www.sfgate.com JAMES ANDERSON, Associated Press Writer Thursday, February 20, 2003

(02-20) 09:11 PST CARACAS, Venezuela (AP) --

A leader of Venezuela's general strike was snatched out of a restaurant by secret police and faces charges of treason and instigating violence for his role in mass, anti-government protests that crippled the nation's economy.

On Thursday, the morning after the midnight arrest of Carlos Fernandez, opposition leaders threatened to call a new strike in response.

Strike co-leader Carlos Ortega, of the Venezuelan Workers Confederation, was ordered to surrender, also on treason and instigating violence charges, said magistrate Maikel Jose Moreno.

Ortega and Fernandez, president of Venezuela's largest business federation, Fedecamaras, led the two-month strike that started Dec. 2, seeking to oust leftist President Hugo Chavez. The strike ended this month except in Venezuela's oil sector.

Chavez accuses the two strike leaders of trying to topple his government.

Eight armed men seized Fernandez at about midnight Wednesday as he was leaving a restaurant in Caracas' trendy Las Mercedes district, his bodyguard, Juan Carlos Fernandez, told Globovision TV.

He said the men, who identified themselves as police agents, fired into the air when patrons tried to stop them from taking Fernandez away.

Ortega condemned the arrest as "a terrorist act" against Venezuela's opposition, already shaken by the slayings and possible torture of three dissident Venezuelan soldiers and an opposition activist.

International human rights groups have demanded an investigation into the slayings of the four, whose bodies were found in the suburbs of Caracas with hands tied and faces wrapped with tape.

Darwin Arguello, Angel Salas and Felix Pinto and opposition activist Zaida Peraza, 25, had multiple bullet wounds and showed signs of torture, Raul Yepez, deputy director of Venezuela's forensics police, said Wednesday.

He said the four were abducted Saturday night.

According to the New York-based Human Rights Watch, a witness saw the victims being forced into two vehicles by men wearing ski masks, not far from a plaza that has become the opposition's central rallying point.

"The circumstances strongly suggest that these were political killings," said Jose Miguel Vivanco, executive director of the Americas Division of Human Rights Watch.

Yepez said police had "practically ruled out" political motives. There have been no arrests.

Dissident soldiers supported the nationwide strike, which demanded Chavez's resignation or call for early elections. The strike was lifted Feb. 4 in all areas except the oil industry to protect businesses from bankruptcy.

The vice president of the Fedecamaras business association, Albis Munoz, warned of another nationwide strike. She said Fernandez was seized without a court order and was being held at secret police headquarters.

"Definitely there will be actions, and very strong actions," Munoz said, adding that Fernandez was "practically kidnapped."

"There has been no way of communicating with him," she said.

Opposition leaders called for street protests and appealed to the Organization of American States, the United Nations and the Carter Center, run by former President Jimmy Carter, which have brokered talks here.

One opposition delegate to those talks, Rafael Alfonzo, said Fernandez's abduction made a mockery of a "peace pact" renouncing violence that government and opposition negotiators signed on Wednesday.

"This government doesn't want to negotiate. It only wants conflict. We won't back down," Alfonzo said.

OAS Secretary General Cesar Gaviria issued a statement urging Venezuela's judiciary to treat Fernandez's case in "strict compliance with the laws and rights guaranteed by the (Venezuelan) constitution."

Chavez was elected in 1998 and re-elected in 2000, vowing to wipe out the corruption of previous governments and redistribute Venezuela's vast oil wealth to the poor majority.

His critics charge he has mismanaged the economy, tried to grab authoritarian powers and split the country along class lines.

Having abandoned their strike, opponents are now petitioning for a constitutional amendment to cut Chavez's term in power from six to four years.

They said Wednesday that more than 4.4 million Venezuelans had signed, well over the 15 percent of registered voters, or about 1.8 million, needed to force a referendum on early elections.

www.washingtonpost.com By John M. Berry Washington Post Staff Writer Thursday, February 20, 2003; 1:23 PM

The nation's trade deficit soared to a record $44.2 billion in December and to $435.2 billion for all of 2002, putting a significant damper on U.S. economic growth last year, the Commerce Department reported today.

The deficit in trade in goods alone was $484 billion, more than a fifth of which was in trade with China. That country sold $103 billion more goods and services to the United States than it bought here.

The worst deterioration in both December and the entire year came on the goods side of the ledger. The deficit in goods trade widened to $484.4 billion from $427.2 billion in 2001 while the perennial surplus in services trade shrank to $49.1 billion from $68.9 billion, the department said.

"In terms of trade, 2002 was a real downer," said Jerry Jasinowski, president of the National Association of Manufacturers. "Manufacturing exports declined $34.2 billion, or 5.7 percent, to $563 billion."

The manufacturing sector of the economy, hard hit by the recession of 2001, has barely begun to recover and has lost jobs for 30 months in a row, Jasinowski said. "The absence of an export recovery is a critical element of this weakness," he said.

Meanwhile, the Labor Department said its index of producer prices for finished goods shot up by 1.6 percent last month, the largest monthly increase in a dozen years. The index measures changes in the prices charged by producers when they first sell a completed item.

The increases in prices were much larger and much more widespread than analysts had expected. Surging crude oil costs did the most damage.

Oil prices have shot up because of fears of world supply disruptions if the United States wages a war against Iraq and because political problems in Venezuela have severely disrupted production in that country, a significant supplier of oil to the United States.

Gasoline prices rose 13.7 percent and home heating oil prices 19.7 percent. Food prices increased 1.6 percent, primarily because of an 18.2 percent jump in fresh vegetable prices. And the prices automakers charged dealers for new cars rose 3.5 percent because the manufacturers cut back on the sales incentives they had been offering. Prices for light trucks, including sport utility vehicles, rose 4.1 percent.

Even with last month's spike in producer prices, the increase in the PPI over the past 12 months was relatively modest. The overall index was up 2.8 percent from January 2002 with most of that due to a 17 percent increase in energy prices. Food prices rose only 0.4 percent over the period and the so-called core portion of the index, which excludes food and energy items, was up only 0.5 percent.

www.economist.com Feb 20th 2003 From The Economist print edition Getty

Last weekend, American shop shelves were cleared of drinking water and duct tape. What next?

Get article background

“IRAQNOPHOBIA”—fear of the consequences of a probable war with Iraq—is being blamed for the sick state of the world economy and for the fall this year in the dollar and in most big stockmarkets. If fear is to blame, then a short, successful war should remove the uncertainty that is holding back consumer and corporate spending, allowing economic activity and share prices to bounce back again. Alan Greenspan, the chairman of America's Federal Reserve, appeared to suggest as much last week. But Iraq is only one of the problems facing the global economy. Others will continue to weigh it down even after the tanks and bombers have gone home.

An American-led attack on Iraq looks highly likely. But trying to assess the economic consequences of such an attack is tricky because of the vast number of unknowns and contingencies. For instance, how long will the conflict last? Will it escalate outside Iraq? Will there be any damage to oilfields, as there was in the Gulf war in 1991? Will other OPEC countries increase their oil production to compensate? And how badly will business and consumer confidence be hit? These are not questions that can be answered by plugging numbers into a computer model. Yet several investment banks and think-tanks have made a stab at it.

The United Nations and Iraq Feb 20th 2003 The cost of war Feb 20th 2003 The case for war Feb 20th 2003

Iraq, United States Iraq

Congressional Budget Office, House Budget Committee, Federal Reserve, OPEC, IMF

Most of them maintain that the likeliest scenario is a short, successful war. Oil prices would spike briefly at around $40 a barrel, but then plunge as the war ends. In turn, share prices and the dollar will rally, and confidence will revive, spurring a strong economic recovery. Several economists reckon that a war might actually be good for the world economy: it will eliminate today's mood of uncertainty, boost government spending, and push oil prices lower in the medium term as new Iraqi production comes on stream.

John Llewellyn, chief economist at Lehman Brothers, is much less sanguine. He argues that the risks to the global economy, taken together, are now greater than at any time since the 1973-74 oil crisis. Even if the war goes well, he argues, it will probably not be the panacea that investors are hoping for. The aftermath of war will be uncertain; the risk of terrorist acts will remain; and there are plenty of other worries too, not least over North Korea. The cost of fighting

The economic costs of a war can be broken into three types. First, there are the direct military costs. The six-week Gulf war in 1991 cost $80 billion in today's prices (most of it paid for by America's allies). Assuming a similarly short war, America's Congressional Budget Office and the House Budget Committee have both estimated a total military cost of around $50 billion, or 0.5% of America's GDP. Others reckon that a more protracted war could cost America as much as $150 billion.

Second, there are the potentially far larger indirect costs of peacekeeping, humanitarian assistance and reconstruction. William Nordhaus, an economist at Yale University, thinks that these could cost America between $100 billion and $600 billion over the next decade*.

Last but not least, there are the macroeconomic costs of lost output. Especially if the war goes badly, these could be far bigger than the others, which are really just efficiency losses from the diversion of resources. Mr Nordhaus estimates that the total cost of a war to America could range between $100 billion and $1.9 trillion, spread over a ten-year period. That could be as much as 2% of American GDP for every year of the decade.

The hardest of the three to pin down is the macroeconomic cost—to the world economy, not just America's. Broadly speaking, a war in Iraq could affect economies through four main channels: oil prices; stockmarkets; the dollar; and business and consumer confidence.

Oil prices have already reached their highest level for two years. West Texas Intermediate has risen above $36 a barrel, up almost 50% from last June. So far, though, this is a much smaller rise than in the run-up to the 1991 war. In real terms, oil prices today are less than half their 1980 peak. The conventional wisdom is that prices will fall sharply once a war is over, just as they did in 1991. Then they fell from over $40 to below pre-war levels after the ground war had begun. Optimists today argue that a victory will liberate Iraqi oil as well as its people. (This assumes that the Iraqis do not sabotage their own oilfields or those of their neighbours.)

So it is widely hoped that oil prices might this time also fall towards $20 a barrel once war is under way. But is 1990-91 the appropriate model? Even if the war is as short, oil prices may not fall as much this time because the background environment is different. Economists at Goldman Sachs argue that the recent rise in oil prices has had more to do with the disruptions in Venezuela than with worries about Iraq.

Venezuela's oil-industry strike may be over, but the country is unlikely to restore more than two-thirds of its output this year. Goldman Sachs reckons that the combined impact of Venezuelan and Iraqi disruption has the potential to be the biggest shock in oil-market history, even after allowing for some offsetting increases in supply from other producers.

Another reason why oil prices may not fall as sharply as in 1991 is that the oil market is much tighter. An exceptionally cold winter right across the northern hemisphere has boosted demand at a time when American oil stocks are at their lowest level since 1975. In 1991, oil stocks were well above normal.

OPEC also has less spare oil-production capacity this time to fill the gap. The cartel had spare capacity of 6m barrels a day when Iraq invaded Kuwait in 1990, compared with only 2m today. The continuing shortfall in Venezuela, plus even a small loss of output from Iraq, could rapidly exhaust that. In any case, Iraq will not be able to turn its oil taps on fully the moment that war ends. Goldman Sachs estimates, therefore, that oil prices may average no lower than $27 over the next 12 months.

Although the rich world uses half as much oil per dollar of GDP as it did in the 1970s, higher oil prices still have the power to hurt its economy. According to the IMF's ready reckoner,a $10 increase in oil prices, if sustained for a year, reduces global GDP by 0.6% after one year. That impact sounds fairly modest, but the snag with all such calculations is that they consider only first-round effects. They ignore the potentially much bigger impact on confidence and stockmarkets, and they ignore the effects that follow from changes in monetary and fiscal policy. Consistent underestimation

Even taking account of such factors, however, most forecasters still reckon that the American economy will slip into a new recession only if there is a more prolonged war, a much sharper rise in oil prices than now expected, and a stockmarket slump of at least 20%. Yet in the past, economists have consistently underestimated the economic impact of oil shocks.

Over the past three decades, oil prices have jumped sharply on four occasions: in 1973, after the first OPEC embargo; in 1979, after the Iranian revolution; in 1990, after Iraq's invasion of Kuwait; and in 1999-2000 as the world economy boomed and OPEC cut its production. Each time the price more than tripled, contributing to a global recession.

Higher oil prices hurt the economy in two ways. In the first place, the increase acts like a tax, raising firms' costs for any given output price. So if demand is unchanged, prices rise and firms produce less. Secondly, higher oil prices transfer income from oil-importing countries to oil producers, squeezing spending in the oil importers. In the economic jargon, both the aggregate demand and aggregate supply curves shift backwards. Output falls, but the impact on underlying inflation, and hence the appropriate policy response from central banks, is uncertain.

Whether central banks should raise interest rates to curb inflation, or cut rates to cushion output, depends on the cyclical position of the economy. The four previous oil shocks all took place during booms, when economies were already overheating and inflation was rising. This forced central banks to raise interest rates.

Today, the rise in oil prices is occurring in an environment of excess capacity and falling inflation. Firms have little pricing power, so it is harder for them to pass on higher costs. Rising oil prices are therefore more likely to erode profits than to push up inflation. That, in turn, would further delay a recovery in corporate investment and hiring. The correct response at such a time is to reduce interest rates, not raise them.

The Fed seems to understand this better than the European Central Bank, which frets more about its inflation target. But with interest rates at 1.25%, the Fed has little room to cut further. Euro-area rates (at 2.75%) leave more room to cut, but the ECB is likely to be slow to act. At its most recent press conference (earlier this month) its president, Wim Duisenberg, declared that “a rate cut now would be a mere drop that would drown in the sea of uncertainties”, referring to oil prices and geopolitical risks. Yet Germany, the euro area's biggest economy, may be back in recession again. The Bundesbank confirmed this week that German GDP fell slightly in the fourth quarter of 2002. And many private-sector economists reckon that output will shrink again in the current quarter. Bubble trouble

America has more room to ease fiscal policy. Indeed, a successful war will help George Bush to get congressional approval for his tax cuts. On the other hand, Japan (thanks to its already hefty public debts) and the euro area (thanks to its stability pact) have little room to ease policy, even in the event of a further downturn.

Underpinning the hope of a strong economic rebound after a war is the unstated assumption that America's economic fundamentals are sound. However, America has yet to complete its post-bubble adjustment. Record consumer debt leaves the economy vulnerable to shocks. American consumer confidence is at a nine-year low. Some blame this on the threat of war (in which case confidence could later rebound). But, in fact, more of it may be due to consumers' heavy debts, poor underlying job prospects, and falling stockmarkets.

Economists are using war fears as a convenient explanation for slower than expected growth—just as they (wrongly) blamed America's recession in 2001 on the September 11th attacks. Bill Dudley, an economist at Goldman Sachs, argues that war fears are not the biggest reason why the economy is soft. Instead, the problems lie deeper: in the excesses built up during the bubble years, such as huge private-sector debts, excess capacity, low saving, and a massive current-account deficit.

America's over-indebted households, Japan's deflation and its crippled banks, Europe's structural rigidities and its overly tight fiscal and monetary policies: all these mean that the world economy is horribly vulnerable to shocks of any kind. Moreover, after the Gulf war America's initial recovery was sluggish, due to the need for firms to reduce their debts from the excesses of the 1980s. Yet the excesses of the 1990s were much larger. America's fragile economy is, in a manner of speaking, being held together by duct tape. The 1.3% jump in retail sales (excluding cars and petrol) in January may partly reflect precautionary stockpiling of canned foods, bottled water and other goods. Trading blows

Most stockmarkets have fallen in each of the past three years, and many investors are hoping that getting the war out of the way will stop the rot. Between the start and finish of the Korean war, American share prices rose by 28%. In 1991, the S&P 500 rose by more than 20% within four months of the start of the air attack.

But America's stockmarkets looked cheaper in 1991 than they do today. A market with a p/e ratio of 28 on historic profits, and an average forecast of double-digit profit growth despite slow nominal GDP growth, is not exactly discounting bad news. Another big difference from 1991 is that analysts have already assumed a quick and painless war. Before the Gulf war they were much less confident. So the downside risk today is much greater. A prolonged war could drive property and share prices sharply lower.

How might exchange rates react? The sharp fall in the dollar in recent months may in part be related to war worries. So a quick victory, it is argued, would help the dollar to rally. The dollar bounced by 10% in trade-weighted terms within two months of the end of the Gulf war.

However, there is a big difference this time. In 1990-91 the net cost of the war to America was reduced from $80 billion, at today's prices, to only $4 billion after contributions from friendly Arab countries and Japan. These transfer payments flattered America's current-account balance in 1991 and so helped to lift the dollar. This time, America will have to foot most of the bill itself. In 1991, it had a small current-account surplus. Today, with its deficit running at more than 5% of GDP, any dollar recovery is likely to be short-lived.

Beyond the macroeconomic fall-out from war, there is one other big concern: that diplomatic tensions between America and Europe over Iraq could spread beyond war to trade. The two sides already have a string of bilateral trade disputes: over America's steel tariffs and its tax breaks for foreign sales by big multinationals; and over the EU's ban on imports of hormone-treated beef and genetically-modified foods, for instance.

German firms are particularly worried about a loss of business in America. Last week, the American Chamber of Commerce in Germany celebrated its 100th anniversary. In between the champagne and canapés there was much talk that the political rift between the two countries could harm commercial links. A few American congressmen have already called for restrictions to be imposed on the import of European wine, cheese and military equipment.

There is also talk that American firms might shift their future investments from “old Europe”—France and Germany—into “new European” countries—such as Britain. More realistically, however, Germany and France are already seen as hostile business environments because of their high labour costs and taxes, and their rigid markets. To some extent, the political rift is just another excuse.

What is clear, however, is that the spat over Iraq will not help to speed up trade negotiations in the Doha round, which already seem to be heading for gridlock. Last weekend, trade ministers meeting in Tokyo made almost no progress towards liberalising farm trade. Yet agriculture is the central issue for the Doha round. Failure to liberalise farm trade would be a big blow to the poor world. Even worse would be an associated tit-for-tat trade battle between the rich.

• “The Economic Consequences of a War with Iraq”. American Academy of Arts and Sciences, December 2002. Available at www.amacad.org/publications /monographs/War_with_Iraq.pdf (see chapter three)

www.plastic.com found on the Guardian written by chatsubo, edited by George (Plastic) [ read unedited ] posted Thu 20 Feb 8:05am

"The mostly bloodless political conflict that has gripped Venezuela for many months took a decidedly uglier turn with the news that three anti-Chavez dissident military officers and an accompanying woman were found murdered after being apparently kidnapped and tortured," chatsubo writes. "A fifth person, a 14-year-old girl, was found alive, though in serious condition. "The populist, and some say authoritarian, Chavez has polarised the country, especially since the recent abortive coup attempt, which apparently had U.S. support.

"One of the victim's brothers claims that the officers had been under constant intimidation from Venezuelan security forces and police, and had received death threats from the Bolivarian Circles, self-styled pro-Chavez militias, as well as the far-left Tupamaro group.

"Rafael Narvaez, the head of Venezuela's human rights association, said, 'There are no credible institutions left any more, and there is currently no rule of law or due process in Venezuela, We will push as hard as we can for the authorities to investigate the murders, but if we hit a brick wall, we will ask the international community to apply pressure.'

"The discovery of the bodies was followed by the news that Carlos Fernandez, head of the country's largest business council, and one of the leaders of the general strike, was snatched from a restaurant by armed men claiming to be secret police agents. Venezuelan Foreign Minister Roy Chaderton said he had no knowledge of Mr. Fernandez's whereabouts.

"As professional coup watchers will tell you, the use of agent provocateurs was common practice during the Chile and Iran coups.

"As a democratic socialist myself, I would find it profoundly depressing if Chavez has resorted to such brutal, Stalin-era tactics of control and oppression. Surely you don't have to choose between democratic rights and social justice for the poor? Can't you have both?"

www.forbes.com Reuters, 02.20.03, 11:24 AM ET

Food  Latin America   By Teresa Cespedes LIMA, Peru, Feb 20 (Reuters) - Brazilian beer giant AmBev <AMBV4.SA>(nyse: ABV - news - people) faces an uphill battle as it squares off against Peru's Backus y Johnston <BKJi.LM><BKJa.LM>, which controls almost the entire beer market in this poor nation, analysts said. AmBev announced this week it would spend $38 million in Peru in the coming year to set up a brewer and distribution network, which would be online by the first half of 2004. "AmBev has a tough road ahead because it is entering a (country) where one brewer controls 99 percent of the market and has well developed distribution channels," Centura SAB brokerage beer analyst Gabriela Galvez told Reuters. Colombia's top brewer, Bavaria <BAV.CN>, owns 51.55 percent of Backus' common voting shares. Venezuela's Cisneros Group owns 22.3 percent, while Peruvian group Bentin has 15 percent of Backus. The rest is held by small Peruvian shareholders. Banco de Credito analyst Victor Hugo Soto said the arrival of AmBev, the world's fifth-largest brewer, in Peru could be part of a strategy designed to crack Bavaria's domination of the Andean region. "I think their idea is to approach, from Peru, Bavaria's hold in Panama, Colombia, Ecuador and Peru to be able to, at a later date, negotiate with the Colombians," Soto said. AmBev sells popular brands Brahma and Antarctica in Brazil, and also has market share in Argentina, Paraguay, Bolivia, Uruguay and Venezuela. Backus, worth an estimated $1.5 billion, reported an 83-percent jump in 2002 earnings to $62.3 million compared with the previous year. Interest in the top brewer in Peru's $400 million beer market triggered a row last year involving Backus stakeholders Bavaria, Cisneros, and fellow Venezuelan group Empresas Polar. That battle was settled in December 2002 when Polar sold its 24.6-percent stake to Bavaria, which is a partner of Cisneros in a Colombian television station, for some $568 million. According to AmBev, people in Peru -- a poor country where more than half the 27 million population lives on $1.25 or less a day -- drink an annual average of 22 liters per person, much lower than Brazil's per capita 50 liters. Backus makes top Peruvian beers Pilsen, Cristal and Cusquena, among others. "Backus' brands are well positioned and there is also the whole issue of acquired tastes," said Banco Wiese Sudameris analyst Guillermo Kaelin. "Consumers are loyal to brands and flavors ... In Peru, Corona and Heineken don't get the same reception (as Peruvian beers)," Galvez said. Analysts also said that AmBev's entry could set off a price war in a market seen as ripe for growth. AmBev head Magim Rodriguez told local newspaper Gestion this week that beer prices in Peru "were a little high for people's buying power."