Spotlight 09 01

Latin American
Spotlight
September 2001
LATIN AMERICA AATT A GLANCE
LATIN
DOMESTIC ECONOMY GDP change Inflation Budget balance
in % (real) in % (year-end) in % of GDP
2000 2001f 2002f 2000 2001f 2002f 2000 2001f 2002f
Argentina -0.5 -1.4 1.1 -0.7 -0.2 0.6 -3.5 -2.7 -0.4
Bolivia 2.4 2.0 4.0 3.4 4.0 4.2 -4.5 -4.4 -4.0
Brazil 4.5 1.8 3.0 6.0 6.0 4.3 -4.6 -6.0 -4.0
Chile 5.4 3.4 4.7 4.5 3.2 3.0 -1.6 -2.1 -1.3
Colombia 2.8 2.3 2.5 8.8 9.5 9.0 -3.6 -3.0 -2.8
Costa Rica 1.7 1.0 3.0 10.2 10.5 10.0 -3.7 -3.5 -3.2
Dominican Republic 7.8 2.5 4.5 9.0 6.5 6.0 -2.1 -0.5 -1.5
Ecuador 2.3 4.0 4.2 91.0 20.0 8.0 1.5 -1.0 -0.8
El Salvador 2.0 2.8 3.8 4.3 3.5 2.7 -3.0 -4.0 -4.0
Guatemala 3.3 1.5 2.3 5.1 8.0 9.0 -2.2 -2.5 -2.7
Honduras 4.8 3.0 3.6 10.1 9.5 9.0 -4.5 -5.5 -5.0
Jamaica 0.8 1.5 2.2 6.0 6.7 6.2 -5.3 -3.7 -4.5
Mexico 6.9 1.1 4.2 9.0 4.9 5.2 -1.1 -0.8 -0.5
Nicaragua 4.3 2.5 3.5 9.9 8.0 7.9 -15.2 -15.0 -14.0
Panama 2.7 2.0 2.5 0.7 0.5 0.6 -0.8 -1.0 -0.5
Paraguay -0.4 0.0 2.0 8.6 10.5 12.5 -5.7 -3.5 -2.6
Peru 3.1 0.0 3.0 3.7 3.0 3.2 -3.0 -2.2 -2.1
Trinidad & Tobago 4.0 3.9 4.5 5.6 6.0 5.0 1.6 0.0 -0.3
Uruguay -1.3 -0.5 2.0 5.1 9.0 8.0 -4.2 -3.5 -2.5
Venezuela 3.2 2.5 2.5 13.4 13.0 22.0 3.9 -3.0 -4.0
Latin America (17 countries) 4.1 1.2 3.1 7.0 5.4 5.5
EXTERNAL SECTOR Current account balance Import cover Gross foreign debt
FOREIGN DEBT in % of GDP in months* in % of exports*
2000 2001f 2002f 2000 2001f 2002f 2000 2001f 2002f
Argentina -3.3 -2.4 -2.5 8.1 6.4 6.9 382 369 370
Bolivia -5.6 -4.5 -4.0 6.2 5.5 5.3 427 354 300
Brazil -4.2 -5.2 -4.6 4.1 3.9 3.9 347 324 298
Chile -1.4 -2.2 -2.9 7.0 6.3 6.1 155 161 153
Colombia 0.0 -3.4 -3.7 6.0 5.5 4.7 218 242 245
Costa Rica -5.6 -6.4 -6.7 1.8 1.5 1.2 58 67 66
Dominican Republic -5.2 -2.8 -1.7 0.6 0.8 1.2 55 57 56
Ecuador 8.8 -5.1 -5.8 1.8 1.3 1.4 238 278 287
El Salvador -3.2 -4.9 -7.1 3.8 3.7 3.0 111 124 127
Guatemala -4.9 -4.0 -4.3 3.7 3.4 2.6 131 132 129
Honduras -3.4 -5.5 -4.1 4.5 4.0 3.8 207 207 184
Jamaica -3.8 -6.7 -7.8 2.6 2.8 2.4 119 134 135
Mexico -3.1 -3.2 -3.2 2.0 2.1 2.0 88 86 81
Nicaragua -25.5 -24.9 -24.6 2.7 2.4 2.0 734 777 729
Panama -9.4 -5.9 -4.5 0.8 1.1 1.2 77 80 78
Paraguay -1.8 -3.2 -3.6 2.6 2.3 2.4 105 111 117
Peru -2.8 -2.4 -1.6 8.3 8.2 7.8 275 283 273
Trinidad & Tobago 7.7 1.6 -0.4 3.8 4.3 4.9 54 58 62
Uruguay -3.1 -3.3 -2.7 5.9 6.4 6.5 205 219 207
Venezuela 11.1 3.8 2.1 6.4 4.3 3.6 90 109 117
Latin America (17 countries) -2.5 -3.1 -3.1 3.9 3.5 3.4 176 177 170
* goods and services f=forecast
2 Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America

TABLE OF CONTENTS
Latin America at a glance
LATIN AMERICA: No change to fundamentals _____________________ 4
FOCUS: End of currency board system in Argentina? _______________ 6
Country analyses
ARGENTINA: What impact will the IMF deal have? _________________ 8
BOLIVIA: A new generation ____________________________________ 14
BRAZIL: Crisis management ___________________________________ 16
CHILE: Economic trend reversal? ________________________________ 22
COLOMBIA: Economy lacking in dynamism ______________________ 28
EL SALVADOR: Assistance with reconstruction ____________________ 34
JAMAICA: In the debt trap _____________________________________ 36
MEXICO: Congress must deliver ________________________________ 38
NICARAGUA: Liquidity bottlenecks _____________________________ 44
PANAMA: Debt buyback _______________________________________ 46
PARAGUAY: Touch and go _____________________________________ 48
PERU: Moment of truth ________________________________________ 50
VENEZUELA: "Soft" exchange controls ___________________________ 56
Financial market indicators Latin Amercia
Stock market indices __________________________________________ 62
Bond yield spreads ___________________________________________ 63
Global economy - figures and forecasts _______________________ 71
Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America 3

LATIN AMERICA: NO CHANGE TO FUNDAMENTALS
LATIN
Area 20.5 million sq. km
Population 518 million (+1.7% p.a.)
Share of global exports 5.6% (2000)

Share of global GDP 6.7% (1999)
GDP per capita US$ 3 900 (2000)
Exports (2000)
Purchasing countries USA 54%, Latin American countries 17%, EU 13%, Japan 3%
Imports (2000)
Supplier countries USA 47%, Latin American countries 16%, EU 15%, Japan 5%
SUMMARY AND OUTLOOK
Latin America (17 countries) 1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 2.4 0.2 4.1 1.2 3.1
GDP US$ bn 1956 1714 1889 1863 1961
Inflation (year-end) % 10.0 8.8 7.0 5.4 5.5
EXTERNAL SECTOR
Merchandise exports US$ bn 271.1 286.9 346.0 344.4 369.4
Merchandise imports US$ bn 294.3 286.4 334.3 344.3 370.7
Trade balance US$ bn -23.2 0.5 11.7 0.2 -1.3
Current account balance US$ bn -85.3 -55.5 -46.4 -58.6 -61.3
Current account balance % GDP -4.4 -3.2 -2.5 -3.1 -3.1
Gross foreign direct investment US$ bn 57.0 63.2 62.6 56.5 51.8
Foreign exchange reserves, year-end US$ bn 161.1 153.9 157.0 148.2 151.2
Import cover ** months 4.4 4.4 3.9 3.5 3.4
FOREIGN DEBT
Gross foreign debt US$ bn 770 769 745 755 773
Foreign debt % exports** 228 217 176 177 170
Short-term foreign debt US$ bn 142 125 125 128 134
Foreign debt amortization US$ bn 80 97 82 87 90
Foreign debt service US$ bn 130 147 135 141 157
Foreign debt service % exports** 38 42 32 33 35
FINANCIAL MARKETS (year-end)

IFCI stock index (US$ based, 2001: 08/22) 482 275 520 510
Yield spread (2001: 08/22)* bps 487 968 692 898
* JP Morgan Latin America-Eurobond-Portfolio ** goods and services f=forecast

Argentina is keeping both the continent and its investors in suspense
despite the announced increase in the current standby facility by about GDP CHANGE (REAL)
US$ 8 billion. We only anticipate short-term relief from this accord % y-o-y LA Argentina Brazil Mexico
unless the IMF manages to pull off the difficult task of restructuring the 8
country's debt without waiving part of the principal and yet bringing 6
about a drastic reduction of Argentina's debt service for two to three 4

years. There may be considerable delay with the organization of 2
another "megaswap", and the depletion of deposits and reserves will
0
not be halted automatically. Accordingly, the underlying fundamentals
-2
(including the continued poor economic growth in the U.S. and low
-4
prices of nonoil commodities) for the other countries in the region
1998 1999 2000 2001f 2002f
basically remain unchanged.
The significant increase in key interest rates and energy savings by
20% in Brazil are having a stronger impact than initially expected after
all: in the second quarter, GDP only rose by 0.8% year-on-year, inducing
us to revise our growth forecast for the current year downward from
2.8% to 1.8%. YIELD SPREAD OVER US-TREASURIES
In Mexico the slowdown appears to be increasingly impacting on
bps Argentina Brazil Mexico
domestic demand. However, the accompanying decline in inflation 1800
rates is making it easier for the central bank to ease its monetary policy 1600
reins further, which means that the country might soon be able to benefit 1400
1200
from the moderate upturn anticipated for the U.S. economy in the fourth
1000
quarter.
800
Following the announcement of the new Peruvian cabinet, there are 600
increasing signs that the government will pursue a more prudent fiscal 400
policy than that announced during the election campaign and that it is 200
Jan-01 Mar-01 May-01 Jul-01
well on track with its further privatization plans. The situation is quite
the contrary in Venezuela, where the introduction of "soft" exchange
controls has made investors skittish. Apart from these dirigistic
measures, the reduced oil production quotas in particular have caused
us to lower our growth forecast from 3.3% to 2.5% for the year 2001.
While there are no signs of economic revitalization in Colombia owing US$ EXCHANGE RATE
to setbacks in the peace process (GDP forecast: 2.3%), in Chile a (Index August 2000=100) Reais/ Peso Euro/ Peso
silver lining is visible on the horizon: in June growth was unexpectedly 150 $
high, and if this trend proves to be reinforced, we will consider revising 140
our forecast (2001: 3.4%). 130

For the region as a whole, we have lowered our forecast yet again for
120
the year 2001 (from 1.6% to 1.2%).
110
100
90
Aug-00 Nov-00 Feb-01 May-01 Aug-01
Cyrus de la Rubia +49 40 3595 3889

FOCUS: END OF CURRENCY BOARD SYSTEM IN ARGENTINA?
Exchange rate systems in Latin America 1991 2001
Argentina Currency Board Currency Board /

Currency Basket
Brazil Crawling Peg Floating

Chile Crawling Peg Floating
Columbia Crawling Peg Floating
Mexico Crawling Peg Floating
Peru Floating Floating
Venezuela Floating Crawling Band
STRUCTURE OF ARGENTINE EXPORTS Speculation about devaluation

The number of voices calling for a change to the Argentinean
Mercosur NAFTA
exchange-rate regime is growing again in light of the never-ending
29% 22%
speculation concerning the country's future. However, the
abandonment of the Currency Board system does not represent a
solution to the country's deeper-seated problems. The proponents of
a flexibilization of the exchange-rate regime (in other words allowing
EU the exchange rate to float, followed by a depreciation of the currency)
22%
Other believe this will generate a strong impetus for the benefit of Argentina's
27%
export sector and a revitalization of economic activity driven by rising
exports. Higher growth would then make the country's debt appear to
be more easily manageable.
Overvalued peso?
This plan would probably not work out, at least not in this form. First of
REAL EFFECTIVE EXCHANGE RATE all, there is some doubt as to whether the peso's exchange rate really
is as sharply overvalued as many happen to believe. Since 1999 Argen-
real effective exchange rate, Argentine peso
150 tina has undergone a significant deflation, which means that in relation
overvalued by approx.13% (July 2001)
140 to the U.S. a devaluation has even taken place. For foreign trade, the
130
exchange-rate regime was already rendered more flexible several
120
110
months ago by linking the currency to a euro- and dollar-denominated
100 basket; this has resulted in the Argentinean peso no longer following
longterm average
90 the appreciation of the dollar relative to the euro to the full extent.
80
According to our calculations, the peso in terms of wholesale prices is
70
60 only overvalued by about thirteen per cent. This year, the Argentinean
Jul-89 Jul-91 Jul-93 Jul-95 Jul-97 Jul-99 Jul-01 economy is likely to generate a trade surplus in the order of some US$

5 billion, which is double the level recorded in the previous year. ARGENTINE EXPORTS
Even if this is largely attributable to the recession and poor domestic
US$ mn
demand, it nevertheless means that foreign trade is not necessarily 3000
Argentina's main problem. And finally, Argentina's traditionally low
export quota indicates that it would not make sense to use devaluation 2500
as a prescription. Only 8% of Argentina's GDP is exported. While a

2000
massive depreciation, which would be inevitable following a free
float of the exchange rate, might boost exports, but the effect for the
1500
aggregate economy would be of less significance owing to the low
export quota. 1000
Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01
Devaluation causes fresh problems

A devaluation of the peso would not solve any problems but create
new ones instead. The state, corporations and private households
are heavily indebted on a dollar basis. A devaluation would cause
the country's debt on a peso basis to skyrocket. Not only would this GROSS FOREIGN DEBT (ARGENTINA)
automatically mean an insolvency of the Argentine state, but also of
US$ bn
numerous corporations. This would result in a long-term 160
destabilization of the relatively solid financial sector at present (one
150
of the strongest points of the Argentinean economy), the insolvency
140
of the state and a deep and long-lasting recession. In addition, there
130
is the danger of this triggering a domino effect for other emerging
markets dependent on capital inflows. 120
However, this does not mean that the Argentine peso necessarily 110
needs to be linked to the US dollar on a long-term basis. On the 100

contrary: the fact that the export sector is so underdeveloped and 1998 1999 2000 2001f 2002f
hardly competitive is attributable in large part to the inflexible

exchange-rate regime.
Dollarization has its vagaries

Accordingly, the alternative proposal for a complete dollarization of
EXCHANGE RATES
the Argentinean economy also has its vagaries. Dollarization means
(Index August 2000=100) Reais/ Peso Euro/ Peso
the complete relinquishment of a country's own national currency. $
150
Once abolished, a subsequent return to an own currency and inde-
140
pendent monetary policy is very difficult. Countries like Argentina
130
which, due to their economic structure, are heavily dependent on
global economic developments, need their own independent 120
monetary policies and exchange-rate regimes to ward off external 110
shocks. In the long run, Argentina will need to find a way out of the 100
"dollar trap". But not in the country's current situation.
90
Aug-00 Nov-00 Feb-01 May-01 Aug-01
Dr. Heinz Mewes +49 40 3595 3482

ARGENTINA: WHAT IMPACT WILL THE IMF DEAL HAVE?
Area 2 736 700 sq. km

Population 37.1 million (+1.3% p.a.)
State president Fernando de la Rua

Economy minister Domingo Cavallo
Central bank president Roque Maccarone
Next elections State president: 2003

House of Deputies (half) and
Senate: 14. October 2001
Investment 18% of GDP (2000)

Savings 17% of GDP (2000)
Exchange rate system Fixed exchange rate to the US$ (1:1)

Monetary policy Currency board
Exports (2000) 10% of GDP

Purchasing countries Merosur 32%, EU 18%, NAFTA 14%
Products Primary goods and crude oil 39%,
industrial goods 31%, processed
agricultural produce 30%
Imports (2000) 9% of GDP

Supplier countries Mercosur 29%, EU 23%, NAFTA 22%
Products Capital goods 41%, intermediate goods 34%,
consumer goods 18%
Rating Moody’s: Caa1 S&P: B-
SUMMARY AND OUTLOOK
The reinforcement of the existing IMF accord announced by IMF president Horst Koehler on August 21, comprising
US$ 8 billion, is likely to provide Argentina only with a brief respite. Presumably an attempt will be made using part
of the IMF funding to restructure the country's debt one more time on a voluntary basis and/or reduce the level of
amortization payments significantly in the next several years. However, it should be difficult to convince investors of
a plan of this kind. At the same time, it must be taken into account that the population is increasingly unwilling to
accept the austerity measures this agreement will entail. Accordingly, for us the bottom line is that while Argentina
will gain some time thanks to the new IMF accord, this has not really brought the country any closer to solving its
actual problems. Accordingly, we adhere to our assessment that the danger of a default has not been averted at this
stage.
8 Dresdner Bank Lateinamerika, Spotlight 9/2001, Argentina

ANNUAL FIGURES AND FORECASTS
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 3.9 -3.4 -0.5 -1.4 1.1
GDP US$ bn 299.1 283.4 285.2 280.0 297.2
Inflation (year-end) % 0.7 -1.8 -0.7 -0.2 0.6
Inflation (average) % 0.9 -1.2 -0.9 -0.6 0.0
PUBLIC SECTOR
Budget balance, central government % GDP -1.4 -2.6 -2.3 -1.9 0.0
Budget balance, public sector % GDP -2.2 -4.0 -3.5 -2.7 -0.4
Public debt % GDP 38 43 45 48 48
Amortization US$ bn 6.3 11.4 12.2 11.8 16.6
Gross financing needs US$ bn 11.4 19.7 19.8 17.1 16.6
EXTERNAL SECTOR
Trade balance US$ bn -3.2 -0.8 2.5 4.7 5.1
Net foreign direct investment US$ bn 4.4 11.1 10.6 6.9 7.0
Foreign exchange reserves, year-end*** US$ bn 30.4 32.2 32.5 25.0 28.0
US$ exchange rate, year-end Pesos 1.0 1.0 1.0 1.0 1.0
US$ exchange rate, average Pesos 1.0 1.0 1.0 1.0 1.0
FOREIGN DEBT
Gross foreign debt US$ bn 141.9 146.0 147.2 146.5 153.1
Short-term foreign debt US$ bn 20.9 19.7 22.8 24.0 25.5
Foreign debt amortization US$ bn 9.8 12.9 16.0 17.6 19.6
Foreign debt service US$ bn 21.1 23.7 28.5 29.7 32.4

Prime rate % 10.6 11.5 13.8 15.0 10.0
Merval stock index (peso based, 2001: 08/22) 430 549 417 329
Bond market yield (2001: 08/22)* % 11.0 11.2 12.5 18.5
Yield spread (2001: 08/22)* bp 581 447 672 1239
3/4
*9 % US$-Bond (2027) **goods and services *** incl. liquidity requirements held abroad f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Argentina 9

SEATS IN THE CHAMBER OF DEPUTIES Domestic policy: overshadowed by the economic crisis
Elections to congress are scheduled to be held toward the middle
of the De la Rua government's term of office, on October 14 of this
Partido
Justicialista year. For the first time all 72 seats in the senate will be up for re-
99 Alianza 129
election, while of the 257 deputies only half (exactly 127) continue
UCR: 84
Frepaso: 37 to stand for election. In view of the ongoing economic crisis, we
Provincial
anticipate that the parties of the ruling coalition (UCR and Frepaso)
parties: 8
will lose seats. The Peronists (Partido Justicialista), the strongest
Provincial Acción por

opposition party, will hardly be able to benefit from the govern-
parties la República ment's weakness. Its strategy of dissociating itself from Cavallo's
17 12
strict austerity measures will probably not succeed since their en-
actment was only possible with their (albeit halfhearted) support.
The high popularity of minister of economy Cavallo when he took
office has declined in the course of the stringent austerity measures
imposed. The party (Acción por la República) he founded in 1997
SEATS IN THE SENATE should nevertheless do better than at the congressional election of
1999 without being able to come close to the two major parties,
however. We take it for granted that the dissatisfaction among the
Partido Alianza population will chiefly lead to votes gained by splinter and provin-
Justicialista 21 cial parties.
39 UCR: 20
Frepaso: 1 We expect the ruling coalition to lose its majority in the house of
deputies along with some seats in the senate, where it is already in
the minority. The outcome of the election will probably complicate
the government's tasks further. However, the special powers con-
Provincial
parties
ceded to the government when Cavallo took office will continue to
9 apply until April next year.
Economic activity: no turnaround in sight

Following three years' recession, the economic slide has acceler-
ated yet again. The latest figures on GDP trends show a decline of
2.1% for the first quarter year-on-year. Investment activity once again
GOVERNMENT FINANCING NEEDS
declined sharply (-9.2%) and private consumption likewise
US$ mn continued to decline (-1.8%). For the second quarter we anticipate
4.0
3.5
similarly negative figures. In view of the uncertain economic outlook
3.0 and high interest rates, a revitalization in terms of consumption
2.5 and investment is out of the question at present. A further increase
2.0 in the number of layoffs is likely to have led to an increase in the un-
1.5
employment rate, which stood at 15.5% in May this year. One fur-
1.0
ther indicator of poor trends in consumer demand is that inflation is
0.5
declining again (July: -1.1% year-on-year).
0.0
Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 The public spending cuts (salaries and pensions in the public

service were reduced by 13%) within the scope of the zero deficit GDP CHANGE (REAL)
plan will also hamper growth in the course of the year. A substantial %, y-o-y
part of the reduced GDP decline to -0.6% we anticipate for the 8
second half year-on-year is attributable to statistical base effects. 6
For the year as a whole, we expect a GDP decline of 1.4%. 4
Fiscal policy: IMF accord - a new mega-swap? 0
The renewed intensification of the crisis induced the Argentinean -2
government to enter into talks with the IMF once again. After two -4
weeks of sluggish negotiations, on August 21 IMF president Horst -6

II/98 IV/98 II/99 IV/99 II/00 IV/00 II/01f IV/01f
Köhler announced that he would recommend increasing the past
credit volume by US$ 8 billion, to US$ 22 billion. Of this sum, US$ 5
billion is to be made available to increase the central bank's foreign
currency reserves once the IMF's Board of Directors has agreed
early in September. The remaining US$ 3 billion will presumably be
used to give investors some incentive to agree to a further restruc- CENTRAL BANK REPOS
turing of the country's debt (after the mega-swap of June 2001). In
US$ mn
other words, in view of the high volume of debt maturing in the next
several years (2002: US$ 19.6 billion) the maturity structure of the 2000
debt could be extended to gain time once again. To perform a

1500
transaction of this kind, Argentina will need to do a great deal of
propaganda work to convince investors and the markets. In par- 1000
ticular, Argentina will have to deliver credible evidence that the

500
country actually is willing and able to assert the required reforms.
Part of this will be the unconditional enforcement of the zero deficit 0
plan passed at the end of July, which provides for the entire public Jun-01 Jul-01 Aug-01
sector (including the provinces) to spend no more than is collected

by way of revenues. This issue will depend on acceptance by the
broad population, which for several weeks now has voiced its dis-
satisfaction with the country's austerity policy by calling for general
strikes and setting up roadblocks.
BANK DEPOSITS
In our opinion, the US$ 5 billion earmarked to bolster the country's
US$ bn (US$ and Peso deposits)
foreign currency reserves is a drop in the ocean; there has been 90
an outflow in foreign currency reserves of more than US$ 5 billion
since end-June 2001 alone. This liquidity injection will only be 85
sensible if a debt restructuring actually takes place. But skepticism

80
is justified even here: only a restructuring that will drastically reduce
the level of debt service in the next two or three years could give
75
Argentina the necessary leeway to push through the reforms and
return to a growth path. In light of past experience with the IMF 70
packages of March 2000 (US$ 7.2 billion) and January 2001 (US$ Jan-01 Mar-01 May-01 Jul-01

COVER OF THE MONETARY BASE 14 billion) it is likely to be extremely difficult to obtain adequate
consensus among investors for a transaction of this kind.
US$ bn Monetary base FX reserves
30
Monetary sector: meltdown of deposits and reserves
25 The Argentinean investors' fear of a devaluation and bank deposits
being frozen is reflected in a massive decline in deposits and re-
20 serves. Bank deposits declined by 10% within five weeks, to US$
75.0 billion by mid-August. The central bank responded by easing
15
the liquidity reserve commitments. Since mid-July it has also been
10
adding liquidity to the market with the increasing use of repo trans-
Jan-01 Mar-01 May-01 Jul-01 actions. However, its means within the currency board system are
restricted, indicating that a further meltdown of deposits is not likely
to be sustainable for long. The central bank's foreign currency
reserves declined by a quarter in the five weeks since the begin-
ning of July, to US$ 17.4 billion. The new IMF agreement is only
likely to yield a brief respite. If the liquidity outflow is not capable of
US$-PRIME RATE AND BOND SPREAD
being stanched, this will mean an immediate danger to Argentina's
EMBI+ spread, bps US$-prime rate, %
solvency since a banking crisis is likely to intensify the recession
2000 30
and cause tax revenues to collapse. Moreover, the banks are heav-
1600 25
ily engaged in financing the country's public-sector debt.
20
1200
15 External sector: slowdown in imports
800
10 The decline in imports in the second quarter of the year ( -9% year-
400 5 on-year) mirrors the country's weak domestic demand. What is
especially worrying is the reduction in imports of investment goods
0 0
Jan-01 Mar-01 May-01 Jul-01 by 32% in June. Exports are increasingly suffering due to the de-
valuation of currencies in neighboring countries essentially pre-
cipitated by the Argentinean crisis. For the year as a whole, exports
are unlikely to rise by more than 4%. The trade surplus is expected
to increase in the current year to US$ 4.7 billion (2000: US$ 2.5
billion) and contribute to a reduction of the current account deficit
EXPORT AND IMPORT GROWTH
to 2.4% (2000: 3.3%) of GDP. The price of these "successes" is the
%, y-o-y, 3 month moving average increased recession.
30
20
exports
10
-10 imports
-20
-30 Günter Köhne +49 40 3595 3483

Jun-99 Dec-99 Jun-00 Dec-00 Jun-01

MONTHLY AND QUARTERLY FIGURES
MONTHLY INDICATORS Apr 01 May 01 Jun-01 Jul-01 next/latest
DOMESTIC ECONOMY
Industrial production % yoy 0.1 -2.4 -1.3 -2.6 17-Sep
Construction % yoy 1.2 0.7 0.1 24-Aug
Supermarket sales % yoy -4.3 -3.2 -1.7 24-Aug
Budget balance US$ mn -878 -1002 298 27-Aug
Consumer prices % yoy -0.2 0.2 -0.3 -1.1 05-Sep
Consumer prices % mom 0.7 0.1 -0.7 -0.3 05-Sep
Money supply M3 % yoy -1.5 -2.4 -2.3 -6.9 15-Sep
Overnight peso rate (latest: 08/22)* % 7.6 4.8 8.5 23.5 13.8
Overnight US$ rate (latest: 08/22)* % 6.5 5.0 4.4 11.0 13.3
Private sector borrowing (latest: 08/22)* US$ bn 61.0 60.3 60.3 58.2 15-Sep
Public sector borrowing (latest: 08/22)* US$ bn 14.8 14.7 14.2 14.8 15-Sep
Peso deposits ***(latest: 08/21)* US$ bn 24.2 24.0 23.9 21.7 20.3
US$ deposits (latest: 08/21)* US$ bn 47.5 48.6 48.8 46.4 44.7
EXTERNAL SECTOR
Merchandise exports US$ mn 2381 2602 2531 07-Sep
Merchandise exports % yoy 2.0 0.0 6.0 07-Sep
Merchandise imports, cif US$ mn 1908 2075 1764 07-Sep
Merchandise imports % yoy 0.0 -6.3 -19 07-Sep
Trade balance US$ mn 473 527 767.0 07-Sep
Foreign exchange reserves (latest: 08/21)* US$ bn 27.4 27.2 28.5 21.8 17.2
QUARTERLY INDICATORS Q2 00 Q3 00 Q4 00 Q1 01 next /latest
DOMESTIC ECONOMY
GDP % yoy 0.2 -0.5 -2.1 -2.1 20-Sep
Private consumption % yoy 1.0 -0.3 -2.6 -1.8 20-Sep
Public consumption % yoy -0.8 -0.4 -1.2 -0.5 20-Sep
Private and public investment % yoy -7.4 -11.4 -11.9 -8.6 20-Sep
Domestic demand % yoy 0.2 -0.9 -2.0 -2.2 20-Sep
Export (goods and services) % yoy 2.0 0.8 1.8 1.0 20-Sep
Import (goods and services) % yoy 2.5 -2.0 -2.3 0.1 20-Sep
Budget balance, central governm. (latest: Q201) US$ mn -234 -1553 -2798 -3120 -1582
Public debt US$ bn 123.5 123.7 128.0 127.4 27-Sep
EXTERNAL SECTOR
Current account balance US$ bn -1.4 -2.3 -2.0 -2.9 26-Sep
Net foreign direct investment US$ bn 1.4 6.0 1.0 1.1 26-Sep
Net portfolio investment US$ bn 1.9 -2.6 -2.3 -2.3 26-Sep
Capital account** US$ bn 0.7 1.5 3.5 -0.3 26-Sep
Change in foreign reserves (latest: Q2 01) US$ bn 1.5 0.0 0.1 -3.7 -1.7
Gross foreign debt US$ bn 144.4 147.7 147.2 145.6 26-Sep
Short-term foreign debt US$ bn 19.5 22.5 22.8 23.2 26-Sep
* month-end ** incl. residual items ***by the private sector

BOLIVIA: A NEW GENERATION
Area 1 098 581 sq. km
Population 8.3 million (+ 2.8% pro Jahr)
State president Jorge Quiroga Ramirez

Finance minister Jacques Trigo
Central bank president Juan Antonio Morales Anaya
Parliament: 2002
GDP per capita US$ 1 012
Rating Moody’s: B1 S&P: B+
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 4.7 0.6 2.4 2.0 4.0
GDP US$ bn 8.5 8.4 8.3 8.7 8.9
EXTERNAL SECTOR
Merchandise exports US$ mn 1104 1051 1230 1350 1490
Merchandise imports US$ mn 1983 1755 1830 1857 1950
Trade balance US$ mn -879 -704 -600 -507 -460
Current account balance US$ mn -666 -488 -464 -390 -359
Net foreign direct investment US$ mn 955 1014 760 950 720
Foreign exchange reserves, year-end US$ mn 885 917 824 720 730
Import cover * months 5.8 7.1 6.2 5.5 5.3
US$ exchange rate, year-end*** Bolivianos 5.65 5.99 6.40 6.73 7.10
FOREIGN DEBT
Gross foreign debt US$ mn 5125 5100 5150 4800 4500
Foreign debt % exports* 450 474 427 354 300
Short-term foreign debt US$ mn 575 625 700 680 640
Foreign debt amortization US$ mn 324 300 275 190 220
Foreign debt service US$ mn 608 550 540 380 400
Foreign debt service % exports* 53 51 45 28 27
*goods and services f=forecast
14 Dresdner Bank Lateinamerika, Spotlight 9/2001, Bolivia

Domestic policy: old guard bowing out SUMMARY AND OUTLOOK
Newly appointed president Jorge Quiroga took advantage of his
Owing to his severe illness (cancer), the past
opportunity when he took office to almost completely reshuffle the
president Hugo Banzer handed over the staff of
cabinet. Only four of the 16 ministers remained in office. The business
office to his much younger deputy, Jorge
community was especially pleased with the appointment of Jacques
Quiroga. This was followed by an extensive
Trigo, the chairman of the banking supervisory office, as finance minister.
In addition, the fact that the influence of the old guard of the ruling party reshuffle of the cabinet equivalent to a political
(ADN) has been reduced on the whole is a positive signal. The change of generation. The state's support of the
government only has a few months before the next presidential election banking system and the increase in public
campaign. According to the constitution, Quiroga will not be able to investment are to make it possible next year to
stand as a candidate. It remains to be seen whether Quiroga, a trained increase the level of growth, which at present is
engineer in the U.S., will manage to deliver any significant impetus in being driven by gas exports.
this short space of time. In the medium to long term, economic policy is
being dictated above all by the program to combat poverty. By 2003
economic growth is to be raised from 2% at present to 5% per annum
amid ongoing low inflation rates. In the short term, infrastructural
measures are to generate growth and prove beneficial to rural regions.
GDP AND INFLATION

Monetary sector: reinforcement of the banking system
% GDP change (real) inflation
The weak level of growth for three years now poses a substantial burden
14
to the Bolivian banking system. The share of non-performing loans
12
(8.5%) is in danger of rising due to the high level of interest rates and the
10
economic situation. An additional financial injection via the state-owned
8
bank "NAFIBO" is to help private banks in restructuring their loan portfolios
6
and contribute toward a reduction of interest rates on US$ loans (end-
4
July: 15.5%). At the same time, banking supervision is to be reinforced.
2
0
External sector: decline in foreign currency reserves 1994 1995 1996 1997 1998 1999 2000e 2001f
Due to the intervention of the central bank on the forex market - the
devaluation of the boliviano is being contained to check inflation - the
central bank's foreign currency reserves have been fluctuating
considerably from month to month. Despite the sharp increase in natural
gas exports as well as the especially high net inflows of direct investment
BALANCE OF PAYMENTS
this year on account of capital spending on a mining project (San
US$ mn exports FDI FX reserves
Cristobal), we fear that there may be an net outflow of foreign currency
1600
reserves of US$ 100 million by the end of this year. Import cover by that 1400
time should be around 5½ months. On the other hand, the debt remission 1200
performed within the scope of the HIPC Program will enable the indicator 1000
of foreign debt as a percentage of exports to fall by well over 70 800
percentage points, and maturities of medium to long-term debt will also 600
400
see a significant decline.
200
0
1996 1997 1998 1999 2000 2001f 2002f
Kai Stefani + 49 40 3595 3486
Dresdner Bank Lateinamerika, Spotlight 9/2001, Bolivia 15

BRAZIL: CRISIS MANAGEMENT
Area 8 511 965 sq. km
State president Fernando Henrique Cardoso

Finance minister Pedro Malan
Central bank president Armínio Fraga
Next elections State president: October 2002

Parliament: October 2002

Exchange rate system Flexible exchange rate

Monetary policy Inflation targeting

Purchasing countries EU 27%, USA 24%, ALADI 23%, Asia 12%
Products Manufactured goods 68%,
Primary products 32%

Supplier countries EU 25%, USA 23%, ALADI 21%, Asia 15%
Products Capital goods 41%, primary products 34%,
crude oil 14%, consumer goods 11%
Rating Moody’s: B1 S&P: BB-
SUMMARY AND OUTLOOK
Unexpectedly negative global economic trends, the Argentinean crisis and scarce energy resources are responsi-ble to
a great extent for the substantial decline in inflows of foreign investment this year and the fact that the real is under constant
devaluation pressure. This made it necessary to raise the level of interest rates, which has contributed to the economic
slowdown. In the second quarter of the year 2001 GDP growth declined surprisingly sharply to as little as 0.8% year-on-
year. While we do not rule out a subsequent upward revision of this figure, we have nevertheless lowered our GDP forecast
for the current year from 2.8% to 1.8%. At the same time, we have raised our exchange-rate forecast for the end of this year
from 2.38 to 2.50 reais per US dollar. The devaluation of the real and flagging economic activity is likely to help ease the
current account. The IMF is supporting the economic adjustment under a new stand-by agreement.
16 Dresdner Bank Lateinamerika, Spotlight 9/2001, Brazil

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 0.2 0.8 4.5 1.8 3.0
GDP US$ bn 787.5 529.4 588.0 511.3 525.0
Inflation (average) % 3.2 4.9 7.0 6.5 5.3
PUBLIC SECTOR
Budget balance, central government % GDP -5.4 -6.9 -3.2 -5.0 -3.5
Public debt % GDP 43.3 49.4 49.5 -54.0 52.0
Amortization US$ bn n.a. n.a. n.a. n.a. n.a.
Financing needs, central government US$ bn 42.5 36.4 18.8 25.6 18.4
EXTERNAL SECTOR
Trade balance US$ bn -6.6 -1.3 -0.7 -0.7 1.0
US$ exchange rate, year-end Reais 1.2 1.8 2.0 2.5 2.5
US$ exchange rate, average Reais 1.2 1.8 1.8 2.3 2.4
FOREIGN DEBT

Interbank interest rate, overnight % 29.2 18.8 15.8 17.0 14.0
Bovespa stock index (real based. 2001: 08/22) 6784 17091 15258 12952
Yield spread (2001: 08/22)* bp 968 562 731 950
1/8
* 10 % US$-Bond (2027) **goods and services f= forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Brazil 17

SEATS IN THE CHAMBER OF DEPUTIES Domestic policy: corruption and election campaign
Brazilian political situation is once again being dominated by a case
PT PPB*
12% 11% of corruption. A commission of inquiry was set up in congress against
Others president of the senate Barbalho (on leave at present) to investigate
19%
his involvement in several unlawful acts. Proof of having made a
false statement before Congress would be sufficient for impeachment
PSDB*
18% proceedings. In view of the political isolation by and large of the
PMDB*
19% president of the senate, we anticipate that the procedure in congress
will run its course in several weeks' time and Barbalho will resign
PFL* before the work routine in congress is unduly disrupted for too long.
21% *government coalition
In the campaign for the presidential election (October 2002) former
president Itamar Franco has had to contend with defeat within his
own party. His plans to become party chairman of the coalition party
PMDB and lead it into the opposition have failed because he did not
manage to prevail against the powers interested in an ongoing
SEATS IN THE SENATE cooperation with the government. As a result, the likelihood of Fran-
co being nominated presidential candidate of the PMDB has declined,
PT
PSDB*
9%
which would mean his departure to a smaller party or adversely
20%
affect his chances. The party will make its decision on September 9
PPB*
5% whether or not it will remain in the ruling coalition.
The outcome of the election remains completely open – contrary to
Others
9%
the opinion of some analysts, who consider the victory of the oppo-
PMDB* sition a certainty. Whereas the popularity of Cardoso (whose party
32%
PFL* has not nominated a candidate yet) has surprisingly increased
25%
according to the latest opinion polls, the opposition candidates Ciro
*government coalition Gomes and Itamar Franco had to contend with losses. Some 60% of
all voters are still undecided, and the government has not even
launched its election campaign. From today's perspective a tight
election victory is likely. If the opposition remains divided and the
coalition parties work together a similar grouping as in 1998 may
arise, when the candidate of the ruling coalition and Luís Ignácio da
PUBLIC SECTOR BUDGET BALANCE
Silva ("Lula") of the PT workers' party faced each other in a run-off
% of GDP, moving 12 months period nominal primary
5
ballot. Unlike the situation at the time, however, the PT has mean-
3 while moved away from its radical views hostile to the business
1
community, which means that even in the event of an opposition
-1
-3 victory (which we consider to be unlikely) a certain continuity in
-5
economic policy would nevertheless be likely.
-7
-9
-11 Public finance: tighter fiscal policy
-13
-15 In the first half of the year the public sector reported a surplus be-
Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 fore interest of R$ 30.4 billion (5.4% of GDP), exceeding the target

laid down by the IMF for the first six months by R$ 9 billion. However, PUBLIC INTERNAL DEBT
if the substantially higher interest rates on public debt are included share in % US$ fixed rate Selic
in the equation, this produces a deficit for the same period of R$ 29 80
70
billion or 4.9% (1st half of 2000: 3.1%) of GDP. The interest burden
60
rose from R$ 40 billion to R$ 59 billion, or 10.2% of GDP. This increase
50
is explained by the weak exchange rate (roughly a quarter of
40
domestic debt is linked to the exchange rate of the US dollar) and 30
the increase in interest rates. The ratio of public debt to GDP is likely 20
to rise to 54% by end-2001 (end-2000: 50%). In view of this trend, 10
the government has raised its target for the primary surplus for 2001/ 0
May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01
02 from 3% to 3.35% or 3.5% of GDP. This measure was adopted
within the framework of a new stand-by agree-ment with the IMF
scheduled to run until December 2002 and linked to an additional
credit line of US$ 15 billion. The minimum level of foreign currency
reserves was lowered from US$ 25 billion to US$ 20 billion, widening
the central bank's scope for intervention to a corresponding degree. GDP CHANGE (REAL)
%, yoy
Economic activity: decline in growth 6
GDP grew at a lower rate than expected in the second quarter of 5
2001, rising by as little as 0.8% (first half of the year: 2.5%) year-on- 4
3
year. Particularly sharp reductions were registered in the agricul-
2
tural sector (+0.2%) and industry (+0.4%) but the services sector
1
(+2.2%) also remained behind expectations, especially due to the
0
sharp decline in the telecommunications sector (-11%). Growth rates -1
remained satisfactory in the banking industry (5%) and in mining -2
and the oil sector (6%). The economic weakness is attribut-able to I/98 IV/98 III/99 II/00 I/01 IV/01p
various factors: in addition to the negative global economic

environment and the ongoing Argentinean crisis, it was especially
the hike in key interest rates (375 basis points since March) that has
impacted adversely on investment. The energy crisis enduring since
June has been an additional burden. These unfavorable conditions
INFLATION
are likely to continue in the third quarter; for this reason we have
% mom yoy
lowered our GDP growth forecast for the year 2001 from 2.8% to
10
1.8%. However, since some of the figures used to calculate second-
8
quarter GDP still are estimates and other indicators reflect a
6
considerably more upbeat image in terms of economic develop-
ment, we cannot rule out a subsequent upward revision of GDP 4
growth figures. 2
0
Monetary sector: increase in inflation
-2
The inflation rate peaked at 1.3% in July, reaching its highest rate Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01

this year (twelve-monthly rate to end-July: 7.1%). This acceleration
EXCHANGE RATE
is largely attributable to higher, state-imposed price adjustments
Reais/US$ concentrating on the months of June and July; starting in August
2.7
the inflation rate should return to a lower level. However, the cumu-
2.5
lative inflation rate in the course of this year (4.3%) is so high that
2.3
we have raised our forecast for the year 2001 from 5.5% previously
2.1 to 6%, the upper limit of the central bank's inflation target. At the
1.9 center of inflationary expectations lie two counteracting factors:
1.7
the weakness of the Brazilian real and the decline in consumer de-
mand. In view of the economic slowdown in the second quarter,
1.5
Aug-99 Feb-00 Aug-00 Feb-01 Aug-01
which is likely to continue into the third, we expect the pass-through
to be very slight in the next several months even if the weakness of
the real continues for the time being and a recovery only eventu-
ates at the end of the year. We have raised our exchange-rate
forecast for 2001 from R$ 2.38/US$ to R$ 2.50/US$, and we expect
the base interest rate to reach a level of 17% by the end of this year.
INTEREST RATES
interbank overnight %, annualized rate External sector: lower investment inflows
50
In the first half of the year 2001 the current account deficit rose to
45
reach US$ 13.3 billion (first half of 2000: US$ 11.2 billion). At the
40
35
same time, the level of direct investment declined from US$ 13.4
30 billion to US$ 9.9 billion. For the year as a whole we anticipate a net
25 direct investment inflow of US$ 19 billion and a current account
20 deficit of US$ 26.5 billion. The deterioration in the balance of pay-
15 ments situation is essentially attributable to the cooling down of the
10
global economy, which is dampening foreign investment and im-
Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01
peding export growth. After two years in which it was possible to
reduce the level of Brazil's foreign debt, fresh net borrowing will be
necessary once again in the year 2001. We expect the country's
total foreign debt to rise from US$ 236 billion to US$ 242 billion. A
certain relief is likely to result from the slower level of economic
CURRENT ACCOUNT AND FDI activity and the weakness of the country's national currency, which
US$ bn current account deficit foreign direct investment stimulates exports and enhances the competitiveness of domestic
35 products relative to imports from abroad. Owing to the country's
30 dependence on foreign capital, Brazil's necessary adjustment to
25 internal and external crisis factors is ultimately leading to an in-
20 crease in foreign debt and slower economic growth.
15
10
0 Humberto Santamaria, São Paulo +55 11 5188 6884

Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01
Christine Thomas do Prado, São Paulo +55 11 5188 6968

MONTHLY INDICATORS Apr-01 May 01 Jun-01 Jul-01 next/latest
DOMESTIC ECONOMY
Capacity utilization (CNI) % yoy 81.0 81.8 80.3 06-Sep
Industrial production (IBGE) % yoy 6.1 4.2 -1.4 06-Sep
Retail sales (FCESP) % yoy -3.1 -6.4 -7.7 29-Aug
Unemployment rate (IBGE) % 6.5 6.9 6.4 29-Aug
Real wages per working hour (FIESP) % yoy 7.8 7.1 4.7 04-Sep
Consumer prices % yoy 6.6 7.0 7.4 7.1 12-Sep
Consumer prices % mom 0.6 0.4 0.5 1.3 12-Sep
Money supply M1 % yoy 22.7 25.1 21.3 26. Aug
Interbank interest rate (latest: 08/21)* % 16.2 16.8 18.3 18.9 19.1
Financial sector lending US$ bn 153.5 145.6 135.1 26. Aug
EXTERNAL SECTOR
Merchandise exports US$ mn 4730 5367 5042 4965 03-Sep
Merchandise exports % yoy 13.1 6.0 3.7 -0.8 03-Sep
Merchandise imports US$ mn 4610 5156 4765 4857 03-Sep
Merchandise imports % yoy 9.6 9.7 3.5 -0.6 03-Sep
Trade balance US$ mn 120 211 277 108 03-Sep
Foreign exchange reserves (latest: 08/21)* US$ bn 34.7 35.5 37.3 35.5 34.9
US$ exchange rate (latest: 08/22)* Reais 2.22 2.38 2.30 2.43 2.53
QUARTERLY INDICATORS Q3 00 Q4 00 Q1 01 Q2 01 next/latest
DOMESTIC ECONOMY
GDP % yoy 5.1 4.1 4.3 0.8 14-Nov
Agriculture % yoy 3.9 -7.3 1.8 0.2 14-Nov
Industry % yoy 4.7 4.9 5.1 0.4 14-Nov
Services % yoy 4.5 3.9 2.8 2.2 14-Nov
Public debt Reais bn 547.9 563.2 588.7 619.4 26-Oct
EXTERNAL SECTOR
Current account balance US$ bn -4.5 -9.0 -6.7 -6.9 26-Oct
Net foreign direct investment US$ bn 8.2 9.6 4.6 5.2 26-Oct
Portfolio investment US$ bn 2.1 0.5 2.5 -0.9 26-Oct
Capital account ** US$ bn 7.5 9.0 7.8 9.6 26-Oct
Change in foreign exchange reserves US$ bn 3.2 1.6 1.0 2.9 26-Oct
Gross foreign debt US$ bn 232.4 236.2 236.8 26-Sep
Short-term foreign debt US$ bn 29.3 30.0 29.0 26-Sep
* month-end ** incl. residual items

CHILE: ECONOMIC TREND REVERSAL?
Area 756 629 sq. km
State president Ricardo Lagos Escobar

Finance minister Nicolás Eyzaguirre Guzmán
Central bank president Carlos Massad Abud
Next elections State president: December 2005

Upper House: December 2001
Lower House: December 2001



Purchasing countries EU 25%, USA 17%, Japan 14%
Products Mining 46%, Industry 45%,
Fishing, Agriculture, Forestry 9%

Supplier countries USA 19%, Argentina 16%, EU 16%
Products Capital goods 21%, consumer goods 19%,
fuel and lubricants 16%
Rating Moody’s: Baa1 S&P: A-
SUMMARY AND OUTLOOK
A few months before the congressional elections, opinion polls seem to indicate that the Lagos government may find it
difficult to defend its majorities in both houses of parliament; in particular, its majority in the senate might be at stake. This
is likely to be the background to the reform plans relating to the labor market, which are heavily geared to regulation and
which the government hopes will win additional votes. Looking at the economy, in spite of the high growth in June we do
not see any immediate indicator of an economic trend reversal as this growth is partly attributable to special effects, and
the factors impeding growth (commodity prices, Argentinean crisis) continue to prevail. Accordingly, we are leaving our
GDP forecast at 3.4% for the time being. The peso weakness is impacting positively on foreign trade figures. We have
therefore revised our current account deficit forecast for the year 2001 from 2.6% to 2.2% of GDP.
22 Dresdner Bank Lateinamerika, Spotlight 9/2001, Chile

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 3.9 -1.1 5.4 3.4 4.7
GDP US$ bn 72.7 67.0 69.9 63.1 65.5
PUBLIC SECTOR
Budget balance, central government % GDP 0.4 -1.5 0.1 -0.5 -0.1
Budget balance, public sector % GDP -0.7 1.6 -1.6 -2.1 -1.3
Public debt % GDP 12.1 12.4 11.3 11.3 11.3
EXTERNAL SECTOR
Trade balance US$ bn -2.5 1.7 1.4 0.4 0.2
Net foreign direct investment US$ bn 1.8 4.4 -1.1 2.0 2.5
US$ exchange rate, year-end Pesos 474 528 574 660 670
US$ exchange rate, average Pesos 460 509 539 623 655
FOREIGN DEBT

Base rate, 90 days (PRBC) % real 14.5 10.7 8.5 6.2 6.6
IPSA stock index (peso based, 2001: 08/22) 71 100 96 115
Bond market yield (2001: 08/22)* % 8.1 7.5 6.7
Yield spread (2001: 08/22)* bp 152 221 181
7/8
*6 % US$-Bond (2009) **goods and services f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Chile 23

CHAMBER OF DEPUTIES Domestic policy: poor poll results for government
UCCP Partido Unión-

Only a few months before the parliamentary elections scheduled
Independent 1 Demócrata
deputies
for December 16, according to a CERC poll taken in July the govern-
Independiente
5
22 ment's approval ratings dropped to 47% (following 53% in April),
RN
22
while its rejection rose from 39% to 44%. The proportion of respon-
dents who believe an election victory of the opposition "Alianza por
PPD*
16 Chile" is correspondingly high (roughly 40%), while only 33% be-
PDC*
38
lieve the ruling Concertación will win. The majorities in the senate
P. Radical
Social-
and in the house of deputies are likely to remain close owing to the
Demócrata*
PS*
election system and are likely to change to the detriment of the
5 11 *Concertación
ruling coalition particularly in the senate. At present the labor mar-
ket reform is being debated in congress. We believe this topic is
receiving so much attention merely because of the run-up to the
elections. In light of the many regulations planned (particularly
with regard to protection from dismissal and strike conditions), we
SENATE feel the project is likely to be more of a hindrance than a help in
terms of the competitiveness of the Chilean economy.
RN 7 Independents
UDI 5
5 Fiscal policy: budget remains on target
appointed
Senators Expenditure of the central government came to the equivalent of
6
PDC*
14
US$ 8.2 billion in the second quarter (slightly below the figure
appointed
Senators*
budgeted); accordingly, the budget almost balanced against some
3
US$ 7.9 billion in revenues. In the first half of the year the govern-
Senators for ment managed to achieve a surplus amounting to 0.5% of GDP. It
life*
1
PPD* was possible for the negative impact of the weak copper price to
2 PS*4 *Concertación
be absorbed by the copper equalization fund and the weak peso,
among other factors. On the expenditure side, the public sector
has so far exercised restraint with regard to its investment projects
planned; accordingly, investment spending only rose by about 1.5%
in the first half of the year. The government has announced plans to
boost its spending in the second half, with a real growth rate of 7%
PUBLIC FOREIGN DEBT
being targeted. We are keeping to our forecast of a budget deficit
US$ mn
11000 amounting to 0.5% of GDP.
10000 Meanwhile the law to reduce income tax and raise taxes on corpo-
9000 rate profits from 15% to 17% has passed through congress. This
8000 law, which is geared above all to distributive effects, is only likely to
7000 have a negative impact on investment trends of companies, which
6000
had agreed to an increase in corporate income tax by 1.5 of a
5000
percentage point in the period leading up to the legislative process.
4000
1991 1993 1995 1997 1999 2001
(Jun)

Economic activity: long-awaited trend reversal in sight? ECONOMIC ACTIVITY
Following low growth rates in April and May (2.6% and 2.4%, re- Imacec index, % y-o-y
spectively) in June the Imacec, with an increase of 5.1% year-on- 9
year, indicated an acceleration of economic activity. On the one 7

5
hand, this might reflect an economic trend reversal attributable to
3
monetary policy and the exchange rate. The weak peso in particu-
1
lar has several benefits in economic terms: the competitiveness of -1
exports is rising, which is discernible from the significant increases -3
in export volume. The local industries are in a better position than -5
in the past to compete with imports, which have become more -7
Jun-99 Dec-99 Jun-00 Dec-00 Jun-01
expensive. The 6.3% industrial growth rate (June) may be a possible
indicator. And finally, the weak peso is also likely to be perceived
as a good opportunity for foreign investors to enter the market or
reinforce existing investments. The two-fold increase in gross direct
investments in the first half of the year to US$ 3.2 billion might be a
contributory factor. INFLATION
On the other hand, there are several negative factors relating to
Inflation, % y-o-y m-o-m
economic activity. In this context, firstly the sharp decline in prices 6
of key commodities must be taken into account. The copper price 5
in particular was down to 65 cents/lb at times, or just over 20% 4
lower than at the beginning of the year. Even if this is not attended 3
by a decline in export volumes, lower prices of merchandise ex- 2
ports nevertheless are impeding growth. Secondly, the Argentine- 1
an crisis is a factor that is leading to lower profits for parent compa- 0
nies, especially via Chilean direct investment in Argentina (which -1
accounts for more than 50% of Chile's direct investment portfolio Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01
abroad) and hurting the economy. Finally, the ongoing high unem-
ployment rate is stifling consumption. In addition, taking several
special effects into consideration that led to the high level of growth
in June, we believe it would be premature to raise our growth fore-
cast from 3.4% for the year 2001. Instead, we will need to wait and
EXCHANGE RATE
see whether the economic indicators will point to a consolidation
Pesos/US$
of the good growth figures.
700
Monetary sector: massive support announced for the peso 650
Early in August the central bank announced its plans to use a 600
nominal interest rate as a key rate rather than a real one. The past
550
policy resulted in very stable real interest rates, whereas short-
term nominal interest rates were subjected to significant fluctuations 500
because they were determined on the basis of inflationary

450
expectations. However, since most short-term loans are granted Aug-99 Feb-00 Aug-00 Feb-01 Aug-01

on a nominal basis, under the past policy it was difficult for the
EXPORTS
central bank to exert an influ-ence on interest rates prevailing on
Price Index Volume-Index the market. – In mid-August the peso hit an all-time low (691 pesos/
120 300
US$) against the backdrop of the Argentinean crisis and the decline
110
280 of the copper price to 65 cents/lb. Thus far no inflationary pressure
100 is discernible. In July there was even a price decline by 0.2%
260
90 month-on-month. However, if the peso fails to recover, the latest
240 devaluation push could lead to imported inflation and put the
80
220 inflationary target of 2-4% at risk. The central bank therefore decided
70
to take more stringent measures to combat the devaluation,
60 200
I/98 III/98 I/99 III/99 I/00 III/00 I/01
announcing issues of dollar-linked papers (PRD) to extend the
volume already in circulation by up to US$ 2 billion beyond the
past level planned, resulting in a total stock equivalent to US$ 4.5
billion by the end of the year. In addition, US$ 2 billion of the central
bank's reserves is to be used for support buying operations. Apart
from combating inflation, this measure is also intended to cover the
CURRENT ACCOUNT high demand for hedging instruments on the part of private
US$ mn, balances companies (private foreign debt at end-June: US$ 31.7 billion). In
800
contrast, the country's public foreign debt (US$ 5.3 billion) is no
400 cause for concern.
0
-400 External sector: decline in commodity prices

The weak peso is impacting significantly on the trade balance. In
-800
the second quarter, exports rose 12.4% year-on-year. Among other
-1200
factors, this is attributable to industrial goods exports, which ex-
-1600
panded by 10.7% in spite of a 7.5% price decline. In other sectors
I/98 III/98 I/99 III/99 I/00 III/00 I/01
too (mining and the agricultural sector) it was possible for the de-
cline in export prices to be offset by appropriate expansions in
volumes exported. In contrast, imports declined significantly. In
this context, consumer goods in particular were imported to a lesser
extent (-12.6%). On the other hand, in July the increased price
TRADE BALANCE decline on commodity markets (e.g. for copper and fishmeal) led to
US$ mn exports imports balance a 14.1% drop in exports year-on-year. In forthcoming months too,
2000 the effect of the sharp decline in commodity prices will predominate
1500 by far. We have therefore lowered our forecast for exports slightly
1000 to US$ 17.6 billion. Imports will likewise grow to a lesser extent
500
than previously assumed (3% year-on-year). We have corrected
our forecast for the current account deficit from 2.6% to 2.2% of
0
GDP.
-500
-1000
Jul-98 Feb-99 Sep-99 Apr-00 Nov-00 Jun-01

DOMESTIC ECONOMY
IMACEC % yoy 2.6 2.4 5.1 17-Sep
Industrial production % yoy 3.1 0.6 6.3 30-Aug
Mining production % yoy -3.5 3.2 5.2 30-Aug
Retail sales % yoy 0.4 0.5 3.8 23-Aug
Unemployment rate % 9.1 9.6 9.7 30-Aug
Employment mn 5.28 5.25 5.26 30-Aug
Labour cost index % yoy 0.3 0.3 0.3
Consumer prices % mom 0.5 0.4 0.1 -0.2 05-Sep
Wholesale prices % yoy 10.7 10.9 8.5 7.4 05-Sep
Wholesale prices % mom 1.9 1.5 -0.1 0.9 05-Sep
Money supply M1 % yoy 16.8 18.0 20.9 23.4 07-Sep
Base rate (PDBC, 90 days, latest: 08/21)* % 8.62 8.69 6.74 6.4 6.42
Deposit rate (month-average) % 5.94 5.98 5.83 6.0 23-Aug
Financial sector lending* Pesos bn 27500 27584 27391 23-Aug
Total financial savings M7* Pesos bn 36676 36512 37217 23-Aug
EXTERNAL SECTOR
Merchandise exports US$ mn 1693 1544 1428 1332 23-Aug
Merchandise exports % yoy 28.6 -11.9 12.6 -14.2 23-Aug
Merchandise imports US$ mn 1280 1361 1380 1390 23-Aug
Merchandise imports % yoy -6.1 -13.1 3.7 -4.7 23-Aug
Trade balance US$ mn 413 183 48.4 -57.8 23-Aug
Net foreign direct investment US$ mn 122.9 50.9 225.5 23-Aug
Foreign exchange reserves* US$ bn 14.4 14.5 14.3 14.5 23-Aug
US$ exchange rate (latest: 08/22) CLP 592.7 611.0 631.8 670.3 665.4
DOMESTIC ECONOMY
GDP % yoy 6.0 5.6 4.5 3.3 23-Aug
Total consumption + change in stocks % yoy 14.5 5.0 2.1 2.1 23-Aug
Private and public investment % yoy 1.6 7.8 12.0 9.7 23-Aug
Domestic demand % yoy 11.0 5.7 4.7 3.9 23-Aug
Exports (goods and services) % yoy 3.9 9.7 5.7 5.6 23-Aug
Imports (goods and services) % yoy 15.3 9.0 6.1 6.9 23-Aug
Budget balance, public sector Pesos bn 34 -160 -232 200 23-Aug
EXTERNAL SECTOR
Current account balance balance US$ bn -0.62 -0.53 -0.31 0.11 23-Aug
Net foreign direct investment US$ bn 0.21 -0.53 -0.45 0.86 23-Aug
Portfolio investment US$ bn -0.10 0.29 -0.13 -0.96 23-Aug
Capital account** US$ bn 0.49 0.76 -0.77 -0.05 23-Aug
Change in foreign exchange reserves US$ bn -0.13 0.22 -0.38 0.06 23-Aug
Gross foreign debt US$ bn 35.0 35.5 36.8 37.4 23-Aug
Short-term foreign debt US$ bn 4.77 4.99 7.90 7.5 23-Aug

COLOMBIA: ECONOMY LACKING IN DYNAMISM
Area 1 141 748 sq. km
State president Andrés Pastrana Arango

Finance minister Juan Manuel Santos Calderón
Central bank president Miguel Urrutia Montoya
Next elections State president: May 2002

Parliament: March 2002

Exchange rate system Flexible exchange rate (floating)


Purchasing countries USA 50%, EU 14%, Venzuela 10%
Products Manufactured goods 38%,
Crude oil and derivatives 34%, Coffee 8%

Supplier countries USA 34%, EU 17%, Venezuela 8%
Products primary and intermediate products 51%,
capital goods 30%, consumer goods 19%
Rating Moody’s: Ba2 S&P:BB
SUMMARY AND OUTLOOK
The peace process between the government and the two leftist guerrilla groups, the FARC and the ELN, once again saw
severe setbacks. The guerrilla conflict will continue to hurt the country's economic development. To some extent in view
of the latest economic data (industrial production in June was even slightly lower year-on-year), our GDP growth forecast
for the year 2001 as a whole remains at 2.3%. The current account this year is likely to record a deficit of more than 3% of
GDP especially due to declining oil export revenues. This deficit is being financed e.g. by issuing government bonds on
international capital markets. The peso, which regained some of its value following an announcement by the government
that assets located abroad would be repatriated, is likely to decline again in the next several months. The reason for this
is that the reforms to reduce the public-sector budget deficit, especially the new rules and regulations relating to old-age
pension provisions, continue to be delayed.
28 Dresdner Bank Lateinamerika, Spotlight 9/2001, Colombia

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 0.6 -4.1 2.8 2.3 2.5
GDP US$ bn 98.8 84.9 81.3 81.8 84.7
PUBLIC SECTOR
Amortization US$ bn 4.4 6.1 5.7 n.a. n.a.
Gross financing needs US$ bn 8.8 11.0 8.3 n.a. n.a.
EXTERNAL SECTOR
Trade balance US$ bn -2.4 1.8 2.5 0.2 0.1
Current account balance US$ bn -5.2 0.1 0.0 -2.8 -3.1
Current account balance % GDP -5.3 0.1 0.0 -3.4 -3.7
Import cover *** months 5.2 6.2 6.0 5.5 4.7
US$ exchange rate, year-end Pesos 1536 1874 2229 2455 2610
US$ exchange rate, average Pesos 1426 1756 2088 2335 2530
FOREIGN DEBT
Foreign debt % exports*** 251 246 218 242 245
Foreign debt service % exports*** 49 51 47 54 52

Deposit rate (DTF, 90 days) % 34.3 15.8 13.4 12.5 12.5
IBB stock index (peso based, 2001: 08/22)* 1109 998 713 984*
Bond market yield (2001: 08/22)** % 11.0 11.6 13,1 9.5
Yield spread (2001: 08/22)** bp 601 474 757 477
5/8
* as of July 2001: IGBC ** 7 % US$-Bond (2007) ***goods and services f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Colombia 29

GDP CHANGE (REAL) Domestic policy: positions entrenched in guerrilla conflict
% yoy qoq
The slight easing of tension between the government and the FARC
4 (with more than 16,000 fighters the strongest leftist group of rebels)
was very brief: even after abducted members of the security forces
1
had been exchanged for detained guerrilla fighters in June, the first
noticeable advance in the peace process, the FARC continued its
-2
abductions and other acts of violence. Subsequently, the government
-5
discontinued the cease-fire negotiations. In the ensuing weeks
hundreds were killed in skirmishes in various areas of Colombia
-8 between FARC rebels and security forces and in clashes between the
II/98 IV/98 II/99 IV/99 II/00 IV/00 II/01e IV/01f
FARC and rightist paramilitary groups, which have meanwhile
expanded to approx. 8,000 fighters.
Meanwhile the positions between the government and the ELN,
consisting of about 5,000 rebels, have become completely en-
trenched. The guerrillas had broken off talks with the government after
ECONOMIC INDICATORS the establishment of a demilitarized zone in which peace negotiations
were to be held had failed on account of protests by the inhabitants.
% y/y industrial production retail sales
20 Early in August the government likewise terminated the dialog as the
15
ELN had also rejected peace negotiations outside the country – Vene-
10
zuela had offered to host the peace talks. Meanwhile the rebels have
5
0 reinforced their violent attacks, also dealing sensitive blows to the
-5 country's infrastructure, and the armed forces have intensified their
-10
military activities against the rebels.
-15
In view of this situation, state president Pastrana, whose four-year term
-20
-25 of office will be coming to an end as early as in August 2002 and who
Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 is prohibited by the constitution from standing again, will not reach his
objective of concluding peace agreements with the guerrilla groups.
Accordingly, he will leave his successor to deal with the internal conflict,
which has raged for almost 40 years now and cost nearly 40,000 lives
in the last decade alone. Three presidential candidates have chances
of winning the election in May 2002: Horacio Serpa, the leader of the
INTEREST RATE AND INFLATION
liberal party, independent Noemí Sanín, former conservative minister
% deposit rate inflation, yoy
40 of parliament, and the former liberal and independent Alvaro Uribe.
35 Uribe in particular wants to negotiate significantly more strictly with
30 the leftist rebel groups and is in favor of a further military reinforcement.
25 Serpa also criticized Pastrana's management of the negotiations as
20 too soft; he intends to include the paramilitary groups in the peace
15
effort.
10
5
Fiscal policy: bond issues at lower spreads
Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 In the course of this year, Colombia has already placed several bond

issues on the international capital markets to cover the public sector's FOREIGN TRADE
financing requirements. The country managed to benefit in particular US$ mn exports imports balance
1400
in recent months from the considerably lower risk premiums. They fell
1200
because some advances had been made in the interim with the peace
1000
process and because the budget structural reform to limit transfer
800
payments by the central to regional government offices has finally 600
been passed. Moreover, Colombian bonds also appeared less risky 400
in light of the turmoil in Argentina – and the country took advantage of 200
that propitious moment: this year's public financing requirements on 0
the international capital market (US$ 2.7 billion) have already been -200
May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01
covered and, in addition, a total of US$ 1 billion in issues planned for
fiscal 2002 (US$ 2.2 billion) have already been placed. The
government wants to continue the advance funding by placing further
bond issues, which is a wise move because of the uncertainty
associated with the gradually approaching presidential election. This
uncertainty might lead to higher spreads even though none of the OIL PRICES COLOMBIA
candidates is expected to make any major changes to the country's
US$/barrel Cusiana Caño Limón
economic policy. 40
35
Economic activity: stubborn weakness in growth 30
There are increasing signs that economic growth this year will turn out 25
lower than in 2000 (2.8%). In the first quarter of 2001 the GDP increase 20
had only amounted to 1.7% year-on-year, and in the second quarter it 15
is unlikely to have exceeded 2%. While retail sales rose more sharply 10
in the second quarter than in the first, growth of industrial production 5
declined at the same time. Among other things, the economy is being Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
impeded by the higher tax burden that arose once the tax reform
entered into force at the beginning of 2001 and by declining oil
production, which is also attributable to the oilfields becoming less
productive. In contrast, a significant impetus is being generated by
exports, especially those of the non-traditional variety (including
EXTERNAL SECTOR
industrial goods). Exports to Ecuador and Venezuela have risen
balance, US$ bn current account trade
substantially in the course of this year, benefiting from the high
4
competitiveness of Colombian goods in neighboring countries thanks
to exchange-rate related factors. We are sticking to our forecast for 2
GDP growth for the year 2001 as a whole, which we had reduced to 0
2.3% within the scope of our recent Latin American Spotlight update
-2
(previously 2.6%). Easing monetary policy – in July and August the
central bank lowered its key interest rates, including the repo rate, by -4
a total of 150 basis points – like the interest rate cut of March 2001,
-6
should not generate any significant economic impetus. The economic 1997 1998 1999 2000 2001f 2002f

FOREIGN DEBT
climate remains depressed, with the banks' lending volume still slightly
US$ bn % of exports
42 260 below the previous year's level. On the one hand, the banks frequently
40 250
prefer less risky assets such as government bonds; on the other, the
demand for credit by corpora-tions remains weak.
38 240
36 230
External sector: current account in deficit this year
34 220 Colombia's external accounts will turn out less upbeat this year. As
32 210 regards the trade balance, which finished the year 2000 with a surplus
30 200 of US$ 2.5 billion due to price-related higher oil export revenues and
1997 1998 1999 2000 2001f 2002f substantially higher exports of industrial goods, we only anticipate a
modest surplus this year. Oil exports will see a significant fall, especially
due to the decline in the export volume, which is also attributable to
the increasingly frequent acts of sabotage by the guerrillas; in the first
half of 2001, at US$ 1.6 billion they were 31% lower year-on-year.
FOREIGN EXCHANGE RESERVES Although exports of non-traditional goods and coal rose appreciably,
in the first half total merchandise exports fell by 3% year-on-year.
US$ bn import cover in months
10 7 Merchandise imports continue to grow. Owing to the deterioration of
the trade balance, we continue to believe that the current account
6.5
8
(which closed with small surpluses in 1999 and 2000 of US$ 98 million
6
6 and US$ 41 million, respectively), will record a deficit of US$ 2.8 billion
5.5
(or 3.4% of GDP). In the first quarter the current account deficit amounted
4
5 to US$ 736 million.
2
4.5
0 4
Exchange rate: strong peso – but how much longer?
1997 1998 1999 2000 2001f 2002f The peso, which shed 6% of its value from the beginning of the year to
mid-May, has since appreciated by some 4% (Aug. 22: 2,283 Pesos =
US$ 1.00). The primary cause in this respect was the government's
announcement of its intention to repatriate assets located abroad to
pay for domestic debt. However, we believe the value of the peso will
decline again soon and adhere to our exchange-rate forecast (end-
EXCHANGE RATE
2001: 2,455 pesos = US$ 1.00). There are several factors in favor of
Pesos/US$
2600 this trend, which would be beneficial to the competitiveness of exports:
in October the government will need to decide yet again whether it
2400
wants to allow the FARC to retain the demilitarized zone. In addition,
2200 the reduction of the public budget deficit is not likely to proceed on
schedule since the new rules relating to vertical financial equalization
2000
have been watered down and the reform of the old-age pension system
1800 remains stalled due to a lack of political consensus.
1600
Luz Knees +49 40 3595 3488

DOMESTIC ECONOMY
Industrial production % yoy 4.9 2.6 -2.6 11-Sep
Retail sales % yoy 1.1 2.7 6.4 21-Sep
Unemployment rate (urban) % 17.8 18.1 18.6 31-Aug
Active labour force (urban) % yoy 3.0 2.1 2.8 31-Aug
Producer prices % yoy 10.7 11.1 10.2 9.0 06-Sep
Producer prices % mom 1.4 0.8 -0.1 0.1 06-Sep
Money supply M1 (latest: 08/15)* % yoy 15.5 9.0 10.9 7.1 5.8
Lending rate (latest: 08/10) % 22.0 22.8 22.1 21.4 21.6
Deposit rate (DTF, 90 days, latest: 08/17)* % 12.7 12.7 12.8 12.7 12.5
Treasury bills (TES, 1 year, latest: 08/22)* % 13.2 13.0 12.9 12.9 12.4
Interbank interest rate (latest: 08/16) % 10.6 11.7 11.3 10.8 10.9
Credit volume (latest: 08/03)* % yoy -5.1 -3.6 -2.4 -2.1 -2.1
EXTERNAL SECTOR
Merchandise exports US$ mn 1057 1086 991.0 31-Aug
Merchandise exports % yoy 19.3 -5.2 -13.9 31-Aug
Merchandise imports US$ mn 1086 1060 27-Aug
Merchandise imports % yoy 33.6 8.3 27-Aug
Trade balance US$ mn -29 26 27-Aug
Foreign exchange reserves (latest: 08/15)* US$ mn 9567 9561 9187 9365 9495
US$ exchange rate (latest: 08/22)* pesos 2347 2325 2305 2298.0 2283
DOMESTIC ECONOMY
GDP % yoy 3.4 3.2 2.3 1.7 28-Sep
GDP % qoq 0.0 1.2 0.1 0.4 28-Sep
Domestic consumption % yoy 1.7 0.9 -0.2 1.2 28-Sep
Domestic investment % yoy 24.6 19.4 7.7 7.2 28-Sep
Domestic demand % yoy 4.4 3.2 0.8 2.1 28-Sep
Exports (goods and services) % yoy 3.0 6.5 8.1 6.6 28-Sep
Imports (goods and services) % yoy 9.1 7.0 0.2 9.2 28-Sep
Manufacturing industry % yoy 11.5 13.0 6.4 2.2 28-Sep
Financial sector and real estate % yoy 0.0 1.1 -0.7 1.0 28-Sep
Budget balance, central government Pesos bn -2106 -1118 -6594 -1632 28-Sep
EXTERNAL SECTOR
Merchandise exports US$ bn 3.31 3.53 3.53 3.09 28-Sep
Merchandise imports US$ bn 2.77 2.77 2.85 3.06 28-Sep
Trade balance US$ bn 0.54 0.76 0.68 0.03 28-Sep
Current account balance US$ bn -0.03 0.06 0.03 -0.74 28-Sep
Net foreign direct investment US$ bn 0.42 0.85 0.72 0.37 28-Sep
Portfolio investment US$ bn 0.14 0.09 0.35 0.71 28-Sep
Capital account** US$ bn 0.13 0.26 0.21 1.05 28-Sep
Change in foreign exchange reserves US$ bn 0.09 0.25 0.41 0.28

EL SALVADOR: ASSISTANCE WITH RECONSTRUCTION
SALV
Area 21 041 sq.km
Population 6.3 million (+ 2.2% p.a.)
State president Francisco Guillermo Flores Pérez

Finance minister: Juan José Daboub
Central bank president Rafael Barraza
Next elections State president: March 2004

Parliament: March 2003
Rating Moody’s: Baa3 S&P: BB+
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 3.5 2.6 2.0 2.8 3.8
GDP US$ bn 15.4 12.4 13.2 14.0 14.9
Inflation (year-end) % 4.2 -1.0 4.3 3.5 2.7
EXTERNAL SECTOR
US$ exchange rate, year-end Colones 8.76 8.76 8.76 8.76 8.76
FOREIGN DEBT
*goods and services f= forecast
34 Dresdner Bank Lateinamerika, Spotlight 9/2001, El Salvador

Domestic sector: upturn around the corner? SUMMARY AND OUTLOOK
At the beginning of the year, severe earthquakes in El Salvador caused
Even after the severe earthquake damage at the
some US$ 2 billion in damage. In March of this year - at the meeting of
beginning of the year, the growth process in El
the consultative group for Central America - foreign governments and
Salvador is not in danger since foreign
multilateral financial institutions approved funding to assist the country
governments and multilateral financial
with the reconstruction of its economy. The consultative group will grant
the country US$ 1 billion in the next several years in the form of loans institutions quickly prepared a support package
(one third of which in the fast-track process) as well as grants-in-aid for reconstruction purposes. The government
(US$ 0.4 billion that do not need to be repaid). Since El Salvador can can also use these proceeds to cover rising
now use the funds approved to push forward the reconstruction of its fiscal and external deficits. In the year 2001 the
devastated infrastructure and as investment activity is being stimulated increasing volume of public spending will also
by declining interest rates (currently in the region of 9.9% p.a.) within be financed by a eurobond issue.
the framework of the dollarization process initiated, economic growth is
likely to accelerate in the course of the year; even in the first quarter of
this year the growth rate was in the region of 1.7% year-on-year due to
a 7% production increase in the manufacturing industry. Our growth
forecast for the year 2001 as a whole remains at around 3% even
though the agricultural sector (including coffee) suffered severe INDUSTRIAL PRODUCTION
setbacks due to earthquake damage and unfavorable climatic
Real change, % y-o-y
conditions. During the reconstruction process the state will need to 12
raise spending significantly, which means that the budget deficit (after 10
grants) is likely to grow from 3% to roughly 4% of GDP. This year the 8
government will be able to cover the higher financing needs with the 6
aid of multilateral loans and by issuing a ten-year eurobond (to the 4
value of US$ 353 million, at a coupon of 8.6%) which was received by 2
the international capital market in spite of the Argentinean crisis. Lea- 0
ding rating agencies kept their risk assessment for El Salvador -2
(investment grade) in force. In the longer term, however, the state has to Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01
return to a consolidation course for public finances in order to be

prepared for external shocks.
External sector: reserve cushion

Due to further increasing private money transfers from the U.S. and a
CURRENCY RESERVES
rising inflow of funds in the form of foreign loans (including the
government bond issue and multilateral lending), by July of this year FX-reserves US$ mn Import cover, months
5
the country's foreign currency reserves rose to US$ 2 billion even though 2000
the demand for imports is rising significantly during the reconstruction 4
1500
phase and coffee exports are falling drastically. The current account 3
deficit in 2001 is likely to widen to 5% of GDP; however, we assume that 1000
2
the further capital inflow will cause reserves to stabilize at just over US$
2 billion. 500 1
0 0
Ingrid Grünewald 040 3595 3487 1996 1997 1998 1999 2000 2001f 2002f
Dresdner Bank Lateinamerika, Spotlight 9/2001, El Salvador 35

JAMAICA: IN THE DEBT TRAP
Area 11 425 sq.km
State president P.J. Patterson

Finance minister Omar Davies
Central bank president Derick Latibeadiere
Next elections December 2002
Rating Moody’s: Ba3 S&P:B+
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % -0.7 -0.4 0.8 1.5 2.2
GDP US$ bn 7.4 7.3 7.5 7.5 7.6
Budget balance, public sector* % GDP -11.1 -7.4 -5.3 -3.7 -4.5
EXTERNAL SECTOR
Merchandise exports* US$ mn 1613 1490 1637 1650 1800
Merchandise imports* US$ mn 2744 2628 2975 3200 3300
Trade balance* US$ mn -1131 -1138 -1338 -1550 -1500
US$ exchange rate, year-end J$ 37.10 41.30 45.40 47.00 50.00
FOREIGN DEBT
*incl. foreign assistance **goods and services f=forecast
36 Dresdner Bank Lateinamerika, Spotlight 9/2001, Jamaica

Domestic economy: growth path too low SUMMARY AND OUTLOOK
The risk that Jamaica will have no way of escaping its debt trap
The slight economic pickup this year has done
has continued to grow. While the government's austerity policy -
nothing to change our fundamental conviction
the budget surplus before interest payments amounted to 12.5%
that in light of a public debt quota of around 140%
of GDP in the year 2000 - reduced the public-sector deficit
of GDP Jamaica will be caught in a debt trap in
further to 5.3% of GDP, the level of public-sector debt continued
to rise to 137% of GDP. For the year 2001 the government agreed the medium term. Funding via international
on a reduction to 3% of GDP within the scope of an IMF monitoring bonds is likely to become more difficult next year
program. In view of the growing dissatisfaction of the population, due to the presidential election and the negati-
which led to bloody uprisings in July, and the presidential election ve external conditions prevailing, which will lead
scheduled for the year 2002, we doubt that the government will to an unsustainable current account deficit of
be in a position to reach its set target. A softening of fiscal policy around 7 % of GDP
would put an end to the slight decline in interest rates which has
done a great deal to stimulate the Jamaican economy to a certain
extent. The projected growth rates of 2% for this year and next
are too low in any event to take pressure off the country's debt
situation. In view of the political uncertainty in connection with
the elections, the significantly higher risk aversion on the GDP CHANGE (REAL)
emerging markets and the amortization payments on internatio-
%
nal bonds starting next year, it is doubtful whether the Jamaican 3.0
government will be able to meet its payment obligations in the
2.0
medium term.
1.0
External sector: external shocks hurting current account 0.0
Owing to the diverse external shocks that Jamaica has had to -1.0
contend with since the year 2000 (oil price hikes, decline in -2.0
aluminum prices, economic slowdown in the U.S.), the current -3.0
account deficit will widen substantially this year to nearly 7% of 1997 1998 1999 2000 2001f 2002f
GDP, and it will remain at this high level next year too. In the
medium term, a deficit of this order is impossible to finance for
Jamaica. In the past, the government has resisted a flexibilization
of its exchange-rate regime - against the recommendations of
the IMF. The Jamaican dollar had appreciated by about 50% in
CURRENT ACCOUNT
real terms from 1995 to 1998 and has since shed little in value. A
controlled devaluation would improve the country's US$ mn % of GDP
0 0
competitiveness and contribute toward a reduction of the
-100
structural current account deficit. If the public debt situation -2
-200
should escalate, this will lead to a substantial exchange-rate -4
-300
correction of the national currency.
-400 -6
-500
-8
-600
-700 -10
Thorsten Rülle +1 305 810 3855 1997 1998 1999 2000 2001f 2002f
Dresdner Bank Lateinamerika, Spotlight 9/2001, Jamaica 37

MEXICO: CONGRESS MUST DELIVER
Area 1 967 183 sq. km
State president Vicente Fox Quesada

Finance minister Francisco Gil Diaz
Central bank president Guillermo Ortiz Martínez
Next elections State president: July 2006

Parliament: July 2003



Purchasing countries USA 89%, EU 3%, Canada 2%
Products Maquiladora 45%, rest of industry 40%
crude oil and derivatives 10%

Supplier countries USA 73%, EU 9%, Japan 3%, Canada 2%
Products Intermediate goods for the maquiladora 35 %,
intermediate goods for the rest of the economy 41%,
capital goods 14%, consumer goods 10%
Rating Moody’s: Baa3 S&P: BB+
SUMMARY AND OUTLOOK
In the past, the Mexican economy has managed to shake off a large number of negative external influences without
difficulty: the economic slowdown in the U.S., the decline in oil prices, the financial crisis in Argentina - while all this has
ended a phase of uninterrupted growth for a solid 21 quarters, these events nevertheless have not managed to shake
confidence in the country's macro-economic stability and its long-term growth prospects. Accordingly, thanks to an
easing of monetary policy and declining inflation, Cetes interest rates reached an all-time low. And the peso remains
remarkably stable owing to the high capital inflows. The true test still lies ahead, however: starting in September the house
of deputies will be dealing with the tax reform. We are optimistic that thanks to intensive preparatory work on the political
front, an acceptable compromise will emerge at the end of the day. If expectations are disappointed, however, the peso
and the country's interest rates will be in for volatile times.
38 Dresdner Bank Lateinamerika, Spotlight 9/2001, Mexico

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 4.8 3.9 6.9 1.1 4.2
GDP US$ bn 420.5 480.4 574.4 618.8 665.9
PUBLIC SECTOR
Amortization (not incl. Cetes)*** US$ bn n.a. n.a. 44.3 23.7 20.1
Gross financing needs*** US$ bn n.a. n.a. 52.9 31.2 26.6
EXTERNAL SECTOR
Trade balance US$ bn -7.9 -5.6 -8.0 -9.3 -11.4
Gross foreign direct investment US$ bn 11.3 11.6 13.2 20.0 15.0
US$ exchange rate, year-end Pesos 9.91 9.50 9.62 9.40 10.00
US$ exchange rate, average Pesos 9.15 9.56 9.46 9.41 9.66
FOREIGN DEBT

Interest rates (Cetes, 28 days) % 31.2 16.3 17.6 7.5 8.1
IPC stock index (peso based, 2001: 08/22) 3960 7130 5652 6333
Yield spread (2001: 08/22)* bp 560 307 381 368
1/2
* 11 % US$-Bond (2026) ** goods and services *** central government f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Mexico 39

Fiscal policy: recession as a catalyst for reforms
SEATS IN THE CHAMBER OF DEPUTIES Politically speaking, the stage appears to be set for the passage of the
tax reform bill as early as in the first few weeks of the legislative period
PRI PRD
(211) (50) for congress scheduled to begin on September 1. The tough
negotiations in recent months to bring about a compromise accept-
other able both to PAN and PRI deputies is likely to lead to the government
(15) submitting a modified bill. The anticipated concessions to the PRI are
acceptable in light of political stability factors. The extension of the
value added tax base to include food and medications is likely to be
pushed through by and large; only a basic basket of about 15 products
PAN
PVEM (207) is to remain free of value added tax in the future. The tax rate is to
(17)
remain at 15%. However, three percentage points of this are likely to
go directly to the federal states in the future to alleviate their financial
woes. This would not only be a sensible but also a tactically skillful
strategy on the part of the Fox government, the reason being that the
PRI governors who rule 18 of the total of 31 federal states should well
SEATS IN THE SENATE have an influence on the voting behavior of their party in the house of
deputies. To make up in part for the shortfall in revenues occasioned
by the tax exemption of the basic basket, a tax on price gains realized
PVEM
(5) on the stock markets and on interest income from government money
PAN market instruments (Cetes) is under discussion. Further concessions
(45)
by the government are likely concerning the issue of the peak income
PRD
(17)
tax rate, which was originally set to be lowered to 32%. Not only the
established readiness of the government to make concessions and
other the persistent political work of experts in the parties are to help the
(2)
reform initiative to be successful. The "hard landing" of the economy
PRI (59)
has revealed the structural weaknesses in public finances: at 16% of
GDP, state revenues are too low; in addition, one third of the revenues
in question are generated by the volatile oil business. Political pressure
on the PRI to agree to the reform has thus increased significantly.
Following the election victory in the federal state of Tabasco, the former
PUBLIC SECTOR REVENUES ruling party is in the process of recovering from its defeat at the
presidential election of July 2, 2000 - and it would jeopardize this
year 2000 trend if it was not inclined to perform constructive work in the opposition.
Federal Government,
non-tax revenues: 24.2% A taxation reform which is increasing the tax rate by about 1.5 per-
centage points, an austere public-sector budget in 2002 and initial
Revenues from signs of an economic recovery in the fourth quarter – all this would
PEMEX: 9,1%
Federal Government, constitute an ideal scenario for Mexico to be awarded Investment
tax revenues : 48.9 %
Grade status by the rating agency Standard & Poor's by the end of this
Revenues from other year.
public sector entities:

Public finances: further spending cuts necessary
In the second quarter the gap between budgeted and actual state GDP CHANGE (REAL)
revenues widened to 6.8 billion pesos (first quarter: 3.4 billion pe-sos). %, y-o-y
The reasons for this were the weak economy and oil revenues short of 10
levels planned – the result of the firm peso. In line with its powers 8
granted by the budget act, the government announced spending cuts 6

of the same order. In the forthcoming two quarters expenditure cuts
4
are likely to be necessary too. If, as we expect, it is possible to confine
2
the public deficit to 0.8% of GDP (the govern-ment's target: 0.65% of
GDP), in light of the various negative external shocks we will consider 0
this a success. The government must submit its budget bill for the year -2
I/98 III/98 I/99 III/99 I/00 III/00 I/01 III/01f
2002 to congress by November 15. In view of the additional revenues
generated by the tax reform and an expected economic recovery, we
anticipate that the government will target a balanced budget.
Economic activity: weakness reaches private consumption

In line with our expectations, GDP stagnated in the second quarter GDP CHANGE (REAL,SUPPLIER´S SIDE)
year-on-year after having seen uninterrupted growth for 21 con-secutive
% y-o-y GDP Agricult. Industr. Serv.
quarters. Seasonally adjusted GDP fell by 0.25% over the previous 12.0
quarter – the third decline in succession. Based on a quarterly view, 10.0
therefore, the Mexican economy has been in recession since the 8.0
6.0
beginning of the year. While industrial production (-3.6% year-on-year)
4.0
continued to decline in tandem with the trend prevailing in the U.S. 2.0
industry, growth in the services sector (+1.4% year-on-year) saw a 0.0
-2.0
marked fall. This indicates that the economic downturn has also
-4.0
reached private consumption, which is likely to have also been hit by -6.0
job losses (300,000 since November 2000) and loss of consumer I/98 III/98 I/99 III/99 I/00 III/00 I/01
confidence. In the third quarter little will change in terms of economic

activity: on the one hand, in line with the trend in the U.S. the decline in
industrial production will turn out lower year-on-year because among
other factors the reduction of inventories has already progressed quite
far. On the other, growth of the services sector should decline again
EMPLOYMENT
amid further layoffs and slower growth of real wages. On the whole, we
mn (persons insured with IMSS)
once again anticipate a stagnation of GDP year-on-year. Only in the
16.0
fourth quarter will an economic upturn materialize on the back of
15.0
accelerating export demand. Thanks to the substantially lower real
14.0
interest rates, the external impetus is likely to be transferred relatively
quickly to domestic demand. For the year 2001 as a whole, we expect 13.0
a GDP growth rate of 1.1%. 12.0
11.0
Monetary sector: interest rates reaching all-time low
10.0
The dangers of inflation, which induced the central bank (Banxico) to Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01

hold onto its restrictive monetary policy until end-May, have dissi-
INFLATION pated in the past several months: fears of inflation being fueled by the
peso depreciating in the wake of falling oil prices and poor import
% y-o-y m-o-m
20 demand from the U.S. have been allayed thanks to the sustained,
robust capital inflows (e.g. the Citibank-Banamex merger); inflationary
15
pressure in the services sector has declined substantially following
10 the swift cool-down in demand. Not only did the increase in consumer
prices (5.9% year-on-year) slip below the inflationary target for end-
5
2001 of 6.5% for the first time in July; inflationary expectations of the
0
private sector for end-2001, at 5.5% in July, have also been
-5 consolidated at a level considerably lower than the target. On the
Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 basis of the inflationary figures, which are considerably better than
expected, we have also reduced our forecast from 5.7% to 4.9%. For
the second time already, Banxico has reduced the minimum liquidity
requirements for banks (the "corto") from 400 milllion to a current 300
million pesos; further moderate reductions of the "Corto" are likely to
INTEREST RATE follow. Early in August the monetary policy trend reversal and the
decline in inflation caused interest rates on money market instruments
Interest rates (CETES 28d) % real nominal
40 of the state (Cetes, 28 days) to fall to an all-time low of 7.24%. Owing to
35 the debate concerning the tax reform and the ongoing financial crisis
30 in Argentina, we continue to expect that interest rates will rise
25 temporarily to about 9%, but in light of the change of direction in
20
monetary policy and as inflationary expectations continue to decline,
15
we have reduced our interest rate forecast for end-2001 significantly
10
from 10% to 7.5%.
5
0
Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 External sector: current account deficit under control
Despite the negative external changes, such as the economic
downturn in the U.S. and the decline in oil prices, the current ac-count
deficit in the year 2001 will remain more or less stable at 3.2% of GDP.
The reason for this is the unexpectedly speedy adjustment of domestic
demand with its dampening impact on the demand for imports, which
CURRENT ACCOUNT
is chiefly a success of Banxico's restrictive monetary policy in the
US$ bn % of GDP
year 2000. Moreover, thanks to the considerable share of durable
0 0.0
consumer goods (automobiles) which Mexico exports to the U.S., a
-5 -1.0 shortfall of exports of the kind suffered by the Asian exporting countries
-10 -2.0 has not eventuated so far. Accordingly, the trade deficit is only likely to
rise from US$ 8.0 billion in the year 2000 to US$ 9.3 billion in 2001.
-15 -3.0
Excluding the forecast decline in oil exports by US$ 2.3 million, the
-20 -4.0 trade balance would even improve.
-25 -5.0
Thorsten Rülle, Miami +1 305 810 3855
1998 1999 2000 2001 f 2002 f
Bolko Schwanecke +49 40 3595 3605

DOMESTIC ECONOMY
Economic activity index (IGAE) % yoy 1.0 -0.7 -0.6 25-Sep
IGAE index (seasonally adjusted) % mom -0.2 -0.3 0.0 25-Sep
Industrial production % yoy -3.3 -3.5 -3.9 11-Sep
Manufacturing, in-bond industry % yoy -3.7 -2.4 -4.2 11-Sep
Manufacturing (excluding in-bond industry) % yoy -3.0 -3.1 -3.8 11-Sep
Construction % yoy -6.2 -7.8 -6.7 11-Sep
Gross fixed capital formation % yoy -1.6 -5.9 07-Sep
Retail sales % yoy 4.6 3.5 24-Aug
Wholesale sales % yoy -2.8 -6.6 24-Aug
Unemployment rate % 2.3 2.5 2.3 2.4 19-Sep
Employees (social insurance) % yoy 2.4 2.2 1.1 28-Aug
Real wages per employee, manufacturing % yoy 3.6 6.0 29-Aug
Budget balance, public sector Pesos bn 17.1 1.7 -18.9 03-Sep
Public domestic debt Pesos bn 717.2 708.4 714.4 03-Sep
Public external debt US$ bn 88.0 85.3 84.6 03-Sep
Consumer prices % mom 0.5 0.2 0.2 -0.3 09-Sep
Producer prices (excl. Services) % yoy 6.2 5.5 4.5 4.2 09-Sep
Producer prices (excl. Services) % mom 0.1 -0.2 -0.1 -0.2 09-Sep
Money supply M1a % yoy 13.0 12.0 9.6 24-Aug
Treasury bills, Cetes 28d (latest: 08/21)* % 13.3 10.8 8.9 9.4 7.0
Comercial bank lending (excl. restructuring) % yoy 14.4 11.1 8.8 24-Aug
EXTERNAL SECTOR
Merchandise exports US$ mn 13300 14041 13379 23-Aug
Merchandise exports % yoy 7.3 -4.5 -4.4 23-Aug
Merchandise imports US$ mn 14113 14660 13749 23-Aug
Merchandise imports % yoy 11.0 -3.5 -5.6 23-Aug
Trade balance US$ mn -813 -619 -354 23-Aug
Foreign exchange reserves (latest: 08/17) US$ bn 40.3 40.6 40.8 40.8 40.7
US$ exchange rate (latest: 08/22) Pesos 9.25 9.19 9.04 9.2 9.12
DOMESTIC ECONOMY
GDP % yoy 7.3 5.1 1.9 0.0 15-Nov
Private consumption % yoy 10.5 7.6 6.5 14-Sep
Public consumption % yoy 6.1 0.6 -3.0 14-Sep
Private and public investment % yoy 11.1 7.6 -6.2 14-Sep
Domestic demand % yoy 9.6 6.0 2.5 14-Sep
Exports (goods and services) % yoy 16.9 14.1 4.7 14-Sep
Imports (goods and services) % yoy 23.2 16.1 6.3 14-Sep
EXTERNAL SECTOR
Current account balance US$ bn -3.8 -6.3 -4.4 31-Aug
Gross foreign direct investment US$ bn 2.9 3.3 3.6 31-Aug
Portfolio investment US$ bn -0.6 -4.3 1.7 31-Aug
Capital account US$ bn 3.3 5.6 8.1 31-Aug
Change in foreign exchange reserves* US$ bn 0.1 1.7 4.5 31-Aug
* balance of payments

NICARAGUA: LIQUIDITY BOTTLENECKS
Area 139 000 sq. km
State president Arnoldo Alemán Lacayo

Finance minister Esteban Duque Estrada
Central bank president Noel Ramirez
Next elections State president: November 2001

Parliament: November 2001
GDP per capita US$ 510
Rating Moody’s: B2 S&P:NR
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 4.1 7.4 4.3 2.5 3.5
GDP US$ bn 2.1 2.2 2.4 2.3 2.6
EXTERNAL SECTOR
US$ exchange rate, year-end Córdobas 11.25 12.38 13.12 14.00 14.90
FOREIGN DEBT
*goods and services f= forecast
44 Dresdner Bank Lateinamerika, Spotlight 9/2001, Nicaragua

Domestic policy: run-up to general elections SUMMARY AND OUTLOOK
Enrique Bolaños Geyer, presidential candidate of the ruling Partido
Quo vadis? Continued market economy or return
Liberal Constitucionalista (PLC) and the country's former vice president,
to a leftist past? The outcome of the forthcoming
is likely to benefit from votes being split as early as at the first ballot at the
presidential election in Nicaragua is highly
beginning of November this year. The split refers to the loyal voters of
uncertain, which is impeding economic growth.
the small Partido Conservador, whose candidate Saborío - who ranks in
third position in the polls - will be satisfied with a stronger PC in Amid ongoing high current account deficits,
parliament. The outcome of the neck-and-neck race between Bolaños bottle-necks in liquidity are emerging as the
and Sandinista ex-president Daniel Ortega (who currently has a slight foreign investment hoped for fails to materialize
lead in the polls) remains completely open. The candidate with the due to slip-ups with privatizations and as foreign
greatest number of votes will already be elected at the first ballot if he aid is declining. Accordingly, the budget deficit
manages to chalk up at least 40% of valid votes or between 35% and remains in the region of 15% of GDP.
40% of votes and a lead of at least 5 percentage points over the
candidate in second place; otherwise, a runoff ballot will be held.
Domestic economy: internal demand weaker

In Nicaragua the dynamism of growth is flagging - a tendency which
will continue until the end of the year: exports are increasingly GDP AND INFLATION
deteriorating due to the fall in coffee prices, and investments are likely GDP, real change in % Inflation, %
to see a further decline: in the private sector, this is due to the uncertain 10 20
outcome of the election and in the public sector the reasons are to be 8 16
found in declining foreign assistance and spending cuts. Consumer
6 12
demand likewise remains subdued. For the year 2001 as a whole we
only anticipate a growth rate of 2.5% - at present the annualized rate is 4 8
just over 3%. The budget deficit should reach approx. 15% of GDP,
2 4
which will be higher than the target recently agreed with the IMF (13%
of GDP) as the state will earn a great deal less in revenues from 0 0
1997 1998 1999 2000 2001f 2002f
privatization projects than originally planned. For this year we do not
anticipate any further attempts to sell off the country's power plants
since the last auction in August failed owing to lack of interest among
bidders.
External sector: high debt burden and lower reserves

CURRENT ACCOUNT
Even though Guatemala wrote off US$ 500 million in Nicaraguan debt
in the first half of the year - in our opinion an extensive HIPC debt relief US$ mn current account balance balance of transfers
800
for Nicaragua will only take shape under a market-oriented Bolaños
600
government as the Sandinistas will not demonstrate willingness to make
400
the structural adjustment required by the IMF. Nicaragua will hardly be 200
able to avoid the decline in reserves to US$ 0.4 billion this year since 0
foreign assistance is drying up and investment from abroad will not be -200
sufficient to cover the current account deficit remaining at 25% of GDP. -400
-600
-800
Ingrid Grünewald +49 40 3595 3487 1996 1997 1998 1999 2000 2001f 2002f
Dresdner Bank Lateinamerika, Spotlight 9/2001, Nicaragua 45

PANAMA: DEBT BUYBACK
Area 77 082 sq. km
State president Mireya Elisa Moscoso Rodríguez

Economy and Finance minister Norberto Delgado Durán
President of
Banco Nacional de Panamá Bolivar Pariente C.

Parliament: May 2004
Rating Moody’s: Ba1 S&P: BB+
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 4.2 3.2 2.7 2.0 2.5
GDP US$ bn 9.3 9.6 9.9 10.1 10.5
EXTERNAL SECTOR
Trade balance US$ bn -1.4 -1.4 -1.3 -1.2 -1.1
US$ exchange rate, year-end balboa 1.00 1.00 1.00 1.00 1.00
FOREIGN DEBT

BVP stock index (balboa based, 2001:08/22) 662 561 430 384
Rendite am Anleihemarkt in % (2001: 08/22)* % 9.8 10.9 10.9 9.8
Risikoprämie am Anleihemarkt (2001: 08/22) bp 453 418 519 426
* 8 7/8 US$-bond (2027) *goods and services f= forecast
46 Dresdner Bank Lateinamerika, Spotlight 9/2001, Panama

Economic activity: growth prospects deteriorated SUMMARY AND OUTLOOK
In the year 2001 the economy will probably only reach a growth rate of
The Colón Free Zone is suffering due to weak
2% (following 3% in the previous year) since the Free Zone's re-exports,
demand from key purchasers in Latin America,
which have been stagnating in the past, meanwhile reflect a slight
which is slowing down growth of the
downward tendency. Demand from Brazil is falling due to the economic
Panamanian economy and is likely to cause the
downturn and the pace of growth will even slow down in such key
purchasing countries as Colombia and Venezuela. State-sponsored high current account deficit to decline to 6% of
and private infrastructural projects are being delayed, which means GDP. The government is expected to continue
that we hardly anticipate any decisive impetus for investment, and its current program of debt management - i.e.
demand for consumer goods continues to be weak as indicated by eurobond issues and debt buy-backs (which
falling commerce figures. For the port services and telecommunications, guarantee that budget and current account
however, we anticipate continued double-digit growth rates. deficits will be covered this year) in 2002 as
well.
Fiscal policy: slight budget deficit
The government will no longer be in a position to meet its target agreed
within the framework of a stand-by agreement with the IMF of having a
balanced public-sector budget, even though it has already curtailed
public spending. We anticipate a budget deficit amounting to 1% of BUDGET DEFICIT
GDP as tax receipts are falling in the course of the economic downturn % of GDP
(January/May: -13% year-on-year) and positive effects are hardly 0.0
expected to emanate from the necessary but delayed tax reform by the -0.5
end of this year. The government will have no difficulty in financing this -1.0
shortfall using the funds generated by the eurobond issue of February
-1.5
this year (US$ 750 million) even though Panama recently redeemed
-2.0
US$ 160 million of a global bond issue maturing in 2002. Due to the
residual terms to maturity of this bond issue, public amortization -2.5
payments will still be very high in the year 2002 (approx. US$ 600 -3.0
1997 1998 1999 2000 2001f 2002f
million), which means that further bond issues will follow. New buy-
backs may also be possible.
Current account: high deficit narrowing

For the current account an improvement is on the cards in spite of
unfavorable trends in the Free Zone and declining agricultural exports:
CURRENT ACCOUNT
the high deficit is likely to fall from 9% of GDP in the previous year to 6%
as import demand is slightly down and profit remittances abroad will US$ mn % of GDP
0 0
decline along with interest payments - the latter due to falling interest
rates in the U.S. and the Panamanian buy-back. Net credit inflows,
-500 -5
which soared in the first several months of the year due to the eurobond
issue, were lowered again owing to the debt buy-back. The net capital
inflow from credits and investments from abroad is likely to remain -1000 -10
substantial until year-end (approx. US$ 400 million, respectively) and
will offset the US$ 600 million current account deficit.
-1500 -15
Ingrid Grünewald +49 40 3595 3487 1997 1998 1999 2000 2001f 2002f
Dresdner Bank Lateinamerika, Spotlight 9/2001, Panama 47

PARAGUAY: TOUCH AND GO
PARAGUAY
Area 406 752 sq. km
State president Luis González Macchi

Finance minister Francisco Oviedo
Central bank president Raúl Vera Bogado

Parliament: May 2003
Rating Moody’s: B2 S&P: B
1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % -0.4 0.5 -0.4 0.0 2.0
GDP US$ bn 8.6 7.7 7.5 6.9 6.7
EXTERNAL SECTOR
Merchandise imports US$ mn -3942 -3042 -2906 -3000 -3120
US$ exchange rate, year-end Guaranies 2845 3350 3530 4500 5140
FOREIGN DEBT
* goods and services f=forecast
48 Dresdner Bank Lateinamerika, Spotlight 9/2001, Paraguay

Domestic policy: on a powder keg SUMMARY AND OUTLOOK
The political situation is becoming increasingly fragile. Dissatisfac-
Paraguay faces difficult times in political,
tion among the population - the current year is the sixth in succes-
economic and social terms. President González
sion of no increase in real per-capita income - is being expressed in
Macchi's power base is crumbling, and the
partly violent demonstrations and strikes. The government has lost
government has neither the financial means to
additional prestige on account of the alleged involvement of president
González Macchi in a fraud scandal, in the wake of which the cope with the dissatisfaction among the
president of the central bank and its director have had to resign. population in the short term nor a clear political
While it was possible for a vote of no confidence by the opposition to concept in order to bring the economy to a
be averted, support in the ruling party (PC) is also dwindling. We do sustained growth path by means of structural
not anticipate a stabilization in the short term: the social situation reforms. The central bank's foreign currency re-
remains tense and the increasing isolation of the president in his serves are depleted.
own party and in the political system may have the makings of an
explosive situation.
Domestic economy: stagnation

The absence of structural reforms is an additional factor that is
paralyzing the economy. Whereas the government managed to GDP AND INFLATION
conclude a staff-monitored program with the IMF in April this year, % GDP, real change inflation
the targets agreed (among other things, to halve the public-sector 16
budget deficit, privatize the national telephone company and water 14

12
utilities by end-2001, restructuring of the technically insolvent de-
10
velopment bank BNF) and resulting positive economic stimuli are 8
hardly achievable this year. In our opinion, a further year of reces- 6
4
sion will only be averted in view of the expected record harvest. The
2
government's consolidation efforts and privatizations next year might 0
produce a modest level of economic growth. -2
1998 1999 2000e 2001f 2002f
External sector: tightrope act

In light of the declining competitiveness of national exports on the
country's key market, Brazil, following the devaluation of the Brazil-
ian real, as well as very low foreign currency reserves, the central
bank has abandoned its policy of 'dirty floating' for the time being.
EXCHANGE RATE/CURRENCY RESERVES
Subsequently, from the beginning of the year to end-July the guaraní
Exchange rate G/US$ Forex reserves US$ mn
shed some 18% of its nominal value against the US dollar. Despite a
4400 1200
temporary recovery in August, we expect the tendency toward
4200 1000
depreciation to continue. With foreign currency reserves providing
4000
only two months' import cover, the central bank has no means of 800
3800
counteracting this trend, and the danger of the country defaulting on 600
3600
its debt remains high. 400
3400
3200 200
3000 0
Thomas Pohl +49 40 3595 3481 Feb-00 Aug-00 Feb-01 Aug-01
Dresdner Bank Lateinamerika, Spotlight 9/2001, Paraguay 49

PERU: MOMENT OF TRUTH
Area 1 285 215 sq. km
Population 25.7 million (+ 2% p.a.)
State president Alejandro Toledo Maurique

Finance minister Pedro Pablo Kuczynski
Central bank president Germán Suárez Chávez

Parliament: 2006

Exchange rate system Flexible echange rate


Purchasing countries USA 29%, EU 25%, Switzerland 9%
Products Gold 20%, fisching products 14%, copper 13%

Supplier countries USA 27%, Japan 7%, Colombia 6%
Products Capital goods 29%, consumer goods 22%,
energy sources 10%
Rating Moody’s: Ba3 S&P: BB-
SUMMARY AND OUTLOOK
Following his election victory, Alejandro Toledo continued his tactics of announcing programs to bolster the economy and
special funds to combat poverty while members of his cabinet tended to nurture investors' hopes for a liberal economic
policy course. The presentation of the government's program to congress marked the beginning of the government's
actual work. The government's decision not to apply for special powers to speedily implement its measures shows that it
has to make concessions within the scope of its policies. Without a substantial upturn in the second half of the year, Toledo
could soon lose the broad support he urgently needs to push his policies through congress. The bleak outlook for the
global economy is extremely inconvenient right now. Nevertheless several early indicators point toward a revitalization of
growth. We adhere to our forecast of zero growth this year.
50 Dresdner Bank Lateinamerika, Spotlight 9/2001, Peru

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % -0.4 0.9 3.1 0.0 3.0
GDP US$ bn 57.0 52.0 54.2 54.7 56.7
PUBLIC SECTOR
Public debt % GDP 39.9 43.4 41.4 42.3 41.8
Amortization US$ bn 0.86 0.87 1.26 1.10 1.17
Gross financing needs US$ bn 1.32 2.43 2.89 2.31 2.36
EXTERNAL SECTOR
Trade balance US$ bn -2.5 -0.6 -0.3 -0.1 0.2
Import cover months** 9.4 9.7 8.3 8.2 7.8
US$ exchange rate, year-end Soles 3.15 3.51 3.52 3.60 3.70
US$ exchange rate, average Soles 2.93 3.38 3.49 3.56 3.65
FOREIGN DEBT

Interbank interest rate (av) % 12.9 16.9 11.4 12.0 13.0
IGBVL stock index (sol based, 2001: 08/22) 1336 1836 1208 1347
Yield spread (2001: 08/22)* bp 624 461 694 664
3/4
* FLIRB 3 % (2017) **goods and services f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Peru 51

SEATS IN CONGRESS Domestic policy: waiver of special powers
At present, Alejandro Toledo enjoys broad popular support.
Perú According to an opinion poll taken early in August by "Datum",
Posible
an opinion research institute, 74% of the populations endorses
(45) APRA
the policies announced by Toledo in his inauguration speech.
(28)
Above all, the reason for this may have been that the promises
made at the time of the poll still appeared to be realistic. In
Unidad
view of the poor budget situation, however, some of the
Nacional
government's measures will need to be more moderate than
Others (17)
(19)
announced. This was already evident in the case of the
FIM (11)
reduction in the value added tax rate (from 18% to 16%), which
was originally scheduled for early 2002. Meanwhile the
finance minister conceded that a reduction is out of the
question until the efficiency of the taxation system has been
enhanced.
CENTRAL GOVERNMENTS BUDGET On August 23 the cabinet members led by Roberto Dañino
pre-sented the government's agenda. It was clear from the
% of GDP revenues expenditures balance
25 outset that there were going to be no surprises in terms of
20 content. Key economic impetus is to be generated by reducing
15 the so-called soli-darity levy from 5% to 2% and raising public-
10 sector wages. The funding required is to be raised by reducing
5 military spending, resuming the privatization program and a
0.6 1.0
0 partial revocation of the taxation reform initiated by the inte-
-0.4 -1.0 -0.6
-5 -2.6
-3.6 -2.8
-2.4 -2.7 -2.3 -2.3 -2.9 -3.1 rim government. The government dispensed with the need to
-5.3 -4.9
-10
apply for such special powers – these were originally intended
I/98 III/98 I/99 III/99 I/00 III/00 I/01 III/01f to ensure speedy implementation of economic policy
objectives – after having agreed a speedy passage of these
measures in congress with the strongest opposition party
APRA (the party of former president Alán García).
Fiscal policy: a more moderate tone

TAX REVENUES
After Toledo considered a budget deficit amounting to 3% of
%, yoy central government
10
GDP as realistic immediately after his election victory,
8 statements from the governent have recently been more mo-
6 derate. On several occasions in the past few days, finance
4
minister Kuczynski indicated an annual deficit of 2.2% as a
2
0 target. This is in line with our estimate as early as July. On the
-2 other hand, a consensus with the IMF on this topic – an IMF
-4
delegation is in Lima at present – still remains to be achieved.
-6
It is hardly likely that the IMF will tolerate an upper limit
-8
Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Apr 01 Jun 01 substantially in excess of 2% of GDP. The consolidation of

public finances should be one of the government's major GDP CHANGE (REAL)
objectives. Especially against the backdrop of the financing %, yoy
6
problems in Argentina, signaling solid fiscal policy is a key
5
factor with a view to regaining investor confidence. 4
3
2
Economic activity: end to the decline
1
The latest economic indicators convey a mixed impression. 0
While value added tax revenues in July rose to an appreciable -1
-2
extent for the first time since August of last year and the -3
domestic demand index (IMAC) also climbed by 2.0% in the -4
II/98 IV/98 II/99 IV/99 II/00 IV/00 II/01f IV/01f II/02f IV/02f
same month year-on-year (June 2001: 0.8%), sales of the
cement industry (which also correlates significantly with GDP)
declined once again by 12.7%. Ac-cording to our assessment,
GDP in July did not rise year-on-year and has not seen any
significant increase in August either. Starting in September,
however, we forecast the return of higher growth rates. In ECONOMIC INDICATORS
addition to the enhanced planning safety at that point –
cement sales (1000 mt) GDP index (1994=100)
following the presentation of the government's agenda and
370 133
initial concrete economic policy steps being taken by the new 131
350
government – there are also statistical reasons at play here 129
330 127
as the Peru-vian economy has been contracting since Sep-
125
310
tember 2000. The resulting lower base for comparison 123
purposes will lead to higher growth rates even if the economy 290 121
119
undergoes a stagnation phase. 270
117
Although GDP declined to a somewhat lesser degree (-1.7%) 250 115
Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
in the first half of the year than the 2% fall we had assumed,
we continue to believe that the Peruvian economy will not
grow on an annual average for the year 2001. This pessimistic
assessment is also backed up by the bleak growth prospects
in key industrialized countries, which will also impact
adversely on revenues of Peruvian exporters in the course of
INFLATION
the year.
%, yoy CPI core rate
4.5
Monetary sector: temporary reduction in inflation
4
The consumer price index in July only rose by 2.2% year-on-
3.5
year. The inflation rate has thus been below 3% for the fourth
month in succession. Several factors indicate that inflation 3
will pick up again toward the end of the year. Most recently, 2.5
the main factors that dampened inflation were stagnating or 2

declining prices for energy and food & beverages. The core
1.5
inflation rate – the increase in the price index excluding Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01

TRADE BALANCE particularly volatile price components – has been higher than
US$ mn exports imports balance growth of the aggregate index for four months now. Above all,
2500 food prices, which account for as much as 60% of the
2000 consumer price index, should pick up toward the end of the
1500 year. However, energy prices are likely to have a dampening
1000 effect for the remainder of the year.
500
0 External sector: trade balance in equilibrium

-500 Despite declining metal prices on international commodity
-1000 markets – industrial metals account for almost 50% of Peruvian
I/98 III/98 I/99 III/99 I/00 III/00 I/01 III/01f
exports – the trade balance was almost even in the second
quarter at –US$ 13.8 million. For one thing, this was due to
exports, which increased 3.1% year-on-year. Even greater,
however, was the impact of the drop in imports (-4.8%). For
one thing, the decline in imports is a reflection of the poor
FOREIGN EXCHANGE RESERVES domestic demand; for another, it is attributable to falling import
prices. While the import volumes in the course of the year
US$ bn
10.5 should tend to increase as the economy picks up again, import
10 prices are expected to continue to fall year-on-year. We
9.5 therefore adhere to our forecast of an almost even trade
9 balance for the year as a whole. The increase in export
8.5 volumes due to the production of "Antamina", a large-scale
8 mining project in the western part of Peru that has just taken
7.5 up operations – should largely offset the decline in prices.
7
Aug-98 Feb-99 Aug-99 Feb-00 Aug-00 Feb-01 Aug-01 Financial market: post-election calm
Both the risk premium on Peruvian government bonds and the
exchange rate of the sol have not been impacted at all in the
past three months by the turmoil taking place on most Latin
American markets. The sol most recently was trading
EXCHANGE RATE AND YIELD SPREAD significantly higher than at the beginning of the year, and the
spread of Peruvian foreign bonds, currently at 645 basis points,
EMBI+ Spread (Peru) Sol/US$
900 3.65 is roughly at the level of January. Future trends will essentially
depend on the government's budgetary discipline and the
800 3.6 economic figures for July. By the end of the year, we expect
the sol to depreciate slightly, to 3.56 soles/US$.
700 3.55
600 3.5
500 3.45
Dec-00 Feb-01 Apr-01 Jun-01 Aug-01
Kai Stefani +49 40 3595 3486

MONTHLY INDICATORS Apr 01 May 01 Jun 01 Jul-01 next/latest
DOMESTIC ECONOMY
Economic activity index % yoy -0.3 -0.4 -2.3 07-Sep
Economic activity index (s.a.) % mom 0.9 -0.5 -0.9 07-Sep
Industrial production % yoy 2.4 0.7 -3.2 07-Sep
Tax revenues (central government) % yoy 5.7 1.5 -0.8 31-Aug
Cement Sales (ASOCEM) % yoy -1.8 11.2 -18.6 -12.7 17-Sep
Construction sector % yoy 1.3 -6.4 -12.4 07-Sep
Fishing sector % yoy 45.9 6.0 -29.6 07-Sep
Trade index % yoy -1.9 -1.1 -3.9 07-Sep
Employment index (1994=100) % yoy 0.3 0.8 0.5 07-Sep
Consumer prices % mom -0.4 0.0 -0.1 0.2 07-Sep
Core inflation % yoy 2.9 2.8 2.6 2.2 07-Sep
Core inflation % mom 0.5 0.2 0.0 -0.1 07-Sep
Money supply M4 % yoy 4.2 4.8 2.8 07-Sep
Loan rates in US$ (TAMEX, latest: 08/14)* % 12.5 12.3 12.2 12.4 12.2
Deposit rates in US$ (TIPMEX, latest: 08/14)* % 3.9 3.7 3.6 3.5 3.4
Financial sector lending (latest: 07/22) US$ bn 8.0 8.0 8.2 8.1 07-Sep
Deposits in foreign currencies (latest: 07/22) US$ bn 9.5 9.5 9.6 9.6 07-Sep
EXTERNAL SECTOR
Merchandise exports US$ mn 540 588 607.3 07-Sep
Merchandise exports % yoy 7.5 6.8 -3.5 07-Sep
Merchandise imports US$ mn 580 647 520.8 07-Sep
Merchandise imports % yoy 3.1 1.1 -18.6 07-Sep
Trade balance US$ mn -40 -59 86.5 07-Sep
$
DOMESTIC ECONOMY
GDP % yoy 5.1 3.5 -0.4 -2.6 -1.0
Private consumption % yoy 4.5 3.9 3.0 1.6 24-Aug
Public consumption % yoy 13.2 3.5 -4.4 -7.2 24-Aug
Private and public investment % yoy -0.2 -10.5 -13.0 -11.2 24-Aug
Domestic demand % yoy 4.5 2.6 -1.5 -1.7 24-Aug
Exports (goods and services) % yoy 10.0 5.5 9.1 -1.3 24-Aug
Imports (goods and services) % yoy 6.4 0.2 1.7 4.6 24-Aug
Budget balance, public sector Soles bn -1.3 -1.3 -2.4 0.3 24-Aug
Public foreign debt US$ bn 19.3 19.1 19.2 18.7 24-Aug
EXTERNAL SECTOR
Current account balance US$ mn -518 -120 -567 -459 24-Aug
Net foreign direct investment US$ mn 301 153 125 276 24-Aug
Portfolio investment US$ mn -195 -31 -17 -127 24-Aug
Capital account** US$ mn 422 177 58 394 24-Aug
Change in foreign exchange reserves US$ mn -93 34 -565 -68 24-Aug
Gross foreign debt US$ bn 28.5 28.2 28.4 27.6 24-Aug
Short-term foreign debt US$ bn 4.0 3.9 4.0 3.8 24-Aug

VENEZUELA: "SOFT" EXCHANGE CONTROLS
Area 912 050 sq. km
State president Hugo Chávez Frías

Finance minister Nelson Merentes
Central bank president Diego Luis Castellanos Escalona

Parliament: 2006

Exchange rate system Gradual devaluation within the

exchange rate band

Purchasing countries (1999) USA 51%, Brazil 5%, Colombia 4%
Products Crude Oil and derivatives 84%,
metals and metal goods 5%

Supplier countries USA 39%, Colombia 7%, Brazil 5%
Products (1999) Raw materials 54%, machinery and
equipment 26%
Rating Moody’s: B2 S&P: B
SUMMARY AND OUTLOOK
The already unfavorable economic climate is likely to have suffered even more owing to the recent measures imposed to
combat capital flight, since the country's economic policy is true to form in trying to counteract undesirable developments
with dirigistic, interventionist remedies. In addition, a clear economic policy concept called for by the private sector still
remains to be tabled. Meanwhile, there are increasing signs of public-sector demand not rising as sharply as expected. In
light of this situation we anticipate a GDP growth rate for the year 2001 as a whole of only 2.5% (instead of 3.3%). Our
forecast that the current account surplus - above all, due to lower oil exports - will fall to approx. US$ 5 billion, continues
to apply. Owing to the greater level of uncertainty, however, we have corrected our exchange rate forecast and now
anticipate the latter to stand at a US$ rate of 750 (previously 740) bolívares.
56 Dresdner Bank Lateinamerika, Spotlight 9/2001, Venezuela

1998 1999 2000 2001f 2002f
DOMESTIC ECONOMY
GDP change (real) % 0.2 -6.1 3.2 2.5 2.5
GDP US$ bn 95.8 103.3 120.5 131.4 138.1
PUBLIC SECTOR
Budget balance, public sector % GDP -4.9 0.4 3.9 -3.0 -4.0
Public debt % GDP 28.0 27.0 27.0 25.0 25.0
Amortization US$ bn 3.3 6.0 5.8 n.a. n.a.
Gross financing needs US$ bn 7.8 5.3 1.1 n.a. n.a.
EXTERNAL SECTOR
Trade balance US$ bn 2.5 7.6 17.9 9.7 7.8
Current account balance US$ bn -3.3 3.7 13.4 5.0 2.9
Current account balance % GDP -3.4 3.6 11.1 3.8 2.1
Foreign exchange reserves, year-end ** US$ bn 11.9 12.3 13.1 9.3 8.0
Import cover **) ***) months 5.8 7.2 6.4 4.3 3.6
US$ exchange rate, year-end Bolívares 565 648 700 750 875
US$ exchange rate, average Bolívares 548 606 680 722 790
FOREIGN DEBT
Foreign debt % exports *** 180 153 90 109 117
Foreign debt service % exports *** 31 26 16 17 18

Deposit rate, 90 days % 35.3 17.3 13.5 16.0 22.0
ICB stock index (bolívar based, 2001: 08/22) 4789 5418 6825 6848
Yield spread (2001: 08/22)* bp 1046 785 911 838
1/4
*9 % US$-Bond (2027) ** Central bank only *** goods and services f=forecast
Dresdner Bank Lateinamerika, Spotlight 9/2001, Venezuela 57

UNEMPLOYMENT RATE Economic policy: staying on the wrong track
In our recent Latin American Spotlight update, we reported on a poll
%
18
taken among corporations, the outcome of which showed that while the
17
16 economic climate remained quite bleak, at least there was a slight
15 improvement on the previous year. If this poll were to be repeated today,
14
corporate sentiment would probably be a great deal worse again since
13
12 the country's dirigistic economic policy – the main reason for the
11 widespread dissatisfaction in the private sector – was recently tightened.
10
9 Two weeks ago, the central bank announced measures targeted at
8 restricting the flow of foreign exchange – and, therefore, at stemming the
Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01
tide of capital flight and bolstering the bolívar, which has come under
significant devaluation pressure again. Banks are only allowed to hold
12% (previously 15%) of their capital in foreign currency. Sales of foreign
exchange to companies not resident in Venezuela were prohibited. In
addition, the minimum reserve rate for state deposits was raised from
GDP CHANGE (REAL) 17% to 30%.
The central bank continues to rule out a maxi-devaluation of the bolívar,
yoy, %
10 which is meanwhile expected to be overvalued by more than 40%. It is
8 this policy of keeping the bolívar strong to check inflation that is being
6
4 sharply criticized by the business community as local companies suffer
2 substantial competitive drawbacks compared with their foreign rivals.
0
Small- to medium-scale enterprises which frequently only have scarce
-2
-4 capital resources are suffering in particular. And this is discouraging
-6
investment in exactly those businesses which were intended by the
-8
-10 government to make a decisive contribution toward improving living
II/97 I/98 IV/98 III/99 II/00 I/01 IV/01f standards among low-income groups by creating the necessary jobs.
The unemployment rate still averaged 14.1% from January to June 2001
and is thus only one percentage point lower than two years ago, when
state president Chávez took office. Whereas his approval ratings among
the population were still high at 56% according to the latest opinion
polls, his popularity has nevertheless fallen to its lowest level since he
PUBLIC SECTOR BUDGET BALANCE
took office (92%). This indicates that dissatisfaction with the high level of
% of GDP
5 unemployment, the unfavorable economic situation and the crime rate
4 is growing.
3
2
1
Economic activity: only poor growth anticipated
0
-1 The economic outlook has soured. Following the recent measures
-2
-3
adopted in foreign exchange transactions, we assume that the uncertainty
-4 in economic terms will grow, which is likely to impact negatively on
-5
-6 growth trends. This also applies to the agreement reached by the oil-
1998 1999 2000 2001f 2002f exporting countries to cut their production further starting in September.

However, there has also been a lack of growth impetus from public- INTEREST RATES AND INFLATION
sector demand (which made a decisive contribution toward the 3.2%
% inflation yoy deposit rate lending rate
GDP increase in the year 2000) in the course of this year. Only since 80
April has central government spending increased again in real terms 70
year-on-year; from January through May 2001, it was still slightly below 60
the previous year's level, however. In the case of state spending 50

40
programs, including measures relating to infrastructure and social
30
institutions, concessions frequently need to be made due to administra-
20
tive deficiencies, often resulting in projects not only being delayed but
10
only put into practice to an extent of about 70%. The new finance minister 0
Nelson Merentes, who became successor to José Rojas at the end of Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
July, is to push these projects more vigorously from now on. However,
we anticipate that state spending in the year 2001 as a whole will be
lower than previously assumed; hence, the impetus in a number of
economic sectors, especially the construction industry, commerce and
the transport sector, is likely to turn out weaker. We have revised our GDP MONEY (M2)
growth forecast for the year 2001 downward from 3.3% to 2.5%. A posi-
%, yoy
tive side effect of the low growth in public spending: the deficits in each 70
of the aggregate public-sector and in the central government's budgets 60
are likely to turn out a percent-age point lower in the year 2001 than 50
previously assumed. 40
30
Monetary sector: further unrest looming
20
The foreign exchange-related measures will not fail to impact on the
10
local money market either, the reason being that banks, most of which
0
are likely to have exploited their foreign exchange holding potential to Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
the full, are now forced into US$ sales and to generate a higher demand
for bolívares. Thus, the level of liquidity, which was already tight at times
in the past several months owing to the high volume of capital flight, is
likely to shrink further. From end-2000 to end-July 2001 the M2 money
supply has even declined by 10% in nominal terms – compared with the
OIL PRICE VENEZUELA
previous year's level there was already a slight real drop in July.
Accordingly, interest rates, which have been on the rise since May, US$/barrel
34
could continue to increase further. However, this would militate against
32
the government's objective of keeping the level of interest rates on lending 30
low to generate higher GDP growth. In the event of higher interest rates, 28
a further dirigistic economic policy step may be in the offing: state 26
24
president Chávez has repeatedly threatened to impose controls on
22
interest rates. 20
18
External sector: declining oil production - but higher prices 16

Jan 00 Apr 00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01
At the end of July major oil-exporting countries agreed to cut pro-duction

yet again. Within the scope of the arrangements entering into force as of
EXTERNAL SECTOR
the beginning of September, Venezuela pledged that it would cut oil
balance US$ bn current account trade production by about 4%. We adhere to our forecast, however, that the
20
country will earn well over US$ 21 billion in oil export revenues in the
15 year 2001 as a whole. In view of the price movements of Venezuela's oil
exports which, after weaker tendencies in June and the first half of July,
10
are meanwhile pointing upward, we anticipate a slightly higher average
5
price than previ-ously – US$ 21.25/bl rather than US$ 21/bl (2000: US$
0 25.91/bl). In addition, we expect non-oil exports and imports for the year
2001 as a whole to rise by 7% to 8%. While the trade and current ac-
-5
1997 1998 1999 2000 2001f 2002f
count surpluses will remain significantly lower than the previous year's
record figures, Venezuela's current account surplus – which we continue
to believe will amount to approx. US$ 5 billion (just short of 4 % of GDP)
– puts the country in an unassailable lead among the major countries in
the region.
CURRENCY RESERVES Exchange rate: bolívar set to come under pressure again soon
US$ bn central bank FIEM stabilization fund In August the dire situation on the foreign exchange market intensified
20
08/21 once again. Chávez had again expressed his concern with capital
17.5
flight, which averages approx. US$ 1 billion per month. The fact that the
15
government is now thinking of imposing import restrictions has kindled
12.5
10 the flames of unrest. The bolívar's depreciation accelerated. Foreign
7.5 currency reserves fell significantly, even after the exchange control
5 measures were announced on August 9, since the demand for foreign
2.5 exchange by non-banks apparently soared after that date. In the
0
meantime, however, the foreign currency supply has increased as the
Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
banks are now transacting their business in conformity with the new
regulations. On August 14 the exchange rate of the US$ fell by 3 bolívares
to 729.50 bolívares. Foreign currency reserves, which fell by approx.
US$ 750 million in the first half of August, to US$ 16.4 billion (US$ 6.6
billion of which in the FIEM stabilization fund), rose to reach US$ 16.6
EXCHANGE RATE billion by August 21. The bolívar is likely to come under devaluation
Bolivares/US$ pressure once again following the adjustment process. While we
760
consider the imposition of "hard" exchange controls unlikely in the short
740
term as the level of foreign currency reserves remains high – almost
720
700
eight months' import cover including FIEM reserves, the general
680 uncertainty has grown. At the end of 2001 we now expect a US$ rate of
660 750 bolívares (previously 740 bolívares). Foreign currency reserves
640 may amount to approx. US$ 16 billion by end-2001 (incl. US$ 6.7 billion
620 in the FIEM).
600
Luz Knees +49 40 3595 3488

DOMESTIC ECONOMY
Industrial production (private sector) % yoy 9.1 4.4
Car sales % yoy 63.6 81.7 67.1 70.1 07-Sep
Unemployment rate % 14.5 13.1 13.3
Producer prices % yoy 7.6 7.5 7.4 7.3
Producer prices % mom 0.7 0.4 0.9 0.6
Money supply M2 (latest: 08/10)* Bolívar bn 15161 14409 14856 14991 15187
Lending rate (latest: 08/10)* % 20.6 20.6 25.5 23.5 21.7
Deposit rate (latest: 08/10)* % 12.5 13.1 15.3 15.1 13.8
Interbank interest rate (latest: 08/22)* % 3.1 5.5 7.5 3.7 27.4
Volume of lending (latest: 08/03)* Bolívar bn 8009 8003 8109 8078.0 8146
Volume of lending (latest: 08/03)* % yoy 27.8 23.0 22.0 18.5 19.7
Volume of deposits (latest: 08/03)* Bolívar bn 13556 13064 13502 13169.0 13490
Volume of deposits (latest: 08/03)* % yoy 25.8 23.5 22.4 16.6 25.5
EXTERNAL SECTOR
Oil price (Venezuelan exports, latest: 08/17) US$/barrel 22.29 23.20 22.00 20.58 22.04
Oil price (Venezuelan exports, latest: 08/17) % yoy 1.2 -8.6 -21.0620739 -22.7477477 -20.1
Foreign exchange reserves (CB, latest: 08/21)* US$ bn 11.53 10.90 10.46 10.57 10.00
Forex reserves (FIEM***, latest: 08/21)* US$ bn 6.06 6.33 6.57 6.59 6.60
US$ exchange rate (latest: 08/22)* Bolívares 712 715 719 725.0 730
DOMESTIC ECONOMY
GDP % yoy 2.7 2.9 6.1 3.5 31-Aug
GDP, private sector % yoy 4.4 3.2 6.3 4.5 31-Aug
GDP, public sector % yoy 0.2 2.5 5.8 1.9 31-Aug
Oil sector % yoy 0.6 4.5 9.3 2.9 31-Aug
Manufacturing industry % yoy 4.1 1.0 6.9 4.6 31-Aug
Financial services and real estate % yoy 1.5 1.4 1.8 2.2 31-Aug
Commerce % yoy 7.3 3.5 5.4 4.5 31-Aug
Budget balance, public sector Bolívares bn 1217 939 -526 797
EXTERNAL SECTOR
Merchandise exports US$ bn 8.18 8.54 9.58 7.26 31-Aug
Exports of oil and derivatives US$ bn 6.86 7.28 8.08 6.01 31-Aug
Merchandise imports US$ bn 4.18 4.25 4.30 3.61 31-Aug
Trade balance US$ bn 4.00 4.29 5.28 3.65 31-Aug
Current account balance balance US$ bn 2.85 3.10 3.95 2.62 31-Aug
Net foreign direct investment US$ bn 1.25 1.02 0.83 0.26 31-Aug
Portfolio investment US$ bn -0.52 -0.44 -0.34 0.11 31-Aug
Capital account** US$ bn -1.22 -0.88 -2.55 -2.26 31-Aug
Change in foreign exchange reserves (CB) US$ bn 0.74 1.53 -0.60 -1.04
Change in foreign exchange reserves (FIEM)*** US$ bn 0.57 0.60 1.69 1.45
*month-end ** incl. residual items ***macroeconomic stabilization fund

FINANCIAL MARKETS: LATIN AMERICAN STOCK MARKET INDICES
ARGENTINA BRAZIL
Merval (Peso) IFCI (US$) Bovespa (Reais) IFCI (US$)
300 1300 20000 600
200 1200
100 18000 500
1100
000
1000 16000 400
900
900
800 14000 300
800
700
700 12000 200
600
500 600
10000 100
400 500
300 400 8000 0
Aug-99 Feb-00 Aug-00 Feb-01 Aug-01 Aug-99 Feb-00 Aug-00 Feb-01 Aug-01
CHILE COLOMBIA
IPSA (Peso) IFCI (US$) IBB/ GBC (Peso) IFCI (US$)
120 800 1200 450
400
110 700
1000 GBC 350
100 600 IBB 300
800
250
90 500
200
600
80 400
150
70 300 400 100

MEXICO PERU
IGBVL (Sol) IFCI (US$)
IFC (Peso) IFCI (US$)
2000 200
9000 1100
1000 1800 180

8000
900
1600 160
7000 800
700 1400 140

6000
600
1200 120
5000
500
1000 100
4000 400
VENEZUELA LATIN AMERICA

ICB (Bolivar) IFCI (US$) IFCI Emerging markets IFCI Latin America
10000 600 1000
900
9000 550 800
8000 500 700

600
7000 450 500
6000 400 400

300
5000 350 200
4000 300 100

62 Dresdner Bank Lateinamerika, Spotlight 9/2001, Lateinamerika

FINANCIAL MARKETS: LATIN AMERICAN BOND YIELD SPREADS
ARGENTINA BRAZIL
bps 9 3/4 % US$ bond (2027) bps 10 1/8 % US$ bond (2027)
1000
1400
900
1200
800
1000
700
800 600
600 500
400 400
CHILE COLOMBIA
bps 6 7/8 % bond (2009) bps 7 5/8 % US$ bond (2007)
260 1000
240 900
220 800
200 700
180 600
160 500
140 400
120 300
MEXICO PERU
bps FLIRB 3 3/4 (2017)
bps 11 1/2 % US$ bond (2026)
1000
500
900
450
800
400
700
350
600
300
500
250
400
200
VENEZUELA LATIN AMERICA

bps 9 1/4 % US$ bond (2027) bps JP Morgan Latin America Eurobond-Portfolio (LEI)
1100 1200
1100
1000
1000
900 900
800
800
700
700 600
500
600 400
Dresdner Bank Lateinamerika, Spotlight 9/2001, Lateinamerika 63

64
Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America
DBLA - AN OVERVIEW
Chairman of the Supervisory Board: Head Office:
Dr
Dr.. Joachim vv.. Harbou Neuer Jungfernstieg 16, 20354 Hamburg
Postfach 30 12 46, 20305 Hamburg
Board of Managing Directors: Tel.: (+49 40) 3595-0
Holger FF.. Sommer
Sommer,, Chair man Fax: (+49 40) 3595 3314
Horst Herrmann (São Paulo) Telex: 214 236-0 dl d
Richar
Richardd V oswinckel
Voswinckel S.W.I.F.T. DRES DE HL
http://www.dbla.com
Geographic Heads (Dresdner Bank Group): Argentina:

Representative Office Buenos Aires
Horst Tiedemann, Miami Torre Alem Plaza
Central America and Caribbean, Avenida Leandro N. Alem 855, piso 23
Colombia, Ecuador
Ecuador,, V enezuela
Venezuela 1001 Buenos Aires
Tel.: (+1 305) 810 3118 Casilla 574, 1000 Buenos Aires
Fax: (+1 305) 810 3117 Tel.: (+54 11) 4590 7900
Fax: (+54 11) 4590 7910
Luis Niño de Rivera, México City E-Mail: Buenos-Aires@dbla.com
Mexiko Senior Country Manager and
Tel.: (+52 5) 258 3004 Representative:
Fax: (+52 5) 258 3010 Juan G. Gruben
Senior Country Manager:
Pr of. Dr
Prof. Dr.. W inston Fritsch, Rio de Janeiro
Winston Marcelo Imhoff
Brazil Country Manager and Assistant
Tel.: (+55 21) 3824 3500 Representatives:
Fax: (+55 21) 3824 3501 Rodolfo G. Kempter
Michael Kromm (CCB)
Pedro R. Nowald, Buenos Aires Country Managers:
Argentina, Paraguay and Uruguay Juan E. Koch
Tel.: (+54 11) 4590 7900 Mathias Pfaeffli
Fax: (+54 11) 4590 7910 Dolores Pérez del Cerro
Christian Wentzel (CCB)
Ewald Doer ner
ner,,
Doerner Santiago de Chile CTF: Eva Göb-Cribb
Bolivia, Chile, Peru
Tel.: (+56 2) 731 4444 Bolivia:
Fax: (+56 2) 671 3307 Representative Office La Paz
Calle Rosendo Gutiérrez No 136 esq. Av. Arce
Edificio Multicentro, Torre B, Piso 8
Casilla 1077
La Paz
Dresdner Private Banking - The Americas: Tel.: (+591 2) 44 32 14
Fax: (+591 2) 44 32 15
Andreas Ehlebracht, Miami E-Mail: La-Paz@dbla.com
Tel.: (+1 305) 810 3735 Country Manager and
Fax: (+1 305) 810 3737 oder 4050 Representative:
Catrin Pietsch
Hans-Georg Martens, Hamburg Country Manager:
Tel.: (+49 40) 3595 3531 Claus-Dietmar Bagusat
Fax: (+49 40) 3595 3868
Brazil:
David W W.. Roda, Miami Dresdner Bank Brasil
Tel.: (+1 305) 810 3739 Dresdner Bank Brasil S.A.Banco Múltiplo
Fax: (+1 305) 810 4053 Dresdner Bank Lateinamerika AG,
Niederlassung São Paulo
Management:
Pr of. Dr
Prof. Dr.. W inston Fritsch
Winston
João Pinheiro Nogueira Batista
Martin Duisberg
Rolf-Otto Ladde
Client Information and Coordination:
Ricardo Cohen
65
Brazil: Dresdner Brasil Representações Ltda.
São Paulo: (formerly Sudamero Consultoria Ltda.)
Centro Empresarial Transatlântico Centro Empresarial Transatlântico
Rua Verbo Divino, 1488 - 1° e 2° andares Rua Verbo Divino, 1488 - 2° andar
Chácara Santo Antônio 04719-904 São Paulo-SP
04719-904 São Paulo-SP Caixa Postal 1665
Caixa Postal 3641, 01060-970 São Paulo-SP 01064-970 São Paulo-SP
Tel.: (+55 11) 5188 6700 Tel.: (+55 11) 5188 6700
Fax: (+55 11) 5188 6900 Fax: (+55 11) 5188 6980
Telex:11 53 207 dbla br, 11 53 208 dbla br E-Mail:
S.W.I.F.T. DRES BR SP, DBBM BR SP Brazil.Rep-Office@dresdner-bank.com
E-Mail: Sao-Paulo@dresdner-bank.com
Client Information and Coordination:
María do Carmo C.A. Silva
Cayman Islands:
Grand Cayman Branch
Anderson Square Building
Rio de Janeiro: P.O. Box 714 GT
Av. Presidente Wilson, 231-17° andar, Centro Grand Cayman, Cayman Is., B.W.I.
20030-021 Rio de Janeiro-RJ Tel.: (+1 345) 949 8888
Tel.: (+55 21) 3824 3500 Fax: (+1 345) 949 8899
Fax: (+55 21) 3824 3501 Telex: 4 285 dl cp
E-Mail: Rio-de-Janeiro@dresdner-bank.com S.W.I.F.T. DRES KY KX
Client Information and Coordination: E-Mail: Grand-Cayman@dbla.com
Michael Magrath Management:
Bor Alexander van der Weerden
Carsten Oergel
Senior T Trr ust Manager:
Belo Horizonte David R. Perry
Rua Paraíba, 1000 - 6° andar
Edifício Asamar
30130-141 Belo Horizonte-MG
Tel.: (+55 31) 3261 7737 Chile:
Fax: (+55 31) 3261 3667 Representative Office Santiago de Chile
E-Mail: Belo-Horizonte@dresdner-bank.com Edificio Dresdner BNP
Client Information and Coordination: Huérfanos 1219, Entrepiso
Lúcio Antônio Vieira Casilla 9972
Santiago de Chile
Tel.: (+56 2) 688 0411
Fax: (+56 2) 688 0422
Campinas E-Mail: Santiago@dbla.com
Rua Sacramento, 126 - 5° andar, Centro Country Manager and Assistant
13010-210 Campinas-SP Representative:
Tel.: (+55 19) 3234 3414 Jan von Dobbeler
Fax: (+55 19) 3234 3745
Telex: 1 93 013 dbla br
E-Mail: Campinas@dresdner-bank.com Dresdner Banque Nationale de Paris
Client Information and Coordination: Huérfanos 1219
Nelson T or
orrr es
Tor Casilla 10492
Santiago de Chile
Tel.: (+56 2) 731 4444
Fax: (+56 2) 671 3307
Curitiba Telex: 64 53 47 dres bk cl
Edifício Curitiba Trade S.W.I.F.T: DRES CL RM
Av. Dr. Carlos de Carvalho, 417 - 13° andar, sala E-Mail: info@dresbnp.cl
1303, Centro Leitung:
80410-180 Curitiba-PR Ewald Doerner
Tel.: (+55 41) 324 4221 Michel González
Fax: (+55 41) 324 4697 Firmenkundengeschäft:
E-Mail: Rio-de-Janeiro@dresdner-bank.com Miguel Ángel Delpín
Client Information and Coordination: Alfonso Píriz
Raul Ribas
66
Dresdner BNP Paris S.A. El Salvador:
Corredores de Bolsa Representative Office San Salvador
Edificio Dresdner BNP (El Salvador and Nicaragua)
Huérfanos 1219, 5° piso Edificio ConstruMarket 3er nivel
Santiago de Chile Av. Albert Einstein 17C
Tel.: (+56 2) 696 0096 Lomas de San Francisco
Fax: (+56 2) 699 5083 Antiguo Cuscatlán
General Manager: La Libertad, San Salvador
Sergio Anguita G. Tel.: (+503) 273 4738
Fax: (+503) 273 4765
E-Mail: San-Salvador@dbla.com
Country Manager and
Colombia: Representative:
Representative Office Bogotá, D.C. Jörg Dittmer
Carrera 7 No. 74-56, piso 16 Country Managers:
Edificio Corficaldas Horacio Vivas (CCB)
Bogotá, D.C.
Apartado Aéreo 59303
Guatemala:
Bogotá, D.C. 2
Representative Office Guatemala
Tel.: (+57 1) 347 0566, 254 8650
(Guatemala, Honduras and Belize)
Fax: (+57 1) 313 2763, 313 2783
5a Avenida 15-45, Zona 10
E-Mail: Bogota@dbla.com
Edificio Centro Empresarial
Senior Country Manager and
Torre II, 10° piso, Of. 1001-8
Representative:
01010 Guatemala
Karsten Reinhard
Apartado 57-F, 01901 Guatemala
Country Managers:
Tel.: (+502) 333 7205-07,
Narda Ramírez (CCB)
363 2550,363 2553, 363 2560
Jesús A. V aca Mur
Vaca cia
Murcia
Fax: (+502)333 7208, 363 2556
E-Mail: Guatemala@dbla.com
Representative:
Costa Rica:
Bernd Kleinworth
Representative Office San José
Country Manager and Assistant
Edificio Torre Mercedes, 8° piso
Representative:
Calle 24, Paseo Colón
Bertram Heyd
Apartado 162, 1007 Centro Colón
Country Managers:
San José, Costa Rica
Carlos Lemos
Tel.: (+506) 295 6790
David Silvester
Fax: (+506) 295 6880
Sören Kruse (CCB)
E-Mail: San-Jose@dbla.com
Country Manager and
México:
Representative:
Repr esentative Of
Representative fice México, D.F
Office D.F..
Claus Elsner
Bosque de Alisos 47-A, 4° piso
Col. Bosques de las Lomas
05120 México, D.F.
Tel.: (+52 5) 258 3170
Ecuador:
Fax: (+52 5) 258 3199
Representative Office Quito
E-Mail: Mexico@dbla.com
Avda. Naciones Unidas y
República de El Salvador
Representative:
Edificio Citiplaza, piso 11
Stephen Lloyd
Casilla 17-01-2179
Country Manager:
Quito
Rainer Hensel
Tel.: (+593 2) 970 747/48/49/50
Fax: (+593 2) 970 753
Dresdner Bank México, S.A.
E-Mail: Quito@dbla.com
Bosque de Alisos No. 47-B, 4° piso
Country Manager and
Col. Bosques de las Lomas
Assistant Representative:
05120 México, D.F.
John Viault
Tel.: (+52 5) 258 3000
Senior Country Manager /
Fax: (+52 5) 258 3100
Investment Management:
S.W.I.F.T. DRES MX MX
Wolfgang Leander
E-Mail: aespinos@ny.dresdner.com
Management:
Luis Niño de Rivera
Corporate Banking:
Daniel Gorinstein
67
Panama: U.S.A.:
Panama Branch Miami Agency
Torre Dresdner Bank 801 Brickell Avenue, 6th floor
Calle 50 y Calle 55 Este Miami, Florida 33131/USA
Panamá 7, R.P. P.O. Box 01-6039
Apartado 5400, Panamá 5, R.P. Miami, Florida 33101/USA
Tel.: (+507) 206 8100 Tel.: (+1 305) 373 0000
Fax: (+507) 206 8109 Fax: (+1 305) 374 6912
Telex: 3 106 dl pg, 2 244 dl pg, Telex: 4961 7905 dl us
2 420 dl pg S.W.I.F.T. DRES US 3M
S.W.I.F.T. DRES PA PA E-Mail: Miami@dbla.com
E-Mail: Panama@dbla.com Management:
Management: Thomas Spang
Klaus Müller Carl Wolf
Corporate Banking: Corporate Banking:
Zenobia de Fuentes Sergio Goloubeff
Private Banking: (CTF)
Thorsten Lührs Robert Barthelmess
(CCB-Central/South America
& Caribbean)
Frank Huthnance
Paraguay: (CCB-Nort America)
Representative Office Asunción Christian Novy
14 de Mayo 337 (CCB-South America & Mexico)
Edificio Asubank, 10° piso Rama K. Vyasulu
Asunción 1215 (EXIMBANK/SP)
Casilla 196 Private Banking:
Asunción 1209 Nicolás Bergengruen
Tel.: (+595 21) 49 47 10 Thomas Goessele
Fax: (+595 21) 44 12 68 Investments:
E-Mail: Asuncion@dbla.com Hans Abate
Country Managers:
Gloria de Grau
Christan Wentzel
(CCB, based in Buenos Aires)
Ve n e z u e l a :
Representative Office Caracas
Peru: (V enezuela and T
(Venezuela rinidad & T
Trinidad obago)
Tobago)
Representative Office Lima Centro Gerencial Mohedano, 9° piso,
Av. Rivera Navarrete 620, Piso 9 Of. A y B
San Isidro Calle Los Chaguaramos,
Lima 27 La Castellana
Apartado 18-0624 Apartado 61 379
Lima 18, Miraflores Caracas 1060-A
Tel.: (+51 1) 212 5060 Tel.: (+58 212) 261 4097, 261 7425
Fax: (+51 1) 212 5165 Fax: (+58 212) 264 6429
E-Mail: Lima@dbla.com E-Mail: Caracas@dbla.com
Senior Country Manager and Senior Country Manager and
Representative: Representative:
Georg-Wilhelm von Wedemeyer Christian Sommerhalder
Country Manager: Country Manager and Assistant
Silvia Stange Representative:
Stefan Zurawka
CTF: Marc Czabanski
Uruguay:
Repräsentanz Montevideo
Misiones 1372, Esc. 502 Glossary of Acronyms:
Casilla 1333 CCB = Corporate and
11.000 Montevideo Correspondent Banking
CTF = Commodity & Trade Finance
Tel.: (+598 2) 916 0152, 916 0718 RM = Risk Management
Fax: (+598 2) 915 1283 SP = Special Products
E-Mail: Montevideo@dbla.com
Country Manager and
Representative:
Karsten Schwenck

PUBLISHED BY:
Dresdner Bank Lateinamerika AG

Neuer Jungfernstieg 16
20354 Hamburg
Germany
Economics/Public Relations Dept.

Chief economist: Dr. Heinz Mewes
Editor: Cyrus de la Rubia, Thorsten Rülle (Miami), Walter Schäfer
Tel.: (+49 40) 3595 3494
Fax: (+49 40) 3595 3497
E-Mail: economics@dbla.com
http://www.dbla.com
Coordination: Kai Stefani

Layout: Friederike Niemeyer, Hamburg
Closing date: August 22, 2001
“Latin American Spotlight“ is published on a quarterly basis in German and

English.
Without any liability on our part. Reprints - in part or in whole - must mention
source.
The information contained in this issue has been carefully researched and examined by Dresdner
Bank Lateinamerika AG or reliable third parties.But neither Dresdner Bank Lateinamerika AG nor
such third parties can assume any liability for the accuracy,completeness and up-to-datedness of
this information.The authors’ opinions are not necessarily those of Dresdner Bank
Lateinamerika.Statements do not constitute any offer or recommendation of certain investments,even
of individual issuers and securities are mentioned.Information given in this issue is no substitute
for specific investment advice based on the situation of the individual investor. For personalized
investment advice please contact your Dresdner Bank Lateinamerika branch.
70
GLOBAL ECONOMY - FIGURES AND FORECASTS
1999 2000 08/22/2001** 2001f 2002f
Real GDP change *

Industrial countries % y-o-y 2.9 3.3 1.4 2.2
USA % y-o-y 4.2 4.1 1.5 2.5
Euro area % y-o-y 2.6 3.4 2.2 2.5
Japan % y-o-y 0.8 1.5 -0.5 0.8
INTEREST RATES, YEARLY AVERAGE*

USA, 3m money market rate % 5.4 6.5 3.5 4.0 4.0
USA, 10yr government bond yield % 5.6 6.0 4.9 5.2 5.7
Euro area, 3m money market rate % 3.0 4.4 4.3 4.5 4.4
Euro area, 10yr gov. bond yield % 4.5 5.3 4.8 4.9 5.3
Japan, 3m money market rate % 0.3 0.3 0.1 0.2 0.1
Japan, 10yr government bond yield % 1.8 1.8 1.3 1.3 1.5
EXCHANGE RATES, YEARLY AVERAGE *

US$/ Euro US$ 1.07 0.92 0.92 0.89 0.98
Yen/ US$ YEN 114 108 120 123 122
Yen/ Euro YEN 121 100 110 110 119
COMMODITY PRICES, YEARLY AVERAGE

Coffee (other milds) c/lb, NY 101.5 85.1 59.9 60.0 55.0
Copper c/lb, LME 71.0 82.0 67.3 71.0 77.0
Crude oil (WTI) US$/b 19.3 31.0 27.3 26.5 23.0
Crude oil (Brent) US$/b 17.9 28.5 25.4 25.0 21.0
Gold US$/ounce 280 278 276 270 275
* Source: Dresdner Bank AG; ** daily value
71

Spotlight 09 01

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Spotlight 09 01

Uploaded by

Copyright:

Available Formats

Latin American

2000 2001f 2002f 2000 2001f 2002f 2000 2001f 2002f

2000 2001f 2002f 2000 2001f 2002f 2000 2001f 2002f

2 Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America

Latin America at a glance

LATIN AMERICA: No change to fundamentals _____________________ 4

FOCUS: End of currency board system in Argentina? _______________ 6

ARGENTINA: What impact will the IMF deal have? _________________ 8

BOLIVIA: A new generation ____________________________________ 14

BRAZIL: Crisis management ___________________________________ 16

CHILE: Economic trend reversal? ________________________________ 22

COLOMBIA: Economy lacking in dynamism ______________________ 28

EL SALVADOR: Assistance with reconstruction ____________________ 34

JAMAICA: In the debt trap _____________________________________ 36

MEXICO: Congress must deliver ________________________________ 38

NICARAGUA: Liquidity bottlenecks _____________________________ 44

PANAMA: Debt buyback _______________________________________ 46

PARAGUAY: Touch and go _____________________________________ 48

PERU: Moment of truth ________________________________________ 50

VENEZUELA: "Soft" exchange controls ___________________________ 56

Financial market indicators Latin Amercia

Stock market indices __________________________________________ 62

Bond yield spreads ___________________________________________ 63

Global economy - figures and forecasts _______________________ 71

Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America 3

Share of global exports 5.6% (2000)

SUMMARY AND OUTLOOK

Latin America (17 countries) 1998 1999 2000 2001f 2002f

FINANCIAL MARKETS (year-end)

* JP Morgan Latin America-Eurobond-Portfolio ** goods and services f=forecast

4 Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America

about a drastic reduction of Argentina's debt service for two to three 4

our forecast (2001: 3.4%). 130

Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America 5

Exchange rate systems in Latin America 1991 2001

Argentina Currency Board Currency Board /

Brazil Crawling Peg Floating

STRUCTURE OF ARGENTINE EXPORTS Speculation about devaluation

6 Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America

as a prescription. Only 8% of Argentina's GDP is exported. While a

Devaluation causes fresh problems

needs to be linked to the US dollar on a long-term basis. On the 100

hardly competitive is attributable in large part to the inflexible

Dollarization has its vagaries

monetary policies and exchange-rate regimes to ward off external 110

Dresdner Bank Lateinamerika, Spotlight 9/2001, Latin America 7

Area 2 736 700 sq. km

State president Fernando de la Rua

Next elections State president: 2003

GDP per capita US$ 7 690 (2000)

Investment 18% of GDP (2000)

Exchange rate system Fixed exchange rate to the US$ (1:1)

Exports (2000) 10% of GDP

Imports (2000) 9% of GDP

Rating Moody’s: Caa1 S&P: B-

SUMMARY AND OUTLOOK

8 Dresdner Bank Lateinamerika, Spotlight 9/2001, Argentina

1998 1999 2000 2001f 2002f

FINANCIAL MARKETS (year-end)

Dresdner Bank Lateinamerika, Spotlight 9/2001, Argentina 9

Provincial Acción por

Economic activity: no turnaround in sight

10 Dresdner Bank Lateinamerika, Spotlight 9/2001, Argentina

second half year-on-year is attributable to statistical base effects. 6