reuters.com Tue February 18, 2003 05:16 PM ET (Adds background, details, quotes, byline)

By Michael Kahn

SACRAMENTO, Calif., Feb 18 (Reuters) - Calpers, the nation's largest public pension fund, on Tuesday ruled out stock investment in Malaysia, Thailand, India, Russia, and eight other countries and proposed an overhaul of its emerging market policies.

The board of the California Public Employees' Retirement System, or Calpers, backed a proposal by California state treasurer Phil Angelides that excluded stock investment from a total of 12 countries spanning the globe from Colombia to China based on a numerical scoring by an outside consultant.

The countries also include Morocco, Sri Lanka, Egypt, Pakistan, Indonesia and Venezuela.

Calpers, which has some $133 billion in assets, had been expected to put Thailand and Malaysia back on its list of approved emerging markets, but voted for tighter standards than its consultant had recommended. Under the revised standards, investment would be cleared for 14 emerging markets, including South Korea, Poland and Israel. The others are the Czech Republic, Hungary, Taiwan, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

In another twist, the fund, which has about $1.8 billion in emerging markets, also said it would keep the Philippines on its target investment list pending a further review after officials from that nation appealed the recommendation that it be dropped.

Calpers officials also said the fund would consider a proposal that would allow for more flexibility in implementing its emerging markets guidelines.

'WATCHLIST' PLAN

Specifically, the fund, which has a reputation as a watchdog for corporate governance, said it would consider adding countries to a "watchlist" before it sold off from those markets, allowing governments to respond to perceived problems and saving transaction costs.

Calpers last year began to consider civil liberties, press freedoms and political risk in making investment decisions after board members argued that investing in more stable countries with liberal practices would yield better long-term returns.

Its investment in the markets that made the grade according to a composite score prepared by Santa Monica, California-based Wilshire Consulting underperformed a broader measure of emerging markets since the policy took effect in April last year.

In its report to Calpers this year, Wilshire argued that the policy had limited the benefits of diversification and concentrated the fund's "exposure to the more risky economic sectors" of the markets in which it did have a stake.

While Wilshire had argued for allowing investment in a total of 20 emerging markets, the Calpers board opted to continue its tougher standard under which just 14 qualified.

"I don't see any compelling reason right now to change the policy," Angelides said.

But the Calpers board listened to a presentation from Philippines Finance Secretary Jose Camacho in which he argued that the country deserved better marks in areas such as investor protection, political stability and judicial reform.

Calpers had initially ruled out investment in the Philippines last year, only to reverse course after admitting that decision had been made on the basis of mistaken information about market settlement practices there.

"I do not want to cast any clouds on the Philippines," said Angelides.

Calpers' investment committee will reconsider how to treat lagging countries on its list and the status of the Philippines when it meets again in 60 days.

www.alertnet.org 18 Feb 2003 21:31

CAIRO, Feb 18 (Reuters) - The Organization of Petroleum Exporting Countries will act quickly to avoid oil market shortages in case of a war against Iraq, OPEC President Abdullah bin Hamad al-Attiyah said in a television interview broadcast on Tuesday.

"In cases of tension...we deal with it clearly and quickly to restore a balance between supply and demand in the market, and to restore stability. We do not want consumers to feel that they will face a shortage in supplies," Attiyah said in an interview with the Qatar-based Arabic-language al-Jazeera channel.

Attiyah, who is also Qatar's energy minister, was responding to a question about how OPEC would react to a possible war in Iraq.

Oil prices forged to fresh 29-month highs on Tuesday as the United States and Britain pushed for a second U.N. resolution on Iraq that could open the way to war on the world's eighth largest oil exporter.

Traders fear military conflict in Iraq could upset oil flows from the Middle East, which pumps nearly a third of the world's crude. An 11-week workers strike in Venezuela has already depleted world oil supplies.

www.csmonitor.com from the February 19, 2003 edition

• MARCHING IN STYLE: Reporter Philip Smucker was impressed with the order he found in a massive peace demonstration in Damascus, Syria, this past weekend (see story). "There were 150,000 to 200,000 residents of the city marching. Everyone jumped in line with others from their own profession. So you would see a pack of lawyers clad in sharp black suits or a group from a women's sewing factory. In another area, you would see the seventh-grade class from a suburban middle school. All of them were anxious to talk with an American reporter, and had good things to say about Americans, if not their leadership," says Phil.

Such a march is unlikely to have happened in Cairo, where he is based, says Phil. "Hosni Mubarak's government, nervous that events might get out of hand, sends out a very large police force at every demonstration. It is very intimidating."

• THAT'S A FACT - MAYBE: Separating fact from fiction is a basic part of good reporting, but reporter David Buchbinder found that skill to be especially important while reporting on Venezuela's oil crisis (see story). Even the arid realm of production statistics was inflamed by political rhetoric.

"You have economists who sympathize with the government, and you've got others who don't, and they'll give you vastly different numbers, based on their point of view. I've never been in a country where the people are so fiercely divided," says David, who has reported on wars in Afghanistan and Mozambique. "Here, people don't talk about politics - they shout."

Amelia Newcomb Deputy World editor

www.csmonitor.com from the February 19, 2003 edition

By David Buchbinder | Special to The Christian Science Monitor CARACAS, VENEZUELA – With most of Venezuela back at work, President Hugo Chávez has emerged from a devastating 2-1/2-month strike with control of a key asset - the petroleum industry.

Mr. Chávez's opposition had taken control of the state-run oil company, Petroleos de Venezuela (PDVSA), on Dec. 2 and slowed production to a trickle. But Chávez consolidated power by firing as many as 12,000 of the company's 38,000 workers and calling in retirees as replacements. Reporters on the Job The Monitor gives the story behind the story.

Related stories: 01/30/03 Chavez steers Venezuelan descent

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The company has raised production faster than many industry analysts had expected - up to 1.9 million barrels a day, according to the government. Ali Rodriguez, PDVSA's president, says that he expects production to rise to "near normal" levels by mid-March. Venezuela produced 2.8 million barrels a day before the strike.

But some analysts say it could be months, if not years, before Venezuela returns to the ranks of the world's oil elite. For a country that relies on oil revenue for 80 percent of government funds, this could be a blow to funding of social programs and even lead to oil-industry privatization.

"At the end of the day, PDVSA will not get back to where it was any time this year," says Larry Goldstein, President of the International Petroleum Research Foundation in New York.

Getting pumps and refineries going again is not as simple as throwing a switch. The oil behemoth's skeletal staff has to tussle with complex engineering tasks, from gauging oil flow in dormant pipes to reconfiguring computer systems to replacing a catalytic cracker module on a stalled refinery. Half of Venezuela's petroleum comes from particularly viscous oil deposits, and many wells became filled with sand after the oil pressure was cut.

"Some fields you should never shut down, and they were shut down," says Ramon Espinasa, a consultant at the Inter-American Development Bank in Washington and a former PDVSA economist. "A large number [of wells] will have to be redrilled."

Mr. Goldstein says that some wells will have to be abandoned altogether. He estimates that 400,000 barrels per day have been permanently lost.

A crowded slate of technical challenges falls to a PDVSA workforce that is practically headless, as most of the firings occurred in the ranks of senior managers, scientists, and economists. PDVSA is severely short-staffed, and workers who have been brought out of retirement are scrambling to learn new computer systems.

Reaching prestrike production levels will call for further exploration, and that requires cash - yet another problem. PDVSA announced it will tighten its belt by $2.7 billion this year, nearly one-third of its budget.

"To run this corporation they need capital and labor, and they have neither," says Mr. Espinasa.

With a battered credit rating making borrowing expensive, to raise money PDVSA may have to sell assets in Germany, Sweden, and the Caribbean, as well as portions of company-owned Citgo, which operates 13,400 gas stations in the US.

Some analysts say that, eventually, Chávez will have to have to increase privatization, turning to large multinational oil companies already operating in Venezuela. To lure foreign investors, a law which dictates that Venezuela maintain at least a 51 percent stake in all joint ventures may have to be revised.

"The international oil companies are all here," says one Caracas-based analyst. "They're not vultures, but we can say that they're waiting on the wire fence to pick up the pieces."

The political struggle for control of PDVSA shows no signs of abating. Some strikers are refusing to return to work until Chávez agrees to early elections. Opponents accuse him of trying to turn the country into a Cuba-like socialist state and decimating the economy, which may contract by as much as 25 percent this year.

In the meantime, PDVSA is being split into two units, one for eastern Venezuela and one for western Venezuela, in order to avoid Caracas, where antigovernment sentiment runs high.

Antonio Herrera, general manager of the US-Venezuela Chamber of Commerce, is confident that the US will find other sources of oil to make up for Venezuela's shortfall. But he suspects that the worst is yet to come for the Venezuelans. "We're really heading for a calamity in the economy," he says. "The oil industry is decimated. It's a major annoyance for the United States.... It's a tragedy for Venezuela."

seattlepi.nwsource.com Tuesday, February 18, 2003 · Last updated 1:39 p.m. PT THE ASSOCIATED PRESS

CARACAS, Venezuela -- Venezuela will begin selling foreign currencies, under stringent restrictions, through state-run banks, the president of the nation's exchange control commission said Tuesday.

The announcement by Edgar Hernandez came as the exchange control commission, or Cadivi, signed agreements with the Banco Industrial and the Andes Development Bank, both run by the government.

"The objective is opening operations for buying currencies," said Hernandez, adding the two banks would begin exchange operations "as soon as possible."

Hernandez said he expects private banks to sign similar agreements within a week.

The government suspended foreign exchange sales Jan. 21 as panic buying of U.S. dollars amid a two-month general strike led to a drastic drop in foreign reserves.

The suspension was also meant to give the government time to hammer out details of an exchange controls plan, which fixes the local bolivar currency at a rate of 1,598 bolivars to one U.S. dollar.

The bolivar is trading between 2,200 and 2,500 to the dollar on the black market.

Opponents of President Hugo Chavez fear the new exchange controls system could be used by the government to punish its detractors, including businesses that participated in the strike to unseat him. The strike ended on Feb. 4 in all sectors except the all-important oil industry.

More than 60 percent of the food, medicines and finished goods consumed by Venezuelans are imported. Without access to the dollars needed for imports, businesses are partly paralyzed and there are shortages of some goods.

Last year, annualized inflation hit 31 percent, sparked by a 46 percent devaluation of the bolivar. The currency devalued a further 25 percent this year before the halt on currency trading was imposed.

Chavez, who was elected in 1998 and re-elected in 2000, claims the nation's economic problems are the result of an "economic coup" led by his opponents.

Venezuela's opposition, a coalition of political parties, labor unions and business groups, accuses Chavez of trying to quash dissent and establish a Cuban-style dictatorship in the South American nation.