TRADE AND COMPETITIVINESS IN ARGENTINA, BRAZIL AND CHILE. Mr. Roberto Villambrosa 22 November, 2004

TRADE AND COMPETITIVINESS IN ARGENTINA, BRAZIL AND CHILE.

Mr. Roberto Villambrosa

22 November, 2004

• On the second quarter of 2004, the announcement of OPEC to increase the production of crude oil and the decision of the Federal Reserve to raise the reference interest rate to 1.25%, led to financial volatility that afected capital markets.

• It is expected an expansion of 4.5% annual of the GDP (the highest since 1997), for Latin America.

• Risks of the international context:

GROWTH PERSPECTIVES FOR LATIN AMERICA

- In the short run: oil price volatility.

- In the medium term: the imbalances of the american foreign trade and the expected lower rates of growth in the chinesse economy.

- In the long run: some weakness for a sustained growth (external debt, high unemployement and investment rates in the region).

GROWTH PERSPECTIVES FOR LATIN AMERICA

During the first five months of 2004, exports from Argentina, Brazil, Chile, Ecuador, Mexico, Peru and Uruguay (wich represent more than 90% of the commerce of the region), increased 20% annual with respect to 2003, due to the strong growth of the interegional trade (50% annual).

The main markets are: United States, European Union, with 50% and 13% of the total exports, and trade surplus with China.

0,00

50.000,00

100.000,00

150.000,00

200.000,00

250.000,00

300.000,00

350.000,00

1999 2000 2001 2002 2003

Argentina Brazil Chile Colombia Mexico Other*

+9,49%

* Peru, Ecuador, and UruguaySource: UNSD comtrade data base

Latin American countries exports (million U$S)

Recovery started in the second quarter of 2002, and there have been eight consecutive quarters of growth for the first time since 1997.

ACTIVITY

210.000

220.000

230.000

240.000

250.000

260.000

270.000

280.000

I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

+3,4%

+3,0%+1,5% +0,5%

+2,2%

+3,0%

+1,4%+0,8%+0,1%

200000

210000

220000

230000

240000

250000

260000

270000

280000

290000

I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

+7%

Gross domestic product

at 1993 prices (million of pesos)

Seasonally adjusted gross domestic product

at 1993 prices (million of pesos)

Source: Secretaria de Politica Economica, Ministerio de Economia.

Activity level and current account

ACTIVITY

200000

210000

220000

230000

240000

250000

260000

270000

280000

290000

300000

I 00 II 00 III 00 IV 00 I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

Mill

ion

of $

(199

3)

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Mill

ion

of U

S$

GDP Current Account

Devaluation

Labour intensive sectors such as textiles, metalmechanics and construction, recovered strongly in 2002.

ACTIVITY

29,4

37,843,6

50,2

62,4 63,660,7

66,170,3

74,669,7

0

10

20

30

40

50

60

70

80

90

I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04 III 04

+138%

37,144,4

64

77,7

96,991,6 90

96,299,5 96,4

101,2

0

20

40

60

80

100

120


+173%

MIE –TEXTILES Seasonlly adjusted

MIE –HEAVY ENGINEERING INDUSTRY Seasonlly adjusted

ACTIVITY

0

10.000

20.000

30.000

40.000

50.000

60.000

I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

Construction Durable equipment

25%

27%

29%

31%

33%

35%

37%

39%

I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

Fixed gross investment: level and composition (at 1993 prices –in million of pesos)

Durable equipment / Fixed gross investment (%)

0

20

40

60

80

100

120

140

160

Impo

rts

(200

1=10

0)

75

80

85

90

95

100

105

110

EM

AE

(200

1=10

0)

IMPO IMPO Bs K EMAE

Source: Indec, BCRA, Ipeadata, Federl Reserve of St. Luois.

RECOVERY OF THE ECONOMIC ACTIVITY

Economic activity and imports

Imports of capital goods influenced by investment recovery.

ACTIVITY

0,00

2000,00

4000,00

6000,00

8000,00

10000,00

I 00 II 00 III 00 IV 00 I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04 III 04

Other Consumer goods and vehicles Capital goods

10%

12%

14%

16%

18%

20%

22%

24%

26%

I 00 II 00 III 00 IV 00 I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04 III 04

Import of goods: level and composition (in million of dollars CIF)

Imports of capital goods in percent of total imports

Since April 2002, fiscal and monetary policies led to lower rates of inflation.

PRICES

10,43

13,57

4,00

-0,53

0,03

-0,83

0,391,07

0,50 0,771,17

-2,00

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00


3,13

6,00

2,30

0,300,83

-0,13

0,13 0,33 0,370,73 0,47

-2,00

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00


Wholesale prices

Average MoM Change variation

Consumer prices

Average MoM Change variation

Depreciation of the peso led to a significant surplus in Argentina´s foreign trade, as a result of import substitution.

FOREIGN TRADE Monthly averages

0

500

1.000

1.500

2.000

2.500

3.000

3.500

I 02

II 02

III 02

IV 02

I 03

II 03

III 03

IV 03

I 04

II 04

III 04

In m

illio

n o

f U

S$

Exports Imports Trade Balance

FOREIGN TRADE

On september 2004, exports have experinced an increase of 25.3% with respect to the same month on 2003, while imports increased a 57.2% during the same period.

The balance acumulated during the firts nine months of 2004 raises to 9.541 millions of dollars.

External Trade (millions of US$)

-4.000

1.000

6.000

11.000

16.000

21.000

26.000

31.000

36.000

1999 2000 2001 2002 2003 en-sep 04

Balance Exports Imports

Source: IDEC

EXTERNAL TRADE

-4.000

-2.000

0

2.000

4.000

6.000

8.000

10.000

I 00 II 00 III 00 IV 00 I 01 II 01 III 01 IV 01 I 02 II 02 III 02 IV 02 I 03 II 03 III 03 IV 03 I 04 II 04

Exports Imports Balance of goods Current Account

Exports and imports of goods, balance of goods and current account balance (million of US$)

Source: Secretaria de Politica Economica, Ministerio de Economia.

CURRENT ACCOUNT

IMPORTS AND EXCHANGE RATE

Source: Ministerio de economia y produccion.

Evolution of imports and nominal exchange rate (million U$S)

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

Imports

Nominal exchange rate

- 66%

+ 206%

EXTERNAL TRADE

0

5000

10000

15000

20000

25000

30000

35000

1999 2000 2001 2002 2003 en-sep 04

Primary products MAO MIO Fuels and energy

Exports by type of good (millons of US$)

Annual variations January-September 2004 (%)

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00%

Primary products

MAO

MIO

FUELS

ManufacturedGoods 21,82%

11,82%

17,12%

26,11%

2,55%

Source: INDEC

Source: INDEC

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

Capital goods

Intermediate goos

Fuels and energy

Spare parts and pieces for capital goods

Consumer goods

Passanger Vehicles

Other

Total 69%

122%

191%

53%

66%

92%

38%

141%

EXTERNAL TRADE

0

5000

10000

15000

20000

25000

30000

1999

2000

2001

2002

2003

en-s

ep 0

4

Capital goods Intermediate goodsFuels and energy Spare parts and pieces for capital goodsConsumer goods Passanger VehiclesOther

Imports by type of goods (millons of US$)

Annual variation January-September 2004 (%)Source: INDEC

Source: INDEC

Exports by Economic Area Jan-Sep 2004

Mercosur 19%

Chile 11%

Rest ALADI 5%

NAFTA 14%

Rest 14%

Middle East 3%India

2%

Japon 1%

Rep. Korea 1%

China 9%

ASEAN 4%

European Union 18%

EXTERNAL TRADE

Source: INDEC

Imports by Economic Area Jan-Sep 2004

Mercosur 37,1%

Chile 1,8%

Rest ALADI 1,4%NAFTA

19,4%

Rest 8,6%

Middle East 0,3%

India 0,7%

Japon 2,8%

Rep. Korea 1,3%

China 5,8%

ASEAN 2,0%

European Union 18,7%

External Trade by Economic Area January-September 2004 (millions of US$)

0

1000

2000

3000

4000

5000

6000

7000

Mer

cosu

r

Chi

le

Res

t ALA

DI

NA

FTA

Eur

opea

nU

nion

AS

EA

N

Chi

na

Rep

. Kor

ea

Japa

n

Indi

a

Mid

dle

Eas

t

Res

t

Exports

Imports

EXTERNAL TRADE

Source: INDEC

0

2.000

4.000

6.000

8.000

10.000

12.000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Brasil Paraguay Uruguay

MERCOSUR

Argentine exports to Mercosur (million U$S)

Source: Centro de Economia Internacinal

Source: Centro de Economia Internacinal

MERCOSUREvolution of argentine exports

-within the bloc and outside the bloc- (million U$S)

Between 1991 (initiation tariff reduction) and 2003 and, inspite of the reduction of trade caused by the succesive macroeconomic crises in the region in recent years, Argentine exports increased more speedily within the bloc (14.5% and 11% y-o-y average, respectively)

8%

18%

58%

30%

41%

21%

-5%-1%

-5%

19%17%

-2%

-11%

-3%

-25%

19%

-24%

29%

12%

6%1%

-9%

15%

7% 5%

17%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Within MERCOSUR Outside MERCOSURInitiation of tariff reduction

MERCOSUR

PeriodYears with surpluse

Years with negative balance

Accrued balance (U$S million)

1980-2003 11 13 4,245

1980-1994 (without Mercosur) 3 12 -4,27

1995-2003 (with Mercosur) 8 1 8,515

Mercosur helped to reverse the structurally negative balance with Brazil.

In the fifteen years before the Customs Union was stablished, Argentina had a bilateral negative balance of U$S 4.3 billion. In the subsequent nine years, this imbalance became a surpluse of U$S 8.5 billion.

After the crisis of 2002, Argentina slowly recovered participation in brazilian exports. During the second quarter of 2004, Argentina recived 7.5% of brazilian total exports. (2001).

Argentina has diminished its participation in the brazilian market during the last three years.

TRADE WITH BRAZIL

Brazilian participation in Argentina´s exports and imports

0%

5%

10%

15%

20%

25%

30%

35%

40%

I-2000

II-2

000

III-

2000

IV-2

000

I-2001

II-2

001

III-

2001

IV-2

001

I-2002

II-2

002

III-

2002

IV-2

002

I-2003

II-2

003

III-

2003

IV-2

003

I-2004

II-2

004

Exports Imports

34 %35%

Source: INDEC

TRADE WITH BRAZIL

BALANCE OF TRADE WITH BRAZIL 2003-2004

Source: INDEC

Trade with Brazil (US$)

-300000000

-100000000

100000000

300000000

500000000

700000000

900000000SALDOExportsImports

External price index

january 2001 =100

Variation

Jan- aug 03/jan-Aug 04

TRADE WITH BRAZIL

70

90

110

130

150

170

190

ene-

00

abr-

00

jul-0

0

oct-

00

ene-

01

abr-

01

jul-0

1

oct-

01

ene-

02

abr-

02

jul-0

2

oct-

02

ene-

03

abr-

03

jul-0

3

oct-

03

ene-

04

abr-

04

jul-0

4

Oil Wheat

Corn Soy

Source: INDEC

-5,00% 5,00% 15,00% 25,00% 35,00%

Petroleo

Soja

Trigo

Maiz

Origin 2002 2003 VariationParticipation

2003USA 10.725 10.001 -7% 19,7%ARGENTINA 5.020 4.950 -1% 9,7%GERMANY 4.673 4.375 -6% 8,6%JAPAN 2.452 2.634 7% 5,2%CHINA 1.698 2.331 37% 4,6%FRANCE 1.827 1.839 1% 3,6%ITALY 1.836 1.824 -1% 3,6%NIGERIA 1.125 1.524 35% 3,0%UNITED KINDOM 1.397 1.251 -10% 2,5%ARGELIA 1.055 1.162 10% 2,3%KOREA 1.137 1.150 1% 2,3%SPAIN 1.029 1.019 -1% 2,0%SWITZERLAND 915 961 5% 1,9%SAUDI ARABIA 705 915 30% 1,8%CHILE 701 849 21% 1,7%CANADA 813 835 3% 1,6%TOTAL 49.814 50.824 2% 100,0%

TRADE WITH BRAZIL

Participation of Argentina and U.S. in bazilian imports

Despite the fall of Argentina`s participation in the brazilian market, Argentina represents the second supplier to Brazil (the 9.7% of brazilian imports are from Argentina), after U.S., wich represent the 20% of the total imports.

Both, Argentina and U.S. show a decreasing trend.

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

1995

1996

1997

1998

1999

2000

2001

2002

2003

ArgentinaEEUU

12%

10%

Source: INDEC and aliceweb

TRADE WITH BRAZIL

Bilateral real exchange rate with Brazil (2001=100)

During the first months of 2002 the bilateral exchange rate strongly decreased, after the devaluation of the peso and the revaluation of the real. The real exchange rate recoverd on february 2003.

On july 2003, the peso kept a stable path, while the real expericed an apreciation of 3%.

The real exchange rate increased due to an increase of the price index in Brazil.

Source: Indec, BCRA, Ipeadata, Federl Reserve of St. Luois.

0

50

100

150

200

250

300

ene-0

2

mar-

02

may-0

2

jul-02

sep-0

2

nov-0

2

ene-0

3

mar-

03

may-0

3

jul-03

sep-0

3

nov-0

3

ene-0

4

mar-

04

may-0

4

jul-04

IPM IPC

TRADE WITH CHILE

0

500

1000

1500

2000

2500

3000

3500

4000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Balance

Exports

Imports

3,156

Trade balance Argentina-Chile (million U$S)

Source: INDEC

TRADE WITH CHILE

4,50%

2,30%

11,50%

11,70%

10,70%

10,20%

8,00%

7,10%7,30%

7,40%

7,00%

6,30%4,70%

4,10%3,70%

2,00%

2,10%2,50%2,40%2,50%2,30%2,30%2,40%

2,60%2,50%2,80%

2,70%

2,80%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

9,00%

10,00%

11,00%

12,00%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Exports Imports

Chilean participation in Argentine exports and imports

Source: INDEC

TRADE WITH CHILE

14%

17%

19%

21%

7%8%

9%10%

12%

22%21%

19% 20%

15%

17%

0%

5%

10%

15%

20%

25%

1999 2000 2001 2002 2003

Argentina

Brasil

EEUU

Argentine, Brazilian and U.S. Participationin Chilean imports

Origin (2002) Mill U$S %

Argentina 3.036 19,7%U.S 2.549 16,6%Brazil 1.612 10,5%China 1.101 7,2%Germany 718 4,7%France 619 4,0%Japan 534 3,5%Mexico 475 3,1%Korea 438 2,8%Spain 416 2,7%Italy 352 2,3%Canada 319 2,1%Peru 252 1,6%Total 15.383 100,0%

During the last years Argentina gained participation in Chilean market.

50

70

90

110

130

150

170

190

ene-

01

mar

-01

may

-01

jul-0

1

sep-

01

nov-

01

ene-

02

mar

-02

may

-02

jul-0

2

sep-

02

nov-

02

ene-

03

mar

-03

may

-03

jul-0

3

sep-

03

nov-

03

ene-

04

mar

-04

may

-04

EEUU Multilateral

TRADE WITH UNITED STATES

Real exchange rate –multilateral and bilateral with the U.S. (2001=100)

Source: FMI, Worl bank, Federal Reserve of Saint Louis, Fundacion Julio Varga.


Source: INDEC

-10% 10% 30% 50% 70% 90% 110%

Total (100%)

Mercosur (37%)

UE (19%)

NAFTA (19%)

China (5%)

Japón (3%)

Chile (2%)

Jan03-Jan04

Jan-jul04/Jan-Jul04-7%

+46%

+69%+73%

+90%

+99%

+40%

+66%

+38%

+61%

+65%

+73%

+55%

+69%

Imports by origin –Participation 2003/2004-


During january-july 2004, our country registered positive trade balances with most of its trade parteners. The only exeption was Brazil. The balance o trade with MERCOSUR was - 901million dollars.

Trade balance –seven months 2003/2004 (million US$)

1.898

1.488

537

1.021

337

605546

250 199

1.821

-901

1.913

1.359

1.166

-1.000

-500

0

500

1.000

1.500

2.000

2.500

Chile UE China MedioOriente

NAFTA India Mercosur

Jan-Jul 03 Jan-Jul 04

Source: INDEC

85

105

125

145

165

185Mulilateral

Brazil

USA

The stability of the nominal exchange rate and domestic prices, after the apreciation of the dollar, determined that the real exchange rate stabilizes in levels higher than the ones registered before the devaluation

Competitivty with the U.S. is falling since the first moths of 2003, due to the apreciation of the euro.

Multilateral real exchange rate and bilateral real exchange rate with Brazil and U.S.

2001=100


Source: FMI, Worl bank, Federal Reserve of Saint Louis, Fundacion Julio Varga.

• Unit labor cost:

LABOUR COST

w t L t

e t Q tULC =

This index represent the total labour cost needed to produce one unit of output.

w : Medium nominal wage (including taxes)

L: Number of workers or number of hours worked

Q:Total output

e: Nominal exchange rate

• A fall in the wage- exchange rate relation (w/e) has a positive impact in the ULC, therefore the cost decreases.

• When productivity (Q/L) rises the ULC falls, since the incidence of wages will be lower, therefore competitiviness increases.

• Relative Competitiviness Index:

LABOUR COST

In oder to compare the evolution of the ULC between two coutries, we use the Relative Competitiviness Index (RCI)

• Index relates the ULC of country i respect the ULC of country j.

• Rises in the RCI imply that country i is less competitive than country j.

ULC i

ULC jRCI =

UNIT LABOUR COSTUnit labour cost index (1993=100)

Source: LA COMPETITIVIDAD DEL MERCOSUR FRENTE AL ALCA, Jorge Lucangeli

• The rise in th UCL between 1990-1995 is explained by 50% increase in nominal wages.

• Since 1995 prouctivity rose and wages stabilized, therefore the ULC fell, increasing competitiviness respect the rest of the countries analized.

0

20

40

60

80

100

120

140

160

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

ULC-Argentina

ULC-Brazil

ULC-United Sates

ULC-Mexico

0%

50%

100%

150%

200%

250%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Argentina-Brazil

Argentina-US

Argentina-Mexico

- 70%- 60%

Relative Competitiviness

Relative competitiviness index (1993=100)



PRODUCTIVITY AND WAGES

Evolution of productivity and wages (1990=100)

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Wages (w /e)

productivity (Q/L)

+ 91,3%

- 8%

- 63%

+ 90,1%

PRODUCTIVITY AND WAGES

Evolution of productivity, wages and ULC (1990=100)

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Wages (w/e) productivity (Q/L) ULC-Argentina

wage growth rate > Productivity growth rate=> UNIT LABOUR COST RISES

wage growth rate < Productivity growth rate=> UNIT LABOUR COST FALLS

- 72%

+ 43%


Documents

TRADE AND COMPETITIVINESS IN ARGENTINA, BRAZIL AND CHILE. Mr. Roberto Villambrosa 22 November, 2004