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Emerging Market Briefs

By Scott B. MacDonald

Brazil – Trends in the Right Direction: Credit conditions for Brazil are gradually improving. In mid-March Fitch changed the outlook on its B sovereign ratings from negative to stable. The rating agency indicated the change was due to “a marked turnaround in international trade performance and signs the new government is committed to economic policies that could place Brazil’s public and external finances on a sustainable path.” Looking ahead, Fitch “believes that maintenance of sizable primary surpluses, a trend toward declining real interest rates, and critically, a resumption of reasonable economic growth rates will be critical to further improvements in Brazil’s international credit standing.”

Colombia – Coca Down: There is some good news on the war on drugs. According to United Nations data, Colombia’s coca harvest was down by 30% in 2002. This data was derived from satellite imaging, comparing the prior year’s data to 2002’s. Most of the 105,600 acre (42,736 hectare) fall in coca production was due to the forced eradication campaign undertaken by the Uribe government. The acreage removed from production is estimated to cover an area more than double the size of Washington, D.C. The Uribe government attack on drugs is a major weapon for the government in its war against leftist guerrillas and far-right paramilitaries who sell coca to buy weapons.

Israel – Israel Elect Goes Down: Standard & Poor's downgraded in February Israel Electric, from A- to BBB+, with a negative outlook. The agency cited uncertainties in the company’s operations and investment program and its weak financial profile.

Malaysia – Positive Growth Numbers: Real GDP grew 5.6% in Q4 2002, slightly ahead of the consensus and slightly lower than the previous quarter’s growth rate, which was revised up to 5.8%.

Peru – 2002’s GDP Faster Than Expected: Good news is always welcome, even in the form of a surprise. Expectations for real GDP growth in 2002 were around 4.8%. However, the final number was 5.2%, making 2002 the fastest year of growth since 1997. The key drivers for growth were improved performances by the mining and construction sectors. The Peruvian government has made a forecast of 4% growth for 2003. Mining benefited from the opening of the Compania Minera Antamina copper-zinc mine, which is owned by BHP Billiton (33.75%), Noranda (33.75%), Teck Cominco (22.5%), and Mitisubishi Corp (10%).

South Africa – Upgrades Coming: At the end of February 2003, Moody’s revised South Africa’s Baa2 outlook from stable to positive. The agency cited declining debt ratios, improved external liquidity and careful macroeconomic management. Shortly following that, Finance Minister Trevor Manuel presented his 2003/04 budget. The government revised its budget deficit to 1.4% of GDP in fiscal 2002/03 (from 1.6% of GDP) and is forecasting a deficit of 2.4% of GDP in 2003/04 (allowing for a little more room in social spending). In addition, the government signaled it was loosening foreign exchange controls, long urged by the IMF. In March, Fitch placed its BBB- rating on review for a possible upgrade. We suspect that S&P, which rates South Africa at BBB-, with a positive outlook, will soon be upgrading the country as well

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Associate Editor: Darin Feldman

Publisher: Keith W. Rabin, President

Web Design: Michael Feldman, Sr. Consultant

Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin,
Jonathan Lemco, Jean-Marc F. Blanchard, Barry Metzger, Russell Smith,
Ilissa A. Kabak, Andrew Novo, Jonathan Hopfner, C. H. Kwan, Dominic Scriven and Andrew Thorson

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