BUENOS AIRES, Argentina -- The first signs that Argentina's painful devaluation might help some companies recover from the country's crippling four-year recession have come from an unexpected quarter: the steel industry.þþBut a new export tax -- along with uncertainty over the currency's stability and the future of economic reforms -- has raised questions whether competitive gains because of the weaker peso can be sustained.þþWhile steelmakers everywhere are suffering from depressed market prices and railing at the Bush administration decision to protect U.S. mills by restricting imports, Buenos Aires-based Acindar SA has doubled its production from 50,000 tons in December to 100,000 tons last month.þþThe boost is largely thanks to the government's decision in January to untie the peso from its decade-old one-to-one peg with the U.S. dollar and allow it to float. The Argentine currency is now trading at three to the dollar, an effective devaluation of 70 percent.þþThe result for Acindar: Exports as a percentage of total production have risen from 20 percent to nearly 50 percent and plants are almost back at full capacity. The steel firm's shares climbed 6 percent on the Buenos Aires Stock Exchange last week.þþ``Has the devaluation helped? The answer must be a 'yes, but ...,''' said Gustavo Pittaluga, spokesman for Acindar's board of directors. ``Although we are producing much more and exporting much more, that really isn't being reflected in bigger margins.''þþHe cited a new tax that diverts part of export earnings -- 5 percent for industry and 20 percent from Argentina's highly competitive agribusiness -- to bolster the near-empty state coffers.þþAcindar still pays for its raw materials and imported equipment in dollars, and the company has contracted Credit Suisse First Boston to renegotiate its $370 million debt, Pittaluga said.þþBattered by the recession, Acindar defaulted on most of its loans last December. Within a month, Argentina defaulted, too, suspending payments on most of its massive $141 billion public debt.þþ``The problem is that with the devaluation, we are living through moments of great instability in this country,'' Pittaluga said.þþ``To make the currency stable, it's important to take steps to reduce and stabilize the fiscal deficit and avoid inflation,'' he said. ``But the government is showing few signs of firmness.''þþHe points out that, although Acindar's shares rose 6 percent last week, they had previously dropped 80 percent. Last year, with the peso at one-to-one, they were worth 30 U.S. cents, today their 37 centavo value is equal to 12 U.S. cents.þþDespite such misgivings, the government is hoping the cheaper peso will help jump-start the moribund economy. It also is counting on the export levy to boost its own income, which has been hurt by the recession as well as a lack of access to capital markets and a cutoff in credit from the International Monetary Fund.þþA lower peso not only makes it easier to export, but also boosts demand for local products because imports -- paid for in dollars -- become more expensive.þþ``For every 10 percent rise in exports, gross domestic product should grow 1 percent, and for every 10 percent fewer imports, the gross domestic product should grow another 1 percent,'' said the new economy minister, Roberto Lavagna.þþAnalysts warn, however, that it could take months for economic improvement to filter through the system. Meanwhile, time could be running out for the government of President Eduardo Duhalde. Local media are already predicting snap elections could be called within months.þþIn office since January, Duhalde has failed to clinch a badly needed deal with the IMF, has already swapped one economy minister and has bolstered his cabinet with trade union leaders.þþ``The idea of export-led growth is realistic up to a point,'' said Chip Brown, chief economist at Banco Santander Central Hispano in New York. ``Sooner or later the trade balance will turn round, but it could take months.''þ þþ þ
Source: NY Times
