Capital Markets

In the first quarter of 2001, average prices of Argentine financial assets increased slightly. Stocks recovered with respect

to the average of the fourth quarter of last year, and the same

did public securities, so the sovereign risk implicit in their prices

fell slightly. This modest advance took place within a more

favorable international environment. Face to a strong slowdown of United States economy and the fall of American stock

exchanges, the Federal Reserve implemented since January an

aggressive monetary policy that provoked, until June 2001, six

successive reductions of short term interest rate. Said rate reduction was partially followed by Europe. However, at the closing

of this Report, new reductions of corporate profits were announced in the United States, with a significant fall of the

growth rate expected for world economy this year. Within this

environment, the fall of the technological stocks listed at the

NASDAQ continued.

The domestic scenario was characterized by the absence of economic reactivation and the difficulties to close the fiscal

gap. The year 2000 ended with a GDP fall of 0.5% y/y whereas the fiscal deficit amounted to U$S 6,900 millions, a little

lower than the previous year, with a growing weight of interest

within total Government obligations. In view of the problems

to access external financing, in December, the government had

decided to negotiate a contingent loan from the IMF with the

aid of multilateral and bilateral agencies, known as the “financial shield”. As a consequence of this, during January and part

of February 2001, expectations improved and since that there

was a significant recovery of bonds and stocks price.

By the beginning of March, both indicators of tax collection and industrial activity showed the persistence of recession and the difficulty to comply with the targets agreed upon

with the IMF. Besides, a financial crisis broke out in Turkey that

provoked the rise of sovereign risk of...