www.nytimes.com January 9, 2003 By ELIZABETH BECKER

ASHINGTON, Jan. 8 — The Bush administration officially opened negotiations today to create a free trade agreement with five Central American countries within a year, a big leap in its ambitious plans for a Nafta-like zone throughout the Western Hemisphere.

The announcement cemented the role of trade as the administration's primary policy focus with Latin America. It gives the United States trade representative, Robert B. Zoellick, chief responsibility for promoting improved American relations in the region at a time much of the administration is focused on Iraq and terrorism.

Indeed, Richard E. Feinberg, former special assistant for inter-American affairs to President Bill Clinton and an early advocate of the regional free trade concept, said, "I believe these free trade agreements will be seen as the 21st-century version of strategic alliances."

Some critics in Latin America are annoyed at what they say is the administration's strategy of dealing first with small countries that have fewer trade disagreements with the United States rather than including bigger trading rivals like Brazil.

And the initiative intensifies competition between Washington and the European Union for access to the Latin American market, where Europe is the second-largest trading partner after the United States. European officials in Brussels have taken note of Mr. Zoellick's Latin American push since Congress granted trade promotion authority — once called fast track — to President Bush in August. And now the Europeans are working to complete negotiations for a similar free trade agreement with Mercosur, the world's third-largest trade group, comprising Argentina, Brazil, Paraguay and Uruguay as well as Bolivia and Chile as associate members.

"It is obvious we are in stiff competition right now," a European representative in Washington said. "Our agreement with Mexico came after Nafta, and we don't want to lose out again, especially not with Mercosur.

Flanked by representatives of several countries that just decades ago knew the United States mostly as a purveyor of weapons in their civil wars, Mr. Zoellick said American interests in the region were now centered on liberalized trade, economic development and democracy.

"This is more than a trade negotiation," he said. It is "a plan to strengthen democracy and promote development in a region that has known too little of both."

However, these five countries — Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua — offer relatively few of the problems that will appear in the hemispherewide talks for a Free Trade Area of the Americas, or F.T.A.A., since their trade largely meshes with the United States.

Critics, particularly in Brazil, say they fear that this regional agreement is an attempt by the United States to divide and rule, forcing the bigger Latin nations to accept Washington's dictates in the wider negotiations.

"I think this is tactical," said Mario Mugnaini, vice president for international affairs at the Federation of Industries in São Paulo. "If there are too many bilateral accords made around the region, then Brazil would ultimately favor closing the F.T.A.A. negotiations, but I don't think that's what the United States wants."

Still, United States trade with these five Central American countries is significant. They import a total of $9 billion worth of products from the United States every year, the rough equivalent of American exports to Russia, India and Indonesia combined. And the United States imports $11 billion worth of goods from the five countries, with nearly three-fourths of the products entering duty free under special-preference programs.

The European Commission's chief trade negotiator, Pascal Lamy, seeking to regain a European foothold in the region and to capitalize on its Old World ties to Spain and Portugal, will travel to Brazil in three weeks — seeking to fortify relations on a continent that in just a few months has moved swiftly toward a greater opening toward the United States.

The United States and nearly every country in the Western Hemisphere agreed on a blueprint for a Free Trade Area of the Americas in November with the goal of essentially expanding the North American Free Trade Agreement all the way to Argentina by January 2005. Brazil, the largest Latin American economy and the nation most skeptical of a free trade area, is now co-chairman of those talks with the United States.

Last month, Washington concluded a free trade pact with Chile — a model, Mr. Zoellick hopes, for the talks with the Central American nations, particularly in the areas of protection for laborers and the environment.

Bernard W. Aronson, assistant secretary of state for inter-American affairs under President Bush's father, who first proposed a hemispherewide free trade zone, said that while Mr. Zoellick might be making rapid strides now, they were perhaps 10 years too late.

"I think that the U.S. and Latin America have paid an enormous price for failing to spread free trade throughout the hemisphere after Nafta," Mr. Aronson said. "If we had, the hemisphere would look very different, and much of the economic and political disintegration wouldn't have occurred."

But some of the praise for Mr. Zoellick's efforts today was laced with criticism of the administration for relying on trade to solve a myriad of crises in Latin America. "Zoellick is doing a wonderful job, but it's extremely unfortunate that he is carrying the water for the whole administration," said Julia Sweig, a senior fellow at the Council on Foreign Relations. The region, she said, "deserves more senior attention."

At the beginning of the month, Brazilian officials were insulted when Mr. Zoellick led the American delegation to the inauguration of President Luiz Inácio Lula da Silva, leader of the leftist Workers Party. Not only was he considered too junior, but he has been held in some disdain for warning Brazil that it would be reduced to exporting to Antarctica if it failed to join in the Americas trade pact.

Brazil, indeed, has lobbied for the hemispherewide negotiations to be concluded as a single undertaking, meaning all loose ends of an accord must be tied up before all countries involved can sign.

Now, a senior trade official said, Mr. Zoellick is trying to push Brazil "into not just joining the pact, but leading the way."

The major sticking points in all the negotiations will be farm products, especially sugar and citrus fruit.

But the trade and economic ministers of the five Central American countries said today that they were willing to compromise to win permanent access to the United States economy and lure greater investment to their region.

"We're also talking about something more fundamental than trade," said Alberto Trejos, Costa Rica's foreign trade minister. "We'll derive many, many more permanent benefits and a vision of development that will mean more jobs and increased prosperity."

While concern over the strike-induced oil crisis in Venezuela and the civil strife in Colombia may occupy higher-ranking members of the administration, trade officials say they are well suited to be the most prominent representatives of President Bush in the region.

"Economics is the most compelling aspect of U.S.-Latin relations," said Peter Allgeier, a deputy United States trade representative. "Getting access to us gives the message to investors that their countries are a safe place to put their money."

www.upi.com

By Emily Sedgwick A UPI Outside view commentary From the Washington Politics & Policy Desk Published 1/8/2003 7:39 PM View printer-friendly version

SAO PAULO STATE, Brazil, Jan. 5 (UPI) -- Brazil has earned a long-standing reputation for political incongruity and curiously unrealized economic potential. The country's stunning beauty and the friendliness of its people can swiftly insulate a visitor from domestic concerns like poverty and bureaucratic waste.

All the same, the presence of the favelas, or slums, and graffiti-pocked cement city surfaces remains undeniably prevalent and disturbing.

At UNICAMP in the Sao Paulo state, where my brother is a university student, the contrast with universities in the United States and Western Europe couldn't be more striking. Communist-era architecture, poorly-kept grounds, and an enormous cement amphitheater covered with graffiti blemishes dominate the campus.

UNICAMP was established in 1969 by a leftist movement of academics, and the temperament of the students I met there suggests a strong connection to that history.

These students expressed to me a great sense of optimism regarding the recent election of Luis Inacio da Silva, or Lula -- "Squid" in Portuguese -- as he is affectionately called.

The young people I met unanimously supported his election and remarked upon it with an attitude of momentous expectancy.

Lula rose to notoriety in the 1970s as the leader of the Paulista steelworkers union, helping steelworkers to achieve higher wages and better working conditions.

His successes as a union leader have expanded the middle class but he opposes privatization, the elimination of tariffs, and a new free trade agreement for the Americas. These actions would further expand and empower Brazil's fledgling middle class and help to reverse the centralization of an entrenched and patrimonial government bureaucracy.

Yet Lula and the students that I met seem determined to enact policies of global isolationism and redistribution of wealth.

Scrawled on another cement amphitheater in the nearby city of Campinas is 'UTOPIA,' in orange spray paint, in a child's handwriting, suggesting little forethought or artistic intent.

Supporters of Lula castigate U.S. President George W. Bush for his background in the oil industry and draw tenuous parallels between that background and the possibility of a U.S. war with Iraq.

In Brazil, government bureaucrats rise to influence and power, and earn fortunes, by cultivating clientele in and out of government. Patronage is a tradition spanning the centuries since Portuguese arrival on this soil.

To reverse that tradition, one might think to expand economic opportunities for the majority of Brazilians, rather than pander to the so-far unproven and mystical concept of socialistic utopia.

The poverty, favelas, graffiti, and desperation in a country so beautiful lend urgency to radical change of any kind. Politicians here have spit liberal ideology into the wind for decades.

On the road to Maresais, through huge hills of dense jungle, we passed numerous favelas, most of which appeared to be empty. Upon inspection from the windows of city buses, clothing hung from lines, drying in the mildly humid and hot summer air, and trash and other evidence of life lay strewn about.

Telephone lines whiskered the hills, and the occasional disc-like antenna sprouted from a roof.

The colors of the favelas are drab terra-cotta oranges, browns, metallics, and dirty whites so that these settlements take on a uniformity and predictability. None of the windows appear to have glass, or even a bright piece of fabric strung across black openings that give the favelas a toothless and malnourished quality.

In a country where plant life tumbles all over itself everywhere, competing for sunlight, in the worst favelas that I've seen there are no broad-leaved trees. There are no flowering vines, coconut palms or any of the flora that should grow just about anywhere in this climate.

Instead, the geometric haphazard growth of a favela climbs up a hillside and spreads like a virus.

Brazil's political leaders have espoused fidelity to classical liberalism at least since 1985. But it would seem that with the exception of the vote, these principles are undone by a government bureaucracy that absorbs one in six salaried Brazilians, labor legislation that inhibits reform, and a general sense of cynicism about the efficacy of free market economics.

The emerging middle class, perhaps the one group capable of spurring genuine reform, could easily be spooked into supporting another military regime, as happened in 1964, and undermining the privatization and democratic progress already achieved.

The recent scandals revealing enormous payoffs and kickbacks to government officials of every rank fail to inspire any confidence in a system that hasn't addressed the concerns of the silent poor majority, or the middle class.

The challenges that Brazil must resolve may yet meet their match in the kindness and hope of its people. -0- (Emily Sedgwick is a tax policy analyst with Americans for Tax Reform, a pro-market organization based in Washington. "Outside View" commentaries are written for UPI by outside writers who specialize in a variety of important global issues.)

news.ft.com By Raymond Colitt in São Paulo Published: January 9 2003 0:35 | Last Updated: January 9 2003 2:16

The Brazilian government was on Wednesday battling the country's third-largest state in court for defaulting on a debt payment.

The federal treasury last week had confiscated R$86m (US$25m) in tax revenue from Rio de Janeiro state to make up for a debt payment it missed in late December. Following a supreme court order, the government yesterday returned the funds but is appealing against the decision.

The incident highlights the difficult debt situation of several state governments and is one of the first tests of the new administration's financial ingenuity. The leftwing government of Luiz Inácio Lula da Silva, which took power last week, faces one of the tightest budgets in recent years.

The challenge for the Lula da Silva administration is to negotiate limited relief for a few states without opening a broader and very costly debt renegotiation, argues Raul Velloso, a Braslia-based expert in public accounts. "It's a potential Pandora's box."

Half a dozen states with total debts of more than R$100bn ($30bn) say they have difficulty in meeting their obligations. The government has already made concessions to Minas Gerais, the country's second-largest state, offering funds to build roads.

That offer prompted other governors to seek aid as well. "It's difficult [for the government] to explain help to Minas and not to Esprito Santo," said Paulo Hartung, governor of the small coastal state.

The Lula da Silva administration had hoped to put off the issue of state debt, which resurfaced when several governors said they found barren coffers on taking office.

The supreme court admitted Rio de Janeiro's argument that vital public services were threatened by the debt payment. If upheld, the ruling could encourage other states to seek legal action.

A moratorium on interest payments by Minas Gerais sparked the currency crisis that forced Brazil to abandon its crawling peg in favour of a floating exchange rate in 1999.

The former administration successfully renegotiated states' debt in exchange for budget discipline and transparency and introduced tough penalties for non-compliance. Governors who fail to account for their budget or to meet targets can now go to prison.

"If the government offers fresh aid, they will have to ask for more belt-tightening in return," said Mr Velloso.

www.forbes.com Reuters, 01.08.03, 7:26 PM ET

RIO DE JANEIRO, Brazil, Jan 8 (Reuters) - New leftist President Luiz Inacio Lula da Silva decided on Wednesday to employ the army to help repair Brazil's roads as he deepened cuts on infrastructure to help feed the poor.

Former union leader Lula, who was in the past imprisoned by military rulers, backed the move three days after also suspending government spending on new road projects to save an estimated 5 billion reais ($1.5 billion).

"The president stressed that the country needs all sections of society, and the help of the armed forces in particular, in the tasks of government," presidential spokesman Andre Singer said.

It was Lula's second major cost-saving measure involving the military since he became leader Jan. 1 of Latin America's largest country. He has also suspended the $700 million purchase of 12 new fighter jets.

"I don't think it's a symbolic act ... everyone knows that the armed forces possess state of the art expertise in transport." Singer told a news conference.

He said using the army, which was only brought fully under civilian control in 1999, could help control overspending and other irregularities in road projects. The plan called for reequipping 11 battalions of the engineering corps for repair and supervisory work, he added.

The highly popular Lula suspended on Sunday new road works to free up spending for social projects such as his "zero hunger" program for Brazil's 54 million poor that aims to raise food production and pay for food handouts.

Posted on Wed, Jan. 08, 2003 www.fortwayne.com By TIM JOHNSON and ANDRES OPPENHEIMER Miami Herald

BEING REASSIGNED: Otto Reich failed to win Senate approval as the State Department's top official in charge of Latin American affairs. MIGUEL ROJO/AFP FILE

WASHINGTON - The Bush administration is expected to announce a reorganization of its Latin America policy team that will include the appointment of diplomat Otto Reich as a ''presidential envoy'' to the Americas, thus avoiding a confirmation battle with the Senate, administration officials said Tuesday.

The Cuban-born Reich, who had to step down last month as the State Department's top official in charge of Latin American affairs after failing to win Senate confirmation, would move to the White House and report directly to National Security Advisor Condoleezza Rice, the officials said. The announcement could be made as early as this week, they said.

Replacing Reich at the State Department's top job in charge of Latin American affairs will be Roger Noriega, another political appointee currently serving as ambassador to the Organization of American States, the sources said. It was unclear whether Noriega himself would have difficulty being confirmed.

Noriega is a former Latin American affairs staffer for former Sen. Jesse Helms, R-N.C., who retired last month.

Reich and Noriega are considered hard-liners on Cuba, and on several other Latin American issues. Reich, a former ambassador to Venezuela, had been effectively vetoed in the Senate by Sen. Christopher Dodd, D-Conn., and other Democrats who oppose the U.S. embargo on the island.

Ever since Reich's tenure at the State Department came to an end recently -- when he was obliged to step down by law because of a failure to win Senate approval -- it was unclear whether a new confirmation effort would be made this year.

The Bush administration decision to place Reich in a position that does not require Senate confirmation avoids the necessity of another battle in the Senate, where the outcome was uncertain even though Republicans control the chamber in the new Congress.

But Reich supporters saw it as a positive move nonetheless. ''It's a victory of the hard-liners,'' said one U.S. official.

Secretary of State Colin Powell is said to have wanted a career diplomat, U.S. ambassador to Colombia Anne Patterson, for the State Department Latin American affairs job. Well-placed State Department sources said Powell did not want to risk a fight with Congress -- where the administration will need every possible vote in the event of a war on Iraq -- over a lesser issue such as the Reich nomination.

The new position for Reich would amount to a somewhat diminished version of a ''presidential envoy'' office for Latin America created during the Clinton administration, and abolished by Bush.

Clinton tapped his boyhood friend and former chief of staff, Thomas ''Mack'' McLarty, to the Latin envoy post in 1996, giving him virtual Cabinet-level rank and an office in the West Wing of the White House. McLarty served until 1998.

Reich will have a small office and staff in a building adjacent to the White House, and will report to Rice, officials said. But supporters say he may play a powerful role because he will work close to Rice, and thus have potentially easy access to the Oval Office.

Press offices at both the State Department and White House said they could neither confirm nor deny any change in Reich's status.

Since the sudden end of Reich's State Department job, when he was given a temporary slot as Powell's ''special envoy'' to Latin America, Powell has kept him at arm's length.

Reich did not accompany Powell on a trip to Colombia Dec. 3-4, nor was he present at a White House meeting in mid-December with incoming Brazilian President Luiz Inácio Lula da Silva, who now heads South America's most powerful nation.

''Otto wasn't even in the room. He was the most senior official to have met with Lula but he wasn't asked to come,'' said a colleague ''disappointed'' at White House treatment of Reich.

On Monday, Reich did not attend a meeting Powell held with Oswaldo Payá, Cuba's leading opponent to Fidel Castro. But Reich met with Payá separately because he had a long-scheduled speech at the time of the meeting, said an official familiar with Reich's schedule.

Indeed, Reich's future in the government has been the subject of such a tug of war between the White House, the State Department and Congress, one source continued to express a measure of skepticism over the new appointment Tuesday.

''Until I hear somebody announce it standing on a podium with a seal on it, I won't believe it,'' said a close friend of Reich, who spoke on condition of anonymity. ``We've heard so many things.''

Powell and the White House had sounded out Reich about taking several lesser jobs, sparking angry chatter on Spanish-language radio stations in Miami and complaints from leaders in the Cuban-American community that one of its most prominent members was being treated poorly by the Bush administration.

Reich was first asked if he wanted to represent the United States in Geneva as its human rights representative, a position that normally serves to criticize the Cuban government's poor human rights record, sources said. Later, he was approached about serving in the National Security Council to replace Elliott Abrams as senior director for democracy and human rights, after Abrams left to become director of Middle Eastern affairs. Reich declined both jobs because he considered them a step down.

Another staffer said Reich supporters want the White House to assign Reich policy issues that he can handle separately from John Maisto, the career diplomat who is assigned the Western Hemisphere portfolio at the National Security Council.

''You have to give him specific assignments like free-trade issues, or hemisphere security issues, or Cuba and Venezuela,'' said one staffer, who declined to speak on the record.