Wisconsin Worldwide

Volume 3, Issue 1: January 2002
E-Newsletter of the Division of International and Export Development
Wisconsin Department of Commerce
http://www.commerce.state.wi.us

#ff00005In This Issue:

4
• Lead Article -
4The Dollar and the Trade Deficit 4

4
• Export Markets
  
-- Worldwide Update
-- Governor's Mexican Mission
-- Argentina: Default and Devaluation
-- South African Rand Continues Rapid Decline
-- Venezuela: Political Uncertainties
-- Egypt: Pound Devalued

4
• Export News

-- 4Mexico: New Area Codes
-- Exim Bank Offers Mexican Peso Denominated Guarantees
-- Euro! Euro!
-- U.S. Imposes Prohibitive Tariffs on Imports from Ukraine
-- World Bank to Support Commodity Hedging
-- African Political Risk Insurance

4
• International Business Information on the Web

• 4Upcoming Trade Shows
• 4Seminars & Meetings

• 4Contact Us
• 4Subscribe/Unsubscribe

To the ongoing concern of U.S. exporters, the U.S. dollar continues to grow in strength against most major currencies. The dollar was at a thirty-nine month high against the yen at year's end at about 130 yen to the dollar. Some analysts are predicting that the yen will drop to 140 to the dollar in early 2002. The U.S. dollar remains overvalued against the Euro. When the Euro was introduced three years ago, the exchange rate was 1.16 against the dollar. Today it is about 0.89, a drop of more than 23%.

The dollar has also gained strength with respect to our NAFTA partners. For the first time in its 144 year history, the Canadian dollar exceeded C$1.60 to the U.S. dollar in November 2001. Although it improved somewhat in December, the Canadian dollar was at C$1.5979 in early January. The Mexican peso held up well in 2001. However, over the midterm the peso has fallen from 7.83 to the dollar to 9.16 to the US dollar over the past five years.

The only major currencies where the dollar was lower at the end of 2001 than at the end of 2000 were the Swiss franc and the British pound. In early January the Vice President of the Swiss National Bank expressed concern about the rise in the value of the franc against the Euro. Both the Chinese remimbi and the Hong Kong dollar (pegged to the US dollar) held constant to the dollar during the year.

The U.S. trade deficit for 2001 through October stands at $292.2 billion. The merchandise trade deficit of $360.6 billion is offset somewhat by a surplus of service exports of $64.2 billion. The U.S. current account deficit today is equal to 4.5% of our Gross National Product. In December, the International Monetary Fund expressed concern over the extent of the U.S. trade deficit.

As long as the dollar continues to appreciate vis a vis foreign currencies, the more difficult it becomes for our companies to remain competitive in foreign markets. As long as the trade imbalance continues, the United States must rely, therefore, on large amounts of foreign investment flowing into the United States to balance our books. If foreign investors, for whatever reason, should decide to move monies elsewhere, the U.S. would face a major financial crisis. In sum, our ability to act as a nation is clearly limited by our need to continue to attract foreign capital to balance our trade deficit.

#ff00005Export Markets#ff0000

September 11 was a catalytic event, which temporarily put international business on hold and accelerated the impact of a worldwide economic slump. We have subsequently seen international trade levels and stock market prices return to something akin to pre-September 11 levels.

The World Trade Organization predicts the value of global trade will increase by only 2.4% in 2002, the slowest pace in eight years. Given inflation and population growth, a figure of about 2.5% growth is essentially breaking even. Still, a 2.5% growth projection is a significant improvement of the IMF's earlier forecast of 1.3% global growth in 2002 in the wake of September 11 attacks. Growth in developed economies is forecast at 0.8% with growth in developing countries forecast at 4.5%. Developed country markets where growth looks good for 2002 are Australia, UK, Ireland and South Korea.

Australia is the new developed economy pinup with its economy growing by over 4%. China continues to be the star of the developing world and continues to exhibit very good growth (but actual growth is probably 2-3% lower than the official Chinese figures). E-mail us if you need information on particular products or markets. We presently have U.S. export statistics through September 2001.

In early December Governor McCallum led 33 representatives of Wisconsin businesses and organizations on a successful trade mission to Mexico. It was the largest Wisconsin trade delegation since 1992 and was intended to introduce Wisconsin companies to the Mexican market, provide added exposure for companies with existing sales, and to develop new relationships with key Mexican industries and government organizations.

While the primary target for our Mission was Mexico City, home to 25 million people and the hub of Mexican business, the itinerary also included stops in Queretaro and Guanajuato. Queretaro has become a very strong trading partner for Wisconsin agricultural products and is one of Mexico’s fastest growing manufacturing locales. Guanajuato is the home of President Fox and is one of Central Mexico’s leading growth markets for a number of Wisconsin products. Nearly 90 individual appointments were arranged with potential customers, agents, distributors, and other business contacts. Several of the business participants also had meetings in Monterrey. Governor McCallum also participated in three Wisconsin product launches (Hurd Millwork, Kohler Company, and Minitube of America) for the Mexican market. He also opened the State of Wisconsin Agricultural Exhibit at the Queretaro Expo & Agricultural Fair and had successful meetings with President Fox and several members of his Cabinet.

In each of our past three issues, we discussed the serious economic situation in Argentina and the possibility that Argentina would default on its massive external debt. On November 30, there was a run on Argentine banks. The crisis quickly gathered steam with public strikes, riots and looting and the resignation of the President on December 20^th. Within the next two weeks, Argentina had five presidents.

It is premature to state what will be the final resolution of the crisis or the impact on debts owed to Wisconsin companies by Argentine distributors or buyers. Since the November 30 run on Argentine banks, there have been tight restrictions on the amount of money that individuals can withdraw from their bank accounts. We assume you are dealing on secure terms in Argentina and are in close touch with your representatives there. Banks are advising using only the safest of payment options. You should expect delays on payments from Argentina because of the strict controls imposed by the Argentine Central Bank.

The Argentine financial crisis has been called by some "the longest train wreck in history". Markets have been long aware of the situation and have been adjusting over time. At this time, there appears to be little indication of contagion in Brazil or elsewhere.

The value of the South African rand has declined rapidly in recent months. In the first half of 2001, the exchange rate was about 8 rand to the dollar. By the end of October the rate was 9.6 rand to the dollar. By the end of November the rand was trading at 10.4 to the dollar and by late December the rand was at 12.3 to the dollar. The fall of the value of the rand in 2001 was only exceeded by the Turkish lira. The net impact, of course, is to make imported goods less competitive in the South African market and make South African exports more competitive.

The decline of the rand has been paralleled by a 40% rise in the South African stock exchange share index. The fall of the rand's value is likely due to a variety of factors. Certainly, the crisis situation in neighboring Zimbabwe has done nothing to ensure investors of the long-term viability of the southern African market. Our own speculation is that there was a leak of government and reserve bank plans to abolish South African foreign currency exchange controls in the 2002 budget. The fact that one UK investment bank pulled $500 million within a short period speaks to either speculation, foreknowledge or a very drastic reevaluation of the merits of a South African portfolio. If you need information on Southern African market, contact our office in Johannesburg.

In our November 2000 issue, we commented on the Venezuelan Parliament granting dictatorial powers to President Hugo Chavez and expressed our concerns about the potential negative impact on business and the economy. On December 10, businesses across Venezuela were closed in a general strike. The general strike, the first in 40 years was supported by the country's labor unions. In response, President Chavez has threatened to nationalize banks and imprison bankers who resist his controversial financial and legal reforms. The President characterized the strike as "a strike of the rich" organized by "predatory oligarchs" and said that "this revolution is peaceful, and I wish it to remain so, but it is not unarmed. We are soldiers, and we come armed just in case anyone makes an error in judgement." Our suggestion is that you keep in touch with your representatives in Venezuela and exercise prudence against "errors in judgement" in this market. Forewarned is forearmed.

Egypt devalued the pound by 7.8% in December. This is the fourth devaluation this year. The pound is now about 4.5 to the dollar as opposed to 3.8 to the dollar in January 2001. The official and the black market rates are essentially in equilibrium. Egypt's tourist industry, like its counterpart in Israel and the West Bank, has been hard hit as tourists avoid the uncertainties of Middle East holidays. Egypt has also been hit by falling oil prices, Suez Canal revenues and remittances from Egyptians overseas.

Mexico is in the process of converting its telephone system from eight to ten digits. This is expected to be completed by February 17. Mexico City, Guadalajara, and Monterrey will now have two-digit area codes ("ladas") with the remainder of the country moving to three digits. To dial our office in Mexico City from Wisconsin dial 011-52-55-5-546-9252 (Of course, the 011 is the standard U.S. prefix used when placing international calls).

The U.S. Export Import Bank (EXIM) announced on December 17 that it has signed an agreement with National Financiera, S.N.C. (NAFIN) that will enable NAFIN to offer peso-denominated loans guaranteed by EXIM to small and medium sized Mexican enterprises buying U.S. goods and services. EXIM already has a $4.8 billion financing portfolio in Mexico. The program will allow smaller Mexican firms to purchase U.S. goods in pesos thus eliminating concerns over the fluctuating values of the peso versus the U.S. dollar. You may wish to call this attractive financial product to your distributors and direct customers in Mexico.

On January 1, 2002 Euro notes entered into circulation. The transition period during which existing national currencies will remain in circulation varies from country to country but will be completed by no later than February 28. Countries affected: Germany, Belgium, Netherlands, Luxembourg, France, Ireland, Italy, Austria, Spain, Portugal, Greece and Finland. Details at: http://europa.eu.int/euro/html/home5.html?lang=5

The United States Government announced that it is placing prohibitive tariffs on $75 million worth of metals, footwear, and other imports from Ukraine because of its failure to enact legislation to crack down on sound recording and optical media piracy. The sanctions will offset United States government estimates of the amount of annual damages that this piracy of optical media (CDs, CD-ROMs, DVDs, etc.), which includes unauthorized licensing and production, has caused to Americans.

The World Bank has announced that in February 2002 its Board will consider a hedging mechanism to cushion developing countries from wild price shifts in basic commodity process. Trials have been held on making options (the right, although not the obligation, to sell a specific quantity of a good on a particular date at a preset price) available on commodities such as copper, cocoa, rubber and crude oil. The intent of this financing device is to allow producers to make production decisions with a good likelihood of a fixed minimum price. The tendency for commodity prices to vary widely frequently places producers in situations where prices on world markets do not meet production costs.

In another program designed to increase trade with developing countries, the World Bank has helped create the African Trade Insurance Agency (ATI) which presently offers political risk coverage in Kenya, Rwanda, Burundi, Malawi, Tanzania, Zambia and Uganda. ATI expects to expand coverage to other African countries in the near future. Trade coverage is being issued by the Belgian insurance agency Gerling Namur. 

The prices charged by our overseas offices for agent/distributor searches and for market entry studies have been raised to $450. A request for both studies will now be priced at $800. Our prices are still the lowest available and reflect our interest in insuring that Wisconsin companies seeking to enter foreign markets have the benefit of competent support at a minimum price. Contact us if you are looking for help in markets served by our overseas offices.

#ff00005International Business Information on the Web

We do our best to provide you with free international trade information available in our International Business Internet Guide#ff0000 at http://www.commerce.state.wi.us/IE/IE-Int'lGuideForBusiness.html

#ff00005Trade Shows

#ff0000"GLOBE 2002 Trade Show"#000080 #000080- March 13-15, 2002 - Vancouver, Canada

 #ff0000"RepCom Brazil 2002"#000080 - March 19-21, 2002 - Sao Paulo, Brazil

#ff0000"Wisconsin World Trade Center Annual Meeting" - March 6, 2002, Milwaukee

#ff0000"Export Regulation Conference" - March 5-7, 2002 -Des Moines, Iowa

#ff0000"International Trade Specialist Training" March 4-7,2002 Washington D.C.

#ff00005Contact the International Division

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