Speaker of the Kuwait National Assembly (parliament) Jassem Mohammed Al-Khorafi affirmed Sunday that his country would not be a party in a prospected military strike on Iraq, Kuwait's official KUNA news agency reported.

The speaker denied allegations that Kuwait would cover some costs of the war, saying "we are not a party in this war as we are only parties in the signed security agreements with the states for protection of Kuwait and its stability."

Kuwait is not ashamed of the security agreements it had signed with the United States, Russia, France, Britain and China followingthe 1990 events, Al-Khorafi said, alluding to the unprovoked Iraqi aggression on the oil-rich Gulf state.

He also expressed hope that Iraqi President Saddam Hussein wouldcooperate with the international community, abide by the relevant UN resolutions and maintain his credibility to spare his people andthe region perils of war.

He stressed that Kuwait has taken all necessary precautions in anticipation of the war, which he ruled out, expressing his belief that the current international military buildup in the Gulf would coerce Baghdad to implement the relevant UN resolutions.

The United States has recently intensified its military buildup in Kuwait, one of its close Gulf allies, arousing suspicions that Kuwait will be a key launch pad for a strike against Iraq.

People's Daily Online --- english.peopledaily.com.cn

Posted on Sun, Jan. 05, 2003 Reuters www.centredaily.com

SEOUL - A South Korean delegation presents its plan to defuse the North Korean nuclear crisis to U.S. and Japanese officials in Washington on Monday as world diplomatic initiatives gather momentum.

The U.N. nuclear watchdog, the International Atomic Energy Agency, also meets on Monday when it is expected to give the communist North the chance to change its mind and abandon what the United States believes is a nuclear weapons program.

Tension has risen since North Korea expelled IAEA inspectors and fired up a nuclear reactor mothballed under a 1994 deal in which it had agreed to end such work in exchange for fuel oil from the United States and its allies.

Washington cut off oil supplies to North Korea late last year after it said Pyongyang had admitted to a covert nuclear program.

In Washington on Monday, a regular meeting of the Trilateral Coordination and Oversight Group, with delegates from South Korea, Japan and the United States, is to hear Seoul's plan.

This is believed to center on a U.S. guarantee of North Korea's security in return for Pyongyang scrapping its weapons program.

"The Seoul government's approach to the North Korean nuclear issue is solving it in a peaceful way and through diplomacy," Kim Euy-tack, a spokesman for the Ministry of Foreign Affairs and Trade, told Reuters.

"Our mediation plans will be discussed at the talks with the United States and Japan in Washington."

The worsening war of words between the United States and North Korea prompted South Korea to send a top presidential security aide to Washington.

Yim Sung-joon, presidential secretary for foreign affairs and security, would travel to the U.S. capital on Tuesday to discuss the crisis with his counterpart, Condoleezza Rice, and other top U.S. officials, officials in Seoul said. Yim would then visit Tokyo on Friday and Saturday.

South Korean Vice Foreign Minister Kim Hang-kyung held weekend talks in Moscow with senior Russian officials, including the Foreign Ministry's top Asia expert, Alexander Losyukov.

"Russia's cooperation to solve this problem peacefully is essential. The Russians said they would try their best to use their channel to North Korea," Kim said on Sunday.

Also joining diplomatic efforts to cool tensions is Japanese Prime Minister Junichiro Koizumi, who begins a four-day visit to Russia on Thursday, coinciding with a visit to East Asia by U.S. Assistant Secretary of State James Kelly.

The Korea Times said on Monday an "atmosphere conducive to opening talks" to resolve the crisis had been created, with Seoul gearing up to play a bridging role and North Korea appearing ready to accept a third country's mediation.

But North Korea's KCNA news agency on Sunday appeared adamant.

"The nuclear issue on the Korean peninsula is an issue that should be settled through (North Korea)-U.S. dialogue, as it is a product of the U.S. hostile policy toward (North Korea)."

By Mohamed El-Erian Published: January 5 2003 19:21

Latin America's outlook is improving as elements of last summer's "perfect storm" give way to less difficult, though still volatile, influences. In the process, the economic initiative is shifting back to national policymakers. Some are well placed to handle this; others are not.

Accordingly, the popular emphasis on Latin pessimism that prevailed for most of last year will be replaced by a more differentiated regional view. And there are growing signs that the new Brazilian government led by President Luiz Inácio Lula da Silva will be able to capitalise on improving conditions.

For countries in Latin America, last summer's perfect storm had two external elements. There were concerns that the global economy's failure to pick up would adversely affect the region's export markets. And there were worries that the resulting slowdown would be exacerbated by a sharp decline in international capital flows.

These external disruptions could not have come at a worse time for the region. They coincided with domestically driven disruptions occasioned by questions relating to policy continuity. Several Latin countries were facing important elections, and market concern about a shift to "populism" allowed for little qualification about the degree to whic h populism could be "financially principled".

The effect of the perfect storm was to accentuate national weaknesses and to obscure structural strengths. This was most apparent in Brazil, where increased market concern about policy slippages and adverse debt dynamics replaced former appreciation of the country's progress on macroeconomic stabilisation, structural reforms and institution-building.

But all this is now changing and markets are slowly normalising. On the external front, aggressive monetary and fiscal policy loosening, especially in the US, have lowered the risk of a double-dip recession and reduced the global economy's sensitivity to overstretched American consumers. While the resulting growth will neither be eye-catching nor structurally robust, it should provide a bridge to a possible recovery in business investment in the second half of 2003.

The resulting improvement in Latin America's external economic environment is being accompanied by more positive financial influences. International banks' withdrawal from credit markets is slowing; foreign direct investment is exhibiting greater-than-expected reliance; and bond flows to emerging economies are picking up. Meanwhile, newly elected governments are emphasising their commitment to responsible financial policies and market-based structural reforms.

Brazil is again leading the process. The average spread on its external debt has narrowed from 24 percentage points over US Treasuries in early October to 14 percentage points. The currency has retraced some of its overshoot and domestic market interest rates have fallen sharply.

The combination of events is reducing the broad pessimism that has dominated perceptions of Latin America. It is also shifting the policy initiative back to national policymakers. But it is too early for the region to relax, since not all countries are in a position to benefit from these changes.

Certain countries, led by Chile and Mexico, are well placed. Their improving, and recently tested, institutions augur well for their ability to benefit from a more benign external environment. Economic growth should pick up, supported by sustainable public finances and responsive monetary and exchange rate policies.

By contrast, institutions in other countries - notably Argentina and Venezuela - have suffered such severe damage to their domestic credibility that sustained and challenging reforms are needed before they can materially benefit from the improvement in their external environment. The onus must be on restoring internal political legitimacy as a prerequisite for re-establishing economic and financial stability.

What about Brazil, which falls somewhere between these two extremes? Initial signals suggest the new government is both able and willing gradually to emulate Chile and Mexico. It is in a position to build on the improvement in fiscal and monetary institutions and to benefit from a sharp ongoing adjustment in the balance of payments.

But the process will require policy steadfastness in the context of the volatility that accompanies a change in government and the initial low quality of the external growth locomotive.

The writer is a managing director of the fund management group Pimco (Al Quaeda), which has investments in Latin America news.ft.com

CARACAS, Venezuela (AP) --Thousands of government supporters chanted "Justice! Popular justice!" Sunday at a funeral for two men killed at a political rally amid a month-old strike aimed at toppling the president.

Vice President Jose Vicente Rangel and several Cabinet ministers helped carry the flag-draped coffins of Oscar Gomez Aponte, 24 and Jairo Gregorio Moran, 23.

Thousands followed the coffins waving Venezuelan flags, pumping their fists and chanting. On the way to the cemetery, the procession stopped at the Melia hotel, where Organization of American States Secretary-General Cesar Gaviria is staying, leaving a letter denouncing the recent violence.

Gaviria is brokering negotiations between the government and the opposition on ending the general strike against President Hugo Chavez that has crippled the oil-rich country's economy and virtually dried up gasoline supplies.

Opposition leaders blame Chavez's leftist policies for a deep recession and accuse him of trying to accumulate too much power. They want him to resign or hold a nonbinding referendum on his rule, which he says would be unconstitutional.

Gomez Aponte and Moran died during a melee Friday between Chavez supporters, opposition marchers and security officials. Both sides blamed each other for the bloodshed. At least 78 people were injured.

The violence erupted when several hundred presidential supporters threw rocks, bottles and fireworks at thousands of opposition marchers outside the Fuerte Tiuna military headquarters in Caracas.

Police fought to keep the two sides apart, firing rubber bullets and tear gas into the crowd. Gunfire rang out. The government said it came from police, but opposition protesters insisted it came from Chavez supporters.

"These compatriots were slain savagely, and all suspicion falls on police," the vice president said Sunday at the burial.

Two police officers also were wounded Saturday when gunfire broke out during Gomez Aponte's wake. Chavez supporters fired on police after the government blamed the Caracas police for the Friday deaths, police chief Henry Vivas said.

Officers returned fire using rubber bullets and tear gas. The government claimed one woman died, but Caracas Fire Chief Rodolfo Briceno couldn't confirm that.

Chavez tried to take over the city police force -- which reports to an opposition mayor -- last fall. The Supreme Court ordered Chavez to restore the force's autonomy, but Rangel said the government was considering retaking it.

He also urged Chavez supporters not to be provoked into violence by opposition leaders, whom the government accused of trying to use the strike to prompt a coup similar to one that briefly ousted the president in April.

"Do not be provoked. These are delicate times," Rangel said.

The strike, which began December 2 and includes some 35,000 employees of the state oil monopoly Petroleos de Venezuela, or PDVSA, has paralyzed oil exports and helped drive international oil prices above $30 a barrel. Venezuela is the world's fifth-largest oil exporter and a top supplier to the United States.

The government has fired dozens of striking oil workers and claims it is restarting production.

On Saturday, a tanker carrying 350,000 barrels of oil left for Cuba, PDVSA President Ali Rodriguez said in an interview published Sunday in the El Universal newspaper. Another ship was being loaded with 600,000 barrels destined for the United States.

Venezuela usually exports about 3 million barrels a day.

Chavez said Friday he might consider imposing martial law to try to break the strike and halt escalating political violence.

Meanwhile, leaders of the Democratic Coordinator opposition movement called on Venezuelans to donate between $1.80 and $3.50 to hold the referendum on February 2 as planned.

The opposition presented more than 150,000 signatures to election authorities November 6 to call for the referendum, but the National Elections Council says the Chavez-controlled Parliament hasn't authorized $22 million needed to pay for it.

Chavez, a former paratrooper who was elected in 1998 and re-elected two years later, has challenged the legality of the referendum at the Supreme Court.

www.arabnews.com By Mushtak Parker

LONDON, 6 January 2003 — With the threat of war against Iraq looming ominously over the region, and stability continuing to be undermined by the ongoing “war against terrorism”, the Gulf region is faced with a difficult year ahead in 2003.

The cushion of rising oil prices, due to the Iraq crisis and the prolonged strike by oil workers in Venezuela may give a false sense of economic security, underpinned by an immediate upward pressure on crude oil prices in first quarter 2003. By Jan. 1, 2003, the price for Brent blend crude was hovering over the $30 per barrel mark.

External factors apart, countries such as Saudi Arabia are faced with daunting internal economic challenges which are more to do with structural reforms than with the benchmark price of Brent crude.

Reports from Japan suggest that Saudi Aramco plans to cut oil exports to Japan, South Korea and Thailand, its three main Asian customers, in January 2003 by 22 percent. This apparently in line with the new OPEC agreement to cut production to sustain realistic world oil prices and to offset the impact of quota cheating by other countries.

While Asian economies, save Japan, are projected to enjoy the best GDP growth rates in 2003 by far, the impact of the sluggish recovery of the US, European, and Japanese economies may yet burst the projected Asian growth bubble, especially if the US, Europe and Japan sleepwalk into recession. The net impact would be a downward pressure on Asian oil imports.

Economists commend the Kingdom’s recent economic reforms including the adoption of a new foreign investment law; allowing foreigners to own land; and the introduction of a comprehensive privatization strategy. But they agree that the pace of reform has to be much more urgent, and reforms transparent, realistically budgeted, refined, and professionally implemented.

This was also the unequivocal message of the recent International Monetary Fund (IMF’s) Article IV Consultations on Saudi Arabia. The fund in addition recommended removing further barriers to entry, and urgent fiscal transparency and reforms.

At the ‘Future Vision for the Saudi Economy’ symposium organized by the Planning Ministry and the World Bank in October in Riyadh, speakers overwhelmingly acknowledged the problems facing the Saudi economy; the gaps in policy making; and the need for change to meet the challenges of a rapidly growing population, of which some 70 percent is under 25-years-old. In this context, compared to only two years ago, the Kingdom’s business and financial environment has changed significantly for the better.

During 2003, a new insurance law, stock exchange law, and capital markets law, will almost certainly be promulgated. According to Dr. Abdulrahman Al-Jaafary, chairman of the Finance Committee of the consultative Shoura Council, all 67 articles of the draft Stock Market Law, for instance, were debated and approved at end December 2002. A key provision of the new law is the establishment of a Stock Market Commission with judicial powers and reporting directly to the Council of Ministers, the Saudi Cabinet.

However, implementation of new legislation has been erratic in some recent instances. The adoption of compulsory motor insurance from November 2002 was both confusing and shambolic. Is the NCCI (National Company for Cooperative Insurance) the sole provider of the ruksha (insurance) or not? Is the ruksha issued against the driving license, driver, or vehicle? Is the cooperative insurance Shariah-compliant? These are perhaps questions to be answered in a separate analysis, but they were certainly not forthcoming at the time of their introduction. The reality is that Saudi police on the ground are now accepting motor insurance certificates issued by all legal insurance providers, not only NCCI, despite the latter’s earlier pronouncement that it’s ruksha is the only legally acceptable one.

There would be no room for such confusion when the capital markets and stock exchange laws are promulgated. Otherwise it will have the opposite effect and frighten investors and companies away. Without a flourishing capital markets, the growth of the financial services sector in the Kingdom will remain stunted and largely parochial. This in turn will affect the asset quality and product innovation of the sector in the long run.

In the area of foreign investment, while the establishment of the Saudi Arabian General Investment Authority (SAGIA) in April 2000, headed by Governor Prince Abdullah ibn Faisal, has gone some way in making the Kingdom a more investor-friendly environment, the acid test for attracting greater foreign direct investment (FDI) flows are the all-important economic reform package and regional stability.

In the period April 2000 to early September 2001, the value of FDI investments in the Kingdom reached $9.2 billion, according to SAGIA. However, since 9/11, this figure had dropped dramatically to $3.5 billion at the beginning of December 2002. While the fallout of the terrorist attacks in New York and Washington was undoubtedly an important factor, foreign investors continue to be frustrated by the agonizingly slow pace of socio-economic reforms in the Kingdom.

The new foreign investment law, for example, was widely welcomed, but its so-called ‘Negative List’ which stipulated those sectors of economic activity still barred to foreigners, though reviewed and revised a number of times, continues to be a point of friction. Telecoms, insurance, oil exploration, security, retail, education, transport are just some of the 19 economic sectors still barred to foreign investors, and there has been no indication from SAGIA or the Supreme Economic Council of further reforms with respect to the list.

Many bankers and corporates, including some in the Kingdom, would like it to be abolished outright, with the government retaining control through a golden share in strategic sectors such as oil exploration, and perhaps transport.

The Kingdom’s aggressive Saudization policy too is a negative for foreign companies, who prefer to operate in an open labor market, dictated by experience, qualifications, and the rubrics of market supply and demand.

These problems are exacerbated by the poor perception of Saudi workers among both national and expatriate managers; and an over-protective Saudi labor legislation which is a disincentive for foreign firms hiring locals because it becomes almost impossible to terminate the employment of unreliable and inefficient workers. The government to be fair has launched a training and education fund aimed at tackling unemployment.

Another area for urgent reform is that of statistics and information. Very often these are inadequate, non-transparent in terms of collation and methodology, too optimistic, and very poorly disseminated. An open statistical culture is seriously lacking, and this applies in general both to government departments and to private-sector corporates. Of course no one expects companies and agencies to divulge intellectual property, but information as to policy, strategy, performance, terms of trade, indicators and so on, ought to be in the public domain, and should be a right enshrined in law.

The lack of transparency in statistics is underpinned by the generally poor and under-developed corporate communications culture at the agencies and companies. After all, quality, reliable, independent, and up-to-date information is a resource and a vital tool which companies and agencies can use in formulating investment, manufacturing, marketing and other strategies.

Saudi Labor & Social Affairs Minister Ali Al-Namlah, for instance, admitted in October 2003 that “we don’t know the exact rate of unemployment due to the absence of correct information on the number of job seekers and vacant positions.”

Nevertheless, in the Saudi context the minister should be commended for his candour, and has now suggested ways how labor statistics and data could be better collated “by linking all labor offices in the Kingdom with the ministry’s database.”

Unfortunately, that would not suffice, for it is the methodology and criteria for collation that is important. In the UK, for instance, unemployment figures are based on the number of people signing on for benefits and seeking employment at job centers.

There is no distinction between male and female workers, although gender employment analysis can be extrapolated.

In Saudi Arabia this is not possible because there is no benefit system as in the UK. The official government estimate for Saudi male unemployment is 8 percent. However, most bank analysts put the figure at double the official rate at about 16 percent, while others still talk about 25 percent and higher levels of male unemployment.

Because unemployment is a sensitive issue in any economy, a key policy objective is to try to create jobs. In the Kingdom, most Saudis are employed by the state and its utilities. This, together with high defence commitments and the sluggish performance of the non-oil sector, puts pressure on public expenditure, which cannot be sustained through oil revenues only because of their volatility and dependence on world crude oil prices. With the result over the last decade or so, the Kingdom has had almost a persistent budget deficit, forcing the government to borrow more from local banks.

In 2001, for instance, according to the IMF, the Saudi budget showed a deficit of 4 percent of GDP. With the result that the government’s domestic debt increased to a staggering 92 percent of GDP in mid 2001. Only Italy of the G-10 countries has a domestic debt comparable to that of Saudi Arabia.

The Kingdom’s own forecast for this year suggests a smaller deficit for fiscal year (FY) 2002 than the earlier estimate of $12 billion, thanks mainly to rising oil prices. Revenues for FY2002 were projected at $41.9 billion against expenditures of $53.9 billion, but on the basis of an oil price of $16-$17 per barrel. Saudi oil prices have been hovering above the $25 per barrel since August 2002, and last week Brent blend crude prices were quoted at $30 per barrel.

Firmer oil prices into 2003 should mean a knock-on effect on reducing the budget deficit in FY2003. A recent Saudi British Bank study projected oil revenues in 2003 to jump to $54.7 billion. But expenditure too is projected to increase to $58.2 billion.

Increased oil revenues is not a panacea. It depends on how the extra revenues are utilized and whether public spending can be controlled. Any increase in the latter will immediately offset the windfall revenues. Not surprisingly, the IMF has strongly recommended a more efficient use of temporary unanticipated windfall rises in the oil price. Instead of using such revenues through stop-gap measures, it could be invested in a special Saudi Arabia fund to smooth out any budgetary shortfalls on a permanent roll-over basis. Because of non-transparency in fiscal policy, it remains difficult to assess allocation of resources. In fact, the fund rightly calls for government expenditure to be subject to explicitly defined rules and regulations.

In 2002, firmer oil prices will no doubt improve the fiscal situation. The IMF also projects the Kingdom to achieve non-oil GDP growth of 4 percent in 2002. The Saudi British Bank, however, in a recent study, projected that the Kingdom’s non-oil sector GDP growth in 2003 will fall to around 3.5 percent. This on the condition that economic fundamentals such as inflation, trade balance, buoyant oil revenues and good domestic liquidity, remain strong.

There is a clear acknowledgement by Riyadh that dependence on oil and gas for revenues is no longer a sustainable economic strategy. Saudi Finance & National Economy Minister Ibrahim Al-Assaf, speaking at the symposium in Riyadh, concurred that “dependence on oil revenues and consequently public spending as the main driving force for economic activity has made our economy vulnerable to changes in international oil markets. Heavy dependence on a main source of revenue linked to the developments in the world economy and conditions in oil markets constitutes a major challenge to the fiscal policy of the Kingdom.”

Privatization, another potential source of revenue, also is not the panacea that some monetarist economists would like us to believe. It is fraught with both structural, political and market risks, depending on which sector and utility. The slow uptake of the recent Saudi Telecoms (STC) partial sell-off is a poignant reminder of that. It is unlikely that the Kingdom will even contemplate the introduction of marginal income tax. But the pressure may be on to introduce an interim sales tax (VAT) during the coming year.

The economic forecasts for FY2003, in the Saudi context, are not going to change dramatically over the span of one year. It is too short an economic cycle. What the Kingdom needs is a definitive long term plan such as Malaysia’s 2020 Vision, not only for the macro economy, but also for the financial and other sectors.

This would give a clearer timetable and target for the introduction and implementation of reforms.