggish trade. Utility Enersis gained 1.7 percent. Tuesday saw a slight gain to 1,015, again in limp trade. On Wednesday, the index added 0.22 percent to 1,017.

In Venezuela, the IBC index lost 1.2 percent to 8,353 Thursday after the government began restricting foreign currency transactions to halt the devaluation of the local currency. Nacional Telefonos de Venezuela — or CANTV — lost nearly 2 percent. The company's stock makes up 40 percent of the index. The index lost 2.7 percent to 8,127 after CANTV shed 10 percent Friday.

On Monday, the index closed 1.5 percent lower at 8,007 in light trade. Tuesday brought a drop of 0.7 percent to 7,949. CANTV lost 2.5 percent. The index dropped to 7,935 Wednesday.

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