01 Jan 2003 20:33

(Updates throughout)

WASHINGTON, Jan 1 (Reuters) - The first day of the new year saw ongoing preparations for a possible war against Iraq, historic political change in Latin America's biggest country and new airline security measures to guard against terror attacks.

Against the backdrop of continuing economic uncertainty, people worldwide welcomed 2003 at scores of celebrations, where tight security prevented serious incidents.

U.S. air authorities marked the new year by screening all checked luggage for explosives in answer to the Sept. 11, 2001, attacks on the United States. Before the hijacked airliner attacks, just 5 percent of the bags were checked.

In New York, up to 1 million people had a night of celebration under tight security, watching the traditional crystal ball drop in Times Square.

As in other cities across the globe, thousands of extra police were on duty. The Coast Guard closed New York harbor to private boats in response to a threat of attack that never materialized.

In London and Paris, tens of thousands celebrated and extra police patrolled after recent arrests of suspects on terror charges. Cars were banned around Paris' famed Champs Elysees.

Violence and accidents claimed some lives, with a grenade attack killing nine and wounding more than 30 in the Philippines and a fireworks explosion in Mexico killing at least 37 and injuring dozens more in the port city of Veracruz.

PROSPECT OF WAR

The U.S. military proceeded with a buildup in the Gulf, moving into position for a possible war with Iraq with the deployment to commence of a full Army combat division, the first to the region since the 1991 Gulf War.

More than 11,000 desert-trained troops were soon to begin heading to the region, where U.S. President George W. Bush has threatened Iraq with attack if President Saddam Hussein does not disarm.

In Baghdad, U.N. weapons inspectors took no break for the holiday, as they searched for evidence of chemical, biological or nuclear weapons programs.

With tensions worsening between the United States and North Korea as well, Pyongyang issued a New Year's message calling on its people to build "a powerful nation" under its "army-based policy." North Korea has started reactivating a complex capable of producing weapons-grade plutonium and has expelled U.N. inspectors monitoring it.

In Vatican City, Pope John Paul II appealed for peace on all fronts in his first message of 2003.

"In the face of today's conflicts and the menacing tensions of the moment, yet again I invited prayer to pursue pacific means for settlement," he said during his homily to celebrate the Roman Catholic Church's World Day of Peace.

POLITICAL CHANGE

In Brazil, throngs were celebrating the start of a new political era as former metalworker Luiz Inacio Lula da Silva was sworn in as the first working-class, elected leftist president of Latin America's largest country.

In Venezuela, a 31-day general strike that has choked the country's lifeblood oil business dragged on with a large New Year's street party that organizers said was a show of determination to oust populist President Hugo Chavez.

In the United States, Americans began the year facing the prospects of continuing economic uncertainty, with concern about the consequences of potential war with Iraq casting a pall over 2003 prospects much as the aftershock of the Sept. 11, 2001, terror attacks did last year.

Bad weather also delayed Philadelphia's annual "Mummers Parade," with organizers fearful rain and wind would damage the Mummers' famed fancy costumes and fanciful displays.

SUSANNAH A. NESMITH, Associated Press Writer Wednesday, January 1, 2003

(01-01) 11:17 PST (AP) -- CARACAS, Venezuela -- President Hugo Chavez left his strikebound and politically riven country Wednesday to attend the presidential inauguration in Brazil, and again refused to bow to opposition leaders who have crippled Venzuela in a month of massive protests.

"It's not a strike, it is a conspiracy," Chavez said after arriving in Brasilia for Luiz Inacio Lula da Silva's swearing in. "Venezuelan workers are on the side of the government. ...The country hasn't stopped."

It wasn't immediately known when Chavez would return, though he was not expected to stay abroad for more than a day. He and Silva planned to have breakfast together Thursday morning. The strike, which began Dec. 2, has paralyzed Venezuela's all-important oil industry and caused gas lines and food shortages.

Venezuela is the world's fifth-largest oil exporter, and the crisis has helped push international oil prices above $30 per barrel.

Opponents blame Chavez's leftist policies for a severe economic recession and accuse him of trying to accumulate too much power. Chavez says he is ridding the country of a corrupt political system that has disenfranchised the poor.

In his New Year's Eve address, Chavez said the country would face more difficulties in the coming months. On Wednesday, he said he didn't know how long the strike would last but said it was "destined to fail."

"I don't think it's a matter of time," Chavez said. "Whether it's a week, one month, six months, the important thing is that they are destined to fail because we are in the right and have the support of the majority of the country."

Since the strike began, Venezuela has been forced to import gasoline and food. Brazil has shipped 525,000 barrels of gasoline, and Trinidad and Tobago said 300,000 barrels would arrive Wednesday.

Chavez has also fired dozens of striking workers at the state-run oil company, Petroleos de Venezuela S.A. The oil industry produces one-third of the country's gross domestic product and 70 percent of its export revenue.

Thousands of people gathered in downtown Caracas on New Year's Eve at political rallies -- one to demand Chavez's ouster, another to show support for the beleaguered president. On Wednesday morning, the city was quiet as workers swept up the refuse of the previous evening.

Opposition leaders said they had nothing planned for Wednesday, but Chavez's trip to Brazil was daring given the upheaval shaking Venezuela. He already survived one brief coup in April.

Strike leaders said Tuesday that if Chavez does not bow to demands for a nonbinding referendum on his presidency on Feb. 2, they will lead a march on the heavily defended presidential palace.

A similar march in April left 19 dead and prompted the failed coup.

Chavez says Venezuela's constitution only allows a binding referendum in August 2003, or halfway into his six-year term.

Negotiations between the government and the opposition were to resume Thursday.

Also Wednesday, lawyers for dissident National Guard Gen. Carlos Alfonso Martinez complained their client was being kept under house arrest, violating a court order granting him complete freedom.

Ten people were injured when Martinez -- one of dozens of military officers who have occupied a Caracas square for three months in rebellion against Chavez -- was arrested Monday.

Brazil's newest president, Luiz Inacio Lula da Silva, has been sworn into office two months after being elected in a landslide victory. 02/01/2003 02:10 VOA

Tens of thousands of people cheered after the 57-year-old leftist politician and former labor leader was inaugurated Wednesday. Leaders and representatives from around the world, including Cuban President Fidel Castro and Venezuelan President Hugo Chavez, attended the ceremony in Brasilia. Inaugural festivities for the public are happening in the capital.

The new Brazilian president is an elementary (primary) school dropout and worked shining shoes as a boy. He rose from poverty in Brazil to become a prominent labor leader who launched three unsuccessful bids for president before clinching victory in October.

Mr. da Silva, of Brazil's Workers Party, won 61 percent of the vote in October's runoff election. His closest rival, government-backed candidate Jose Serra, received 39 percent support. President da Silva has promised to honor Brazil's financial commitments, keep inflation down and maintain fiscal stability. He says his administration will work with the International Monetary Fund to stabilize Brazil's finances. He has also pledged to create jobs and eliminate hunger.

Mr. da Silva, known widely as "Lula," has warned that difficult times are ahead for the country, and suggested he may not be able to fulfill his campaign promises during a single four-year term. He succeeded Fernando Henrique Cardoso. Brazil is battling high inflation and struggling with foreign debt totaling some $260 billion. In September, the IMF extended a $30 billion loan to Brazil to stabilize the economy amid uncertainty surrounding the election.

By David R. Francis THE CHRISTIAN SCIENCE MONITOR

The U.S. economy enters 2003 in a peculiar pinch - with its growth prospects squeezed by excesses of the past and burdens of the future.

Forecasters see the nation's economy growing a respectable 3.2 percent or so in 2003. For all of last year, too, the economy was expanding. Interest rates remain at 40-year lows.

But don't try to convince ordinary Americans - people who work, save in retirement accounts and drive cars - that hard times are over.

To many, the job outlook still feels bleak, a carry-over from the 1990s when many corporations expanded too fast. Investors, too, haven't returned to bullish ways, waiting instead for boom-time profits to reappear. And shoppers, carrying more debt than ever, are in no mood to party like it's 1999.

Meanwhile, oil and gasoline prices are up sharply from last year - a hint of the economic uncertainties posed by America's showdown with Iraqi leader Saddam Hussein.

All this puts a drag on what most economists still view as a period of economic recovery. Consumer confidence declined sharply in December, largely due to a discouraging job outlook, a private research group reported Tuesday. The New York-based Conference Board said its Consumer Confidence Index dropped to 80.3 from a revised 84.9 in November. Analysts had been expecting a reading of 88.0.

"There is a lot of dourness about the economy," says Brian Wesbury, chief economist for Griffin, Kubik, Stephens & Thompson, a Chicago brokerage house. "I'm not sure why."

But then he cites a list of troubles, from possible war to high energy prices and corporate malfeasance - all factors bothering consumers and business.

The growth rate forecast for 2003 isn't enough to shrink the 6 percent jobless rate soon. That has the attention of President Bush, who plans to propose further tax cuts to stimulate growth.

Consumer spending has been vital in lifting the economy out of the recession that began in March 2001 - a slump that has not been declared officially over.

But now, "households are finally facing up to the fact they are poorer for three years running," says Paul Kasriel, an economist at Northern Trust Co. in Chicago. Burdened with debt and shrunken investments, many consumers are starting to make a greater effort to save. The personal savings rate rose from 2.3 percent in 2001 to 3.9 percent in the first 11 months of 2002.

"If you want to retire before you expire, you have to save more," says Kasriel.

In addition to the stagnant stock market, many families aren't so sure that home values will rise as much as in the past.

The war factor The biggest cloud on the horizon is a possible war with Iraq.

"That will kill our quarter of growth pretty well," figures Cynthia Latta, an economist with Global Insight in Lexington, Mass. "Life gets put on hold while you stay at home watching CNN.'

Retailers are squealing over holiday sales because they have "over-stored," Latta says. Consumer spending in 2002 will have risen about 3 percent after inflation. But retailers have to cut this pie into smaller pieces because they have added stores at an even faster pace.

The threat of war and a month-old strike in Venezuela pushed oil prices above $30, up about 60 percent from a year ago.

If President Bush launches a war against Iraq at the end of January or early in February, the price of oil could shoot above $40 a barrel, hitting economies around the world. Should the war be brief, oil prices could plunge back to $25 a barrel, Latta guesses.

Michael Cosgrove, a University of Dallas economist in Irving, Texas, says it would be politically "expedient" for Bush to resolve both the Iraq and North Korea issues by mid-2003. The result would be a large drop in oil prices - a bigger economic boost than a tax cut. "If these issues linger into 2003 or 2004, that places his re-election in jeopardy," he says.

So far, inflation is not a problem. The consensus forecast is a rise of 2.2 percent in the consumer price index in 2003. That leaves the Federal Reserve free to maintain its relatively easy monetary policy. Most economists do not expect the Fed to raise rates any time before the second half of 2003, when economists anticipate an economic pickup.

Refinancing boom slowing Several factors are restraining growth.

Economists expect the amount of mortgage refinancing to slip perhaps in half in 2003 from the more than $200 billion of activity in 2002. That means fewer householders will have lower mortgage payments.

The amount of economic stimulus from government fiscal policy will also shrink. The shift from a $127 billion surplus in the federal budget in 2001 to a deficit of more than $200 billion this fiscal year gave the economy a shove. But even with a tax cut in late spring or summer, the push will likely not be so great in 2003.

Nonetheless, a federal tax cut could offset a drag on the economy of big state-budget cuts.

Federal tax cuts will enlarge the deficit and the national debt and, in effect, probably reduce the debts of consumers and businesses as they use some of their tax savings to ease financial burdens.

But the growth of salaries and other compensation has slackened. Many workers face larger health-insurance co-payments.

Nor will the U.S. economy get much help from abroad. Most economists see slow 2003 growth in both Japan and Germany, and possibly France and Italy.

Still, most economists consider the 2001 slump a mild one. Martin Sullivan, an economist writing for Tax Notes, a publication for the tax industry, puts figures from this past slump alongside the average of the previous five recessions. The unemployment rate of 6 percent compares with an average of 8.3 percent; a poverty rate of 11.7 percent with a 12.9 percent rate; a median family income of $42,228 with $36,945; and inflation rate of 2.1 percent with 6.3 percent, and an interest rate for a 10-year treasury bond of 4.2 percent with 11.8 percent.

From the International Desk Published 1/1/2003 3:21 PM View printer-friendly version

BRASILIA, Brazil, Jan. 1 (UPI) -- Luiz Inacio Lula da Silva took office Wednesday as the president of Brazil, Latin America's largest country. Known as Lula, the 57-year-old was sworn in at Congress amid cheers from his countrymen.

"I am the No. 1 public servant of my country," Lula said in his speech, according to O Globo newspaper in its Wednesday edition on its Web site.

He said he doesn't believe in sudden changes although the hallmark of his government will be change, according to O Globo, quoting him as saying, "We must walk with thought and solid steps." During his campaign, Lula pledged to reduce hunger in Brazil, a nation of some 170 million, with many of them living in poverty.

Some have doubts regarding Lula's ability to govern, particularly when it comes to dealing with Brazil's $230 billion in foreign debt, and there is speculation as to whether he might default on it.

Lula captured the presidency by winning the runoff election Oct. 27. He is Brazil's first leftist president, and succeeds Fernando Henrique Cardoso.