www.forbes.com Reuters, 02.20.03, 9:18 AM ET BRASILIA, Brazil, Feb 20 (Reuters) - Brazil posted a current account surplus of $156 million in January, compared with a deficit of $1.17 billion in the same month of 2002, as a bulging trade surplus boosted the country's overall foreign accounts, the Central Bank said on Thursday. That helped shrink the current account gap -- a country's widest measure of foreign transactions -- to 1.41 percent of gross domestic product (GDP) in the 12 months through the end of January from 1.7 percent of GDP in the 12 months through December. Foreign direct investment (FDI) also continued to trickle into the country in President Luiz Inacio Lula da Silva's first month in office, despite growing aversion to emerging markets like Brazil sparked by the threat of war in Iraq. FDI in January totaled $905 million, down from $1.475 billion in the same month a year ago. In 2002, Brazil posted a current account gap of $7.76 billion, its best result in eight years, thanks to a booming trade surplus of $13.1 billion. A weak local currency continues to make Brazil's exports extremely competitive abroad. For 2003, the bank is forecasting a current account deficit of $6.56 billion.

news.ft.com By Raymond Colitt in São Paulo Published: February 20 2003 4:00 | Last Updated: February 20 2003 4:00

Brazil's central bank yes-terday raised interest rates for the second time in a month to curb what new President Luiz Inácio Lula da Silva described this week as the "virus of inflation".

While the move was applauded in the financial markets, industry leaders said high interest rates were choking the economy and failing to curb inflation.

The rise in the central bank's prime lending rate by 1 percentage point to 26.5 per cent underlines the challenges facing Mr Lula da Silva, whose economic policies have already come under attack from leftwingers in his Workers' party.

In a further tightening of monetary policy, the central bank also raised commercial banks' mandatory reserves on short-term deposits from 45 per cent to 60 per cent.

Earlier this week Mr Lula da Silva defended the government's fiscal and monetary austerity in light of the threat of war in Iraq. "We are facing difficult times ahead. The world has entered into a period of increased uncertainty."

The fear of higher oil prices and reduced lending to emerging markets as a result of a military conflict has already renewed pressure on the Brazilian currency and could bring more domestic fuel price rises.

The inflation bubble resulting from last year's 40 per cent currency depreciation has lasted longer than many analysts expected. Financial institutions expect it this year to reach 12 per cent, well above the government's target of 8.5 per cent.

"The currency's stability is threatened. The virus of inflation is again a real threat to Brazil's economy," Mr Lula da Silva said this week in a surprisingly blunt acknowledgement of the economic challenges he faces.

Unionists and leftwing radicals within the Workers' party criticised last month's interest rate rise as well as this month's big budget cuts, designed to guarantee debt payments. Rates have risen 8.5 points since October.

Most banks had expected an increase of 0.5-1.5 per cent. The announcement was delayed by several hours, which analysts interpreted as a sign of intense debate within the monetary policy committee.

The decision was closely watched as a test of the central bank's commitment to strict monetary policy as Mr Lula da Silva's economic austerity came under fire.

news.ft.com By John Authers, Raymond Colitt and Richard Lapper Published: February 20 2003 4:00 | Last Updated: February 20 2003 4:00

US President George W. Bush seems to be succeeding in forging Latin American unity of an unwelcome kind. Opposition to possible US and British military action against Iraq is growing across the region.

"There is not a lot of sympathy or support [for the US]," says Michael Shifter, director of the Washington-based Inter-American Dialogue policy forum. "Most Latin American governments are totally baffled by it. All the Latin Americans I know say 'are you guys really going to do this?'."

Of most concern to Washington is that the two Latin countries, Mexico and Chile, which are among 10 elected members of the United Nations Security Council are showing little enthusiasm for US and British efforts to win support for speedy military action against Iraq.

Mexico's President Vicente Fox has been actively pushing an independent position. An outspoken critic of war, he welcomed the peace protests that took place in a number of international capitals last weekend. "It is extraordinary that people have demonstrated like this. It is the way to stop the war," he said.

Brazil, which will replace Mexico on the Security Council next year, has also been engaged in diplomacy designed to give more time to the UN weapons inspections. It has aligned itself with proposals made by Germany, France and Russia that sought to increase time and resources for inspectors in Iraq.

President Luiz Inácio Lula da Silva has been seeking to stiffen the resolve of his Latin American counterparts. Brazil's foreign minister, Celso Amorim, has been in Moscow this week to underscore Brazil's support for diplomatic efforts to avoid war.

Several factors underpin the defiant mood. First, public opinion polls show that Latin Americans are overwhelmingly opposed to war.

According to recent research conducted by Latinobarómetro, a Santiago-based polling firm, 85 per cent of Chileans are opposed to war.

Similar polls by the same organisation showed that on average 57 per cent of Latin Americans opposed the invasion of Afghanistan, with that number rising to 80 per cent in Argentina.

Marta Lagos, the director of Latinobarómetro, notes a broader growth in anti-US sentiment across the region.

"You will find in most countries that many people have reasons to be anti-American," she says. "People like American culture and lifestyle but the US is perceived as not being helpful towards the region."

There are worries that a war, especially if it proves to be drawn out, will worsen financial and economic pressures and delay recovery. If war adds to, rather than reduces, uncertainty in the financial and commodity markets, investors could become even less enthusiastic than they are at present. The resulting rise in "risk aversion" could lead to weakness in currencies and may force governments to increase interest rates.

In the past few weeks, fears of war have set back the recovery in Brazil's financial markets.

"Brazil is concerned with the economic aspects of a possible war," says Mr Amorim. "We have to explore all solutions for Iraq. Brazil cannot watch passively, waiting to see what will happen. The consequences of war for emerging markets would be immediate."

Several countries, including Chile and the smaller Caribbean and Central American nations, would also be particularly vulnerable to the increase in oil prices that might result from damage to Iraqi fields. Mexico, Argentina and Venezuela are exporters, while Brazil produces about 80 per cent of its domestic oil requirements.

But all of this has to be offset against economic realities and, in particular, the enormous leverage that Washington has over many Latin American economies. The US is an important trading partner and a dominant influence in the International Monetary Fund and other multilaterals, on whose support much of the region depends.

Diplomats say efforts to develop a joint position through the Rio Group, which links 18 Latin American countries, have already stumbled against the extreme economic dependency of smaller Central American countries. Ultimately, economics could force some of the bigger players into the US camp.

Both Latin American Security Council members have close US ties. Chile recently agreed a free trade deal with the US that has still to be ratified by the US Congress. Mexico channels 90 per cent of its exports to the US and is keen to preserve intact its relationship with its neighbour and the benefits it has enjoyed through the North American Free Trade Agreement (Nafta).

Significantly, although Mexico and Chile favour more time for diplomatic actions, they are also reluctant to side openly with France and Germany and want to avoid confrontation with the US.

In Mexico City, some critics of the government see efforts to forge an independent position as flying in the face of political realities. Luis Rubio, a Mexico City-based political analyst, says that the government must recognise these strategic realities. "Obviously we could vote against but sooner or later the consequences would be brutal," he says. Additional reporting by John Authers in Mexico City and Raymond Colitt in Sa{~} o Paulo.

www.upi.com By Carmen Gentile UPI Latin America Correspondent From the International Desk Published 2/19/2003 7:02 PM

SAO PAULO, Brazil, Feb. 19 (UPI) -- Following Brazilian politics the last few days has been a lot like watching the nation's leader shoot himself in the foot ... repeatedly and in slow motion.

After a month-and-a-half of mostly prudent, well-thought governing, President Luiz Inacio Lula da Silva managed to muck up his administrative works last week by unleashing what amounts to another -- albeit unelected -- branch of government.

The Council of Economic and Social Development, known locally as the CDES, is a group of 82 non-elected business and labor leaders that will advise the administration on how to cure Brazil's various social and economic woes and assist in the development of a reform package that will be sent to Congress.

The idea to create a body of private citizens with the power to bend the Brazilian president's ear seems noble on paper: ordinary citizens given the opportunity to help plot the course of South America's largest country and economy.

What could be more democratic? It's practically a historical recreation of how the U.S. founding fathers -- private citizens themselves -- created a nation out of 13 British colonies. All that's missing are the knickers and powdered wigs.

Problem is: This isn't 1776.

In 21st century Brazil, private citizens were already given their opportunity to determine how the country should be run when they went to the polls and chose Lula to lead the nation for the next four years.

Now, instead of shouldering that responsibility, Lula has brought in some mercenaries that could help him push his widespread reform proposals through Congress in the coming months.

Earlier this week, the president addressed a joint session of the Brazilian Congress asking them for their help in revamping Brazil's bogged-down welfare and pension plans, political and economic policies, and support for new social initiatives like his effort to eradicate hunger nationwide.

Lula stressed the shared responsibility each branch of government had in passing reforms the president maintains would help Brazil avert a deepening social and economic crisis.

"It is with the feeling of an outstretched hand, of mutual responsibility among all officials, and above all, of national understanding, that I bring my message to his house," said Lula.

"They are reforms called for by the people," he said, adding "they should be made so that the country grows again, so that the country can travel the extensive highway of economic and social development again."

While some congressmen and senators lauded the speech for its integrity and altruistic message, grumblings from a large contingent of those present revealed that the honeymoon for the leader elected on Jan. 1 is officially over.

Some analysts are beginning to forecast the various pitfalls Lula is sure to encounter due to the involvement of the CDES in government decisions.

While the group's stamp of approval on reform proposals may help create consensus among voters, it "might create some tension" with Congress, where Lula's leftist Workers' Party does not hold a majority and depends on support from the left and right, said Christopher Garman, Tendencias Consulting Group analyst.

"The government will play it up as 'we are consulting society,' though Congress could end up regarding it as an unnecessary mechanism that could subvert its authority."

Too late it seems.

Immediately after the first meeting of the CDES, Jose Carlos Aleluia, a leader in Brazil's lower house and member of the right-leaning Liberal Front Party (PFL), said he didn't recognize "the party as a deliberative organ" and "guaranteed that Congress won't accept reform proposals" put forward by Lula's private citizen advisers.

Aleluia's prediction doesn't bode well for Lula, who was counting on some support from the PFL to make his reforms a reality.

As one of Brazil's leading political parties in terms of size and influence, PFL's opinions are a barometer for what many other officials are likely thinking, namely that a bunch of no-talent-for-politics nitwits are going to be undermining their authority.

In one fell swoop the Brazilian president managed to alienate a large portion of Brazilian officials with his ill-conceived effort to include more people in the decision-making process.

Instead of adding more chiefs to his tribe, Lula needs to do the job he was elected to do and not share the responsibility with those that were not.

www.japantoday.com Saturday, February 22, 2003 at 10:00 JST

RIO DE JANEIRO — A plastic mask of Iraqi President Saddam Hussein is one of the top two hits at this year's carnival in Rio de Janeiro, industry officials said Friday.

The factory that makes the masks estimates sales of the masks will exceed 5,000 units.

A mask of Brazilian President Luiz Inacio Lula da Silva is this year's number one hit, with sales estimated at around 15,000 units.

One mask costs about 3 real, or about 80 cents, at stores selling carnival articles in the downtown area.

Shopkeepers say locals buy Saddam Hussein masks to wear and have fun with during the carnival celebrations, not to support or criticize the Iraqi leader.

"People do not buy these masks for political reasons," said factory owner Armando Valles, 77.

The Saddam Hussein mask has outsold the masks of U.S. President George W Bush and Osama bin Laden, the big hits of the carnival in 2002.

Wearing masks of locally and internationally famous people is a long-standing tradition of Rio de Janeiro's carnival festivities, which begin next Friday. (Kyodo News)