G.BREUER
DESDE 1869
G. BREUER's Newsletter
January 2007
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter where you will find an update on:
Hoping that you find this issue as interesting as our previous ones, please do not hesitate to contact Jorge Otamendi (joo@gbreuer.com.ar) and Alberto Navarro (anavarro@gbreuer.com.ar) for any specific question you may have after reading it or for any other issue you may need advise on.
Best regards,
G. BREUER
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 114313 8100
Fax: +54-11-4313-8180
Last month, there were several pieces of information related to the legal and political fields. One of them –a court decision- will have important economic consequences, hence, we will begin our report with such information.
In a very important decision, the Supreme Court upheld the 2002 pesification (i.e. it stated that it was not against the provision of the National Constitution) of frozen bank deposits and defined the terms for the solution of the remaining legal actions related to US dollar-denominated deposits “frozen and pesified” during the 2001 crisis.
The Supreme Court ordered banks in Argentina to reimburse owners of (certificate of) deposits the value in pesos of their dollar deposits at an exchange rate of 1.40 pesos per dollar, adjusted by inflation (using the CER –Stabilization Inflationary Rate-) with a 4% annual interest rate as from the date in which banking restrictions were imposed in 2001.
This precedent is very relevant because it helps eliminating the uncertainty as to the legality of pesification. And also because the highest legal interpreter of Argentina clarified the mechanism for owners of dollar-denominated certificates of deposits to be compensated. Even though the decision itself cannot be forced on all remaining legal actions, it will have an extremely strong influence on the remaining cases. Although certain doubts remain after reading the arguments of the Supreme Court Justices (for instance, whether bank customers may demand damages from banks, what will happen with those owners of certificates who, through legal actions, managed to obtain US Dollars from the banks, among others), the main issue was decided and the solution to the whole problem is much closer.
This precedent should be seen as a positive sign by the Kirchner administration, because it implies that the legal problems generated by the 2001 crisis are beginning to be part of the past.
It is also worth noting that as of the first week of January the presidential race has begun. That is because former finance minister Roberto Lavagna announced his presidential candidacy. The opposition Radical Party (UCR) decided to back up the announcement. The rest of the opposition parties were forced to talk about the issue and all of them are expected to start deciding names, alliances and strategies. As said, the election year began, although President Kirchner has not said yet whether he will seek another four-year term.
Mr. Lavagna, who served as finance minister both under the administration of presidents Duhalde and Kirchner, was later sacked by President Kirchner in 2005, and is seen as having steered Argentina out of its crisis that in late 2001 caused the fall of two governments. But he also has enemies among the opposition leaders since his policies are seen as very similar to the current ones.
Certainly, more news on this front will come up soon.
On another front, the conflict with Uruguay regarding the paper mill on the Uruguay River bank is still unsolved and environmentalists are threatening to extend the blockade to Uruguay. In that respect, the coast guard strengthened security in the port of Buenos Aires to ensure the ferries to Uruguay run according to schedule. The environmental campaign group has been blocking on and off most of the roads connecting Argentina with Uruguay but it’s their first time bringing their protest to the City of Buenos Aires. Blockaders may face arrest if they do not end their protests. For some people, the current administration firm message, in the sense that interruptions to ferries will not be tolerated, is seen as a good sign of true readiness by the Argentine Government to end the dispute on reasonable grounds.
We end this political report, with a piece of information related to a human rights trial witness named Luis Gerez –unknown to most Argentines until December 2006- who had testified against a retired police officer who was former Major of an important district of the Greater Buenos Aires.
The relevance of this issue lies on the fact that in an electoral year, all events may be used for political purposes, and if the past –the violent past- is to be brought back again for political purposes, certainly it will be very negative for the country as a whole and for the legal and economic fields.
Mr. Gerez was found alive on December 29th, 2006, after a 48-hour kidnapping, with signs of having been tortured. He was released an hour after President Néstor Kirchner addressed the Nation blaming the disappearance of Mr. Gerez on former security agents during the military government who –he believed- could be attempting to stop trials for human right abuses committed during such time.
Mr. Gerez’s disappearance alarmed the current administration –and the public in general- because it was the second witness who disappeared in three months, and sent the message that Argentina’s turbulent past is indeed alive. The circumstances of the case are really obscure and no satisfactory explanations were provided by any side. The Government’s version is not entirely credible and versions of internal political fights are gaining momentum. The opposition is claiming that this issue should be treated seriously and that Kirchner’s administration should not even attempt to claim victory and/or merits for Mr. Gerez’s appearance.
We all hope that the authors of this crime are found and that this type of events is not repeated or used for political purposes by any side.
On the economic front, 2006 has been a good year for Argentina and the prospects for 2007 also look good, although some voices are calling to pay attention to the cost of the Argentine Central Bank’s (BCRA) sterilization policies.
Argentina’s stock market ended 2006 with a 35% increase, which placed it among the world’s top performers according to a report issued by the Argentine Institute for Capital Markets (IAMC). Likewise, public bonds rose an average 21% while fixed term bank deposits gained 9.75%.
Other sectors also showed outstanding performances.
For instance, the Argentine mining exports grew by 37% in 2006 as compared to 2005. Currently, there are 275 mining projects in Argentina and the accumulated growth in the period between 2003 and 2006 has been impressive (more than 800%) according to the National Mining Secretariat.
Also, Argentine clothing exports rose by 11% this year and the sector consolidated as an important international provider with attractive designs, quality and prices. The Argentine Clothing Manufacturing Chamber said that since the end of the peso’s one-to-one parity with the US dollar, the sector has grown to produce an annual 2.3 billion dollars worth of clothes.
Tax revenue in December 2006 jumped to 14.12 billion pesos, 24.9% more than a year earlier. The Government said the increase was due to a higher amount of sales taxes, as well as taxes on corporate earnings and exports. Payments to the social system grew by 44.6 % and totaled slightly over 23.6 billion pesos due to an increase in formal employment levels, salary increases and increased compliance with extended payment programs.
Inflation for the whole 2006 came at 9.8% pursuant a report published by the Government’s statistics board –INDEC-. The consumer price index rose 1.0% in December 2006 due to increased leisure costs and higher food and beverage prices.
The credibility of the official inflation index is seriously under attack, since this one-digit rate is said to have been obtained through pressure on meat and diary product producers (products with high incidence in the inflation rate).
Because of the good performance of the economy in general, of the stock markets and of the important volumes of trade, funds –foreign currencies- are brought to Argentina to take advantage of the good opportunities creating pressure on the BCRA to buy US dollars to hold the exchange rate above 3 pesos.
In order to keep that exchange rate, the BCRA has to issue pesos, which are then absorbed by means of the issuance of peso-denominated debt (Lebac and Nobac) to avoid inflationary impact (that is called sterilization policy).
Economists are questioning how expensive it is and will be for the BCRA to keep the 3 / 1 Peso to Dollar exchange rate, and whether Argentina would not be better off with another parity. But, as said before, this is an election year and it is unlikely that this Administration will change policies that proved to be successful.
We end this positive economic report by saying that beyond important announcements and inflation rates –real or created- some sectors still demand tariffs and price adjustments, otherwise investments will not come and the economy –and the people- will suffer, sooner rather than later.
The ability of this Administration to understand and handle those needed adjustments will certainly be important for the development of the Argentine economy during 2007, an election year, as said. And the current Government knows that economy is crucial in electoral times.
We refer to the case that we mention in Political News herein.
We also note that the composition of the Supreme Court of Justice was reduced, so that the number of Justices is reduced from 9 to 5. In this respect, Law 26,183 was passed on December 15th, 2006. Currently there are 7 Justices, and thus the reduction will be achieved as vacancies take place.
- For more information on local legislation, you may see the January edition of our Boletín Informativo sent to our Argentine Clients & Friends.
G. BREUER
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313-8100
Fax: +54 11 4313-8180
Please note that the information given in this bulletin is for general purposes only and does not aim to provide comprehensive legal advice on any issue.
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© G. BREUER, 2006