www.newsmax.com NewsMax Wires Saturday, Feb. 15, 2003

SAO PAULO, Brazil -- Brazil's president spoke with regional leaders Friday proposing a meeting to discuss the consequences of a U.S. showdown with Iraq.

In his telephone conversations with the presidents of Argentina, Chile and Ecuador, Brazilian leader Luiz Inacio Lula da Silva reportedly discussed how heightened tensions in the Middle East and the possibility of war have already adversely affected the economies of their respective nations.

"The war menace has already caused negative economic consequences to Brazil, even though we are we are many kilometers away from the point of conflict stage of the conflict," stressed presidential spokesman Andre Singer.

"The consequences could be much more perverse than they already have been."

Along with global markets, Brazil, too, has experienced a slump in its leading economic indicator -- the Bovespa index -- and its currency -- the real -- has posted regular losses in recent weeks.

Its neighbors are also reportedly feeling the sting of rising fuel costs due to concerns about stymied oil supplies in the event of prolonged fighting and global economic malaise caused by war concerns.

The Lula administration had remained upbeat about its economic situation until as recently as Thursday when Finance Minister Antonio Palocci said "an eventual war will not provoke a crisis for Brazil" despite the ill effects the continent's largest economy has already experienced.

'Best Possible Scenario'

Lula's Chief of Staff Jose Dirceu assured Brazilians this week that the president and his Cabinet "have worked toward creating the best possible scenario" in the event of a war to ensure the stability of the economy, though did not specify exactly what measures were taken.

Brazil has, however, adopted a decidedly anti-war stance since the United States first threatened military action against Iraq, issuing regular statements calling for the Bush administration to defer to the judgment of the United Nation's Security Council.

Earlier this week, the Foreign Ministry said it was "greatly interested in the joint declaration by Russia, France and Germany" denouncing U.S. proposals to use military force to make Iraq comply with council resolutions and remove President Saddam Hussein from power.

Lula now appears to be attempting to rally refiofal stppgrt for Brazil's stance in an effort to make the concerns of South American nations heard by the rest of the international community.

Brazilian officials said earlier Friday that Lula was scheduled to call President George W. Bush and express his concerns about the U.S. stance on Iraq. It was unclear whether Lula did indeed speak with Bush.

Copyright 2003 by United Press International.

All rights reserved.

Read more on this subject in related Hot Topics: Saddam Hussein/Iraq

www.forbes.com Reuters, 02.14.03, 3:17 PM ET SAO PAULO, Brazil, Feb 14 (Reuters) - Brazil's Social Security Minister Ricardo Berzoini denied on Friday the government had withdrawn from plans to unify the country's public and private pension systems, saying proposals on reforming social security are still under consideration. "There is no decision; the discussion is still open," Berzoini said after taking part in a conference on reforming the debt-ridden public pension system. On Thursday, Berzoini had indicated that in the government's reform proposal, the "ideal" would be for new workers to come under new pension rules and existing workers who have already accrued benefits to come under a different set of regulations. That suggested the government was pulling away from its idea of treating all civil servants in the same way as pensioners from the private sector, who have a ceiling for their retirement benefits. Civil servants currently receive pensions based on their final salaries -- meaning some workers retire with full pay, helping the bloated system bleed some $15 billion from government coffers every year. If the government only changed the system for new workers, the reform's benefits would be long delayed into the future. Financial markets are paying close attention to center-left President Luiz Inacio Lula da Silva's efforts in reforming the system after Brazil tried since the early 1990s to change it without success in Congress. Some players see Lula's success on this reform as a key test of the extent to which he has adopted market-friendly economic policies and turned away from past socialist rhetoric. However, Berzoini said the government would not change the rights of benefits already obtained by civil servants in mid-career. "I said yesterday the greater tendency is to seek specific rules for current workers," Berzoini said. "We are not going to attack acquired benefits." The challenge of reforming the public pension system has created a myriad of scenarios, not least due to questions about how to finance benefits during a transition period from one system to another. The debate is likely to get loud and public, not least because many civil servants are traditional supporters of Lula's Workers' Party. Lula's government has said it would send legislation to Congress to reform public pensions by May; but the process could be long-winded, especially as Lula created this week a special advisory council of business, labor and social leaders that will try to reach a common proposal for the government. Reconciling the interests of businesses, civil servants and labor leaders could prove difficult. "Mayors, governors, workers and business leaders will help construct the proposal," said Berzoini.

www.latintrade.com 02/14/2003 - Source: Latin American Newsletters

Brazil's benchmark inflation rate leapt to a six-year high of 14.5% in January, on rising fuel prices.

January's inflation rate accelerated to 2.25%, from 2.1% in December, even though interest rates have been raised to a record 25.5% and pressure on the currency has subsided. The problem is that Gulf War speculation has led to rising world oil prices, which, in Brazil, has translated into higher transport costs and higher food prices. Gasoline prices increased by 8.8% in January, bus fares by 4.99% and food prices by 2.15%.

The inflationary surge makes it likely that the central bank will raise interest rates when it meets next week. A rise in interest rates would hinder President Luiz Inácio Lula da Silva's plans to create jobs through faster economic growth. It would also add to the debt-servicing burden.

Brazil's inflation target for this year is 8.5%, but few independent forecasters think they will achieve it. The 120 economists surveyed by the central bank expect inflation will end the year at 11.8%. Last year, inflation ended the year at 12.5%.

washingtontimes.com By Carmen Gentile UPI Latin America Correspondent

     SAO PAULO, Brazil, Feb. 13 (UPI) -- Brazil's president told his nation Thursday that he had inherited a grave situation and that the policies adopted by his predecessor did not prioritize economic growth or great equity in the distribution of income.      Luiz Inacio Lula da Silva painted a dire portrait of Brazil saying that income distribution had remained unchanged for the last 30 years and that former President Fernando Henrique Cardoso did little to change that during his eight-year mandate.      "But I was not chosen to lament, rather to face this situation," said Lula, who since assuming office on Jan. 1 has been steadily pushing for comprehensive reform in an attempt to narrow one the world's largest economic divides.      Brazil's left-wing leader stressed that the need to reform government institutions such as pension programs, welfare and taxes "was urgent" so that the country could grow and foster greater social cohesion.      Lula's dire assessment and demand for change came on the same day of the first meeting of his Council of Economic and Social Development.      Known locally as the CDES, the group of 82 non-elected business and labor leaders will advise the administration on how to cure Brazil's various social and economic woes and assist in the development of a reform package to present to Congress.      The president went on to assure Brazilians that CDES members were not chosen "because they are friends of Lula, or of his Workers' Party," nor would they diminish the role of elected officials. Rather, the council, said the president, would provide private citizens the opportunity to assist in forging their country's future.      "The council will not, under any circumstances, substitute nor will it diminish the power of the National Congress, which, in the Brazilian democratic system, is the privileged forum for the country's strategic deliberations," Lula said.      "The search for consensus in society, the search for an authentic strategic social accord, can be very useful to the work of the executive and the legislature itself, without removing any of its prerogatives, instead, adding to their importance."      Some elected officials, however, don't see it that way.      Jose Carlos Aleluia, a leader in Brazil's lower house and member of the right-leaning Liberal Party, said he didn't recognize "the party as a deliberative organ" and "guaranteed that Congress won't accept reform proposals" put forward by the CDES.      Some analysts are forecasting pitfalls in Lula's future for introducing what amounts to another, unofficial branch of government in his quest to implement reforms.      While the approval of the CDES may help create consensus among voters, it "might create some tension" with Congress, where Lula's Workers' Party does not hold a majority, predicts Tendencias Consulting Group analyst Christopher Garman.      "The government will play it up as, 'We are consulting society,'" said Garman, "though Congress could end up regarding it as an unnecessary mechanism that could subvert its authority."

washingtontimes.com By Bradley Brooks UPI Business Correspondent

     RIO DE JANEIRO, Brazil, Feb. 13 (UPI) -- Brazil's inflation figure for January ticked up to its highest 12-month total in six years, the government said Thursday. Top Stories • U.S. rebuffed on using force in Iraq • Bin Laden son, al Qaeda terrorists spotted in Iran • Ridge cautions against panic • A war of words on the French • Ex-SLA radicals draw 6-8 years for '75 killing • We hardly knew ewe • State tells Vietnam it opposes bill on flag

     The reading came as new President Luiz Inacio Lula da Silva underscored that reform is the key to economic growth.      The government reported that inflation in January was 2.25 percent, higher than what most analysts were forecasting. Inflation was 2.1 percent in the previous month.      The January number puts the 12-month inflation reading at 14.5 percent -- its highest level since August 1996.      Government officials said the biggest culprit in the inflation surge was a sharp devaluation in the local currency and a jump in fuel prices -- which in turn pushed the price of other goods and services higher.      Analysts say the numbers point toward another hike in the key interest rate next week when the central bank convenes its monthly policy meeting. The Selic interest rate stands at 25.5 percent -- its highest level in four years.      The high interest rates -- needed to dampen inflation -- have the byproduct of hampering efforts by Lula to spark the economy and create jobs, analysts say.      "We're expecting a growth rate of 1.9 percent of (gross domestic product) this year, and this isn't enough to create enough jobs to reduce the unemployment rate," said Luis Lima, a senior economist with BBV Bank in Sao Paulo.      "This, in the long wrong, will bring problems to Lula's government."      The unemployment rate sits above 10 percent, though some analysts argue that number is a little high due to a change in the methodology used to calculate it.      Speaking at a ceremony marking the creation of the new Council on Economic and Social Development, Lula said that austere -- and unpopular -- economic moves he's made in his first month in office were needed, as he inherited an economy in a dangerous situation.      "That forces us to take tough measures that we don't like to take, but that are indispensable so that the situation doesn't get out of control," he said.      "Therefore, our reforms make economic and social sense. The social security, tax, political, labor and agrarian reforms can't be postponed and the country cannot do without them."      Analysts say that reforms to the social security and tax systems are essential if Brazil is to lessen the burden of its $240 billion debt and return to economic stability.      But the reforms are likely to face stiff resistance -- not the least of which from within Lula's own Workers' Party, which for years blocked such reforms in Congress during the two terms of former President Fernando Henrique Cardoso.      Meanwhile, the government said Thursday that it was suspending payments on some $2 billion in expenses from 2002, to review that the contracts had gone through proper channels.      That news comes on top of Lula's announcement earlier this week that he was slashing $14.1 billion in spending from this year's budget in an effort to meet ramped-up fiscal targets.      It was last week that Brazil's finance minister revised the country's primary budget surplus target from 3.75 percent to 4.25 percent of GDP.      These moves have pleased economists who like to see the belt-tightening done by a government many worried would spend the country into default.      And some analysts have pointed out that despite the increase of inflation, a closer examination of the numbers spells better times ahead for Brazil.      "Current inflation is indeed high, but it reflects many seasonal one-off factors, such as the late December hike in fuel prices and the readjustment of urban bus tariffs in Sao Paulo," said Gustavo Reis, an economist with the Rio de Janeiro-based Pactual investment bank.      "That is why analysts in Brazil like to track core inflation" -- a reading using more specific data -- "which is on its way down at 1.3 percent in January."      Reis said he expects February will see that core inflation -- and the headline reading -- to be lower, and that it should continue heading down for the rest of the year.      But both Reis and Lima said that it looks all but impossible for the government to meet its inflation target for this year of 8.5 percent.      January's inflation reading "was more than 25 percent" of the year's target, Lima noted. "To reach the target, we'll have to have a monthly inflation rate that averages 0.66 percent."      The consensus is this is an impossible average to reach, with most economists forecasting inflation for this year of at least 11.5 percent.