afr.com Feb 25 09:20 AFP

United States investment bank Morgan Stanley lowered its global growth forecasts on Monday, warning that geopolitical tensions had pushed the world back to the brink of recession.

"In response to mounting geopolitical tensions, we have cut our 2003-04 global economic forecast," the Wall Street titan's chief economist, Stephen Roach, said.

The global growth forecast for 2003 gross domestic product (GDP) fell to 2.5 per cent from 2.9 per cent. The forecast for 2004 dropped to 3.8 per cent from 4.0 per cent.

"The downward revision for 2003 has the effect of transforming an anemic recovery in the global economy into a world that is right back on the brink of its ... recession threshold -- 2.5 per cent," Roach said.

The new world growth forecast was at the upper bound of a 2.0-2.5 per cent possible outcome, Roach said.

Disrupted Iraqi output, low oil stocks and a production shortfall in Venezuela would send Brent crude oil spiralling to $US40 a barrel next month from about $US32.50 now, with only a modest retreat in April, he said.

Even after accounting for a decline in oil prices after a successful military action in Iraq, oil prices would rise 15.6 per cent over 2003, Roach said.

But there is more to this shock than oil, he added. advertisement advertisement

"Saddam Hussein's possible use of weapons of mass destruction cannot be ruled out, nor can collateral damage to Iraqi civilians, spillover effects to the Israeli-Palestinian conflict and heightened global terrorist activity," Roach added.

"Destabilising conditions in Korea add to the problem. The split between America and her allies only heightens the geopolitical instability factor. Nor is there any certainty about the stability of post-Saddam Iraq."

The world had built up a cumulative gap of 3.5 per centage points between long-term potential growth and actual growth over 2001-2003, the economist said.

The forecast for 2003 economic growth would not make much of a dent in that output gap, he said, raising the risk of deflation. "I think it makes sense to remain in the deflation camp even in the face of higher oil and other commodity prices," Roach said.

Among the major economies, Morgan Stanley forecast:

-- The US economy would grow 2.1 per cent this year, rising to 4.1 per cent next year.

-- Europe would grow 0.8 per cent this year and 2.3 per cent next year, with the 12-country euro zone expanding 0.6 per cent this year and 2.3 per cent next year.

-- Japan would grow 0.6 per cent this year and 0.5 per cent next year.

"As the world gears up for war, it is far more vulnerable than it was in 1990-91," Roach said.

"In large part, that is because today's US-centric global economy lacks the broadly-based support that a more balanced global economy had a dozen years ago."

Over the seven years from 1995 to 2002, the United States accounted for 64 per cent of the cumulative increase in world GDP, he said.

"Japan has been mired in a post-bubble malaise and the euro-zone growth dynamic has taken on a new sluggishness. Growth in Asia ex-Japan has remained brisk but well below the heady gains of the late 1980s. Meanwhile, Latin America has fallen victim to yet another in a long string of crises," Roach said.

news.pacificnews.org Commentary, Andrew Reding, Pacific News Service, Feb 24, 2003

The deaths of more than 23 people in Bolivia during protests and riots is but one sign of forces that threaten to tear apart Latin America, writes PNS Associate Editor Andrew Reding. Yet Washington's policies toward the region are making things worse, not better.

While Washington focuses almost all its attention on a country half a world away, the Americas are falling apart. The recent slaughter of police and civilian protesters by Bolivian troops is but the latest in a long string of warning signals. And misguided U.S. policies are squarely to blame.

Bolivia is in some ways a microcosm of what ails the region. Latin America has by far the highest degree of inequality of any region of the world. One reason is that the poor -- mainly indigenous and Afro-American populations -- continue to be without meaningful access to basic services, including education. Absent domestic and foreign public investment to equalize opportunities, market forces tend to accentuate the gap between rich and poor rather than spread prosperity throughout the society.

In Bolivia, most of the Aymara population remains barely literate and bound to the land. As it has for centuries, it continues to cultivate the coca plant. Traditionally, coca leaves were merely chewed for the mild high they gave the consumer. Today, however, the leaves fetch a much better price from traffickers who process them into cocaine for the U.S. market.

As in Colombia and other Andean countries, the United States has responded with aerial eradication of coca crops. It is arguable whether this has any impact on the availability of cocaine in the U.S. What is unarguable is that it is robbing the poor of their livelihood. No other crop will fetch anywhere near the price.

While offering negligible levels of direct foreign assistance, the United States is indirectly putting a budget squeeze on La Paz, through conditions imposed by the International Monetary Fund. The attempt by President Gonzalo Sánchez de Lozada to meet those constraints by raising taxes triggered the recent violence, and has caused much of the middle class, including striking police officers, to join coca farmers in protests demanding his ouster.

Compounding the damage was the White House statement following the La Paz massacre, reaffirming President Bush's "strong support" for the discredited president. That support is in sharp contrast to the administration's condemnations of President Hugo Chávez in Venezuela following similar shootings of demonstrators.

To Latin American eyes, Bush's inconsistent behavior is a sign of acute partisanship: Sánchez de Lozada's ties are with the elite, whereas Chávez is a populist who appeals to the poor. Bush is seen as trying to export a born-again Reaganite ideology that favors the wealthy over the poor to Latin America, where the gap between rich and poor is already explosive.

The explosion has already occurred in Colombia, which is torn by civil war, and in neighboring Venezuela, which is on the edge of civil war. Tensions are festering in Argentina, which suffered an economic collapse after the Bush administration made a deliberate decision not to extend the sort of lifeline President Clinton had earlier offered to rescue Mexico. Argentina had been the United States' most loyal ally under President Carlos Menem in the 1990s; now, after being betrayed by Washington, Argentines have become stridently anti-American.

A comparable shift is underway in Brazil, where voters recently elected socialist Lula da Silva -- a longtime critic of U.S. policies in the region and the world -- to the presidency in a landslide. Brazilians are frustrated by the failure of U.S.-led globalization and market liberalization policies to alleviate poverty. And they are angry about protectionist Bush administration trade policies that discriminate against Brazilian steel and citrus exports.

Even Bush's much-touted personal friendship with Mexican President Vicente Fox is fraying. The Mexican foreign minister recently resigned over the failure to secure a deal on migration. Fox is now suing the United States at the International Court of Justice to stop the execution of Mexican nationals, and his normally conservative National Action Party is proposing to change the country's official name from "United States of Mexico" to just plain "Mexico" -- symbolizing its exasperation with its northern neighbor and NAFTA partner.

When even conservative Mexicans begin questioning their relationship with the United States, it should act as a wake-up call at the White House. Current policies are fomenting rather than alleviating Latin America's socioeconomic pressures. This is not only undermining plans for hemispheric economic integration, but fanning the flames of anti-Americanism in the United States' own backyard, undermining the goal of ensuring "homeland security."

Reding (areding@earthlink.net) is senior fellow for hemispheric affairs at the World Policy Institute in New York

www.dw-world.de   Colombian authorities are looking for six members of the Basque separatist group ETA and the Irish Republican Army wanted in connection with the bombing of Bogota nightclub two weeks ago. Thirty-six people died in the blast. According to a security report, four ETA and two IRA members entered Colombia along its border with Venezuela. The attack, which also wounded 160 people is believed to be the work of the Revolutionary Armed Forces of Colombia rebel group.

www.quicken.com Monday, Febuary 24, 2003 04:11 PM ET   Dow Jones Newswires

NEW YORK -- Crude oil futures rallied again Monday, boosted by record heating oil prices and continued fears about war in Iraq.

Heating oil led the way. On the New York Mercantile Exchange, the front-month March heating oil contract climbed to a new record high of $1.1535 a gallon, surpassing the previous all-time high of $1.15, set in November 1979. The contract closed at $1.1467 a gallon.

The rally gave the rest of the petroleum complex a lift. Nearby April crude rose 90 cents to close at $36.48 a barrel. March gasoline settled at $1.0475 a gallon, up 3.47 cents on the day.

Across the Atlantic on London's International Petroleum Exchange, the gains were just as strong.

Nearby April North Sea Brent futures closed up 88 cents at $33.15 a barrel.

March gasoil futures jumped $12.25 to close at $315.25 a metric ton, a 27- month high.

"The crude oil market continues to trend higher, pulled along by a strong heating oil market and the continued drumbeat for war with Iraq," said Tim Evans, senior energy analyst at research firm IFR Pegasus in New York.

The heating oil surge mirrored a rally in natural gas futures, which climbed to 25-month highs on forecasts of cold weather and expectations of a sharp drawdown in storage.

"What's concerning the market today is that the weather is not giving us any signs of spring," said Phil Flynn, a trader and analyst at Alaron Trading Corp.

Although heating oil's climb to record territory was part of the reason for Monday's rally, the market's main focus remained Iraq, analysts said.

War jitters heightened after the U.S., the United Kingdom and Spain introduced a United Nations Security Council resolution Monday that finds Iraq in breach of its disarmament obligations and warns the rogue nation of "serious consequences."

The resolution says that Iraq has failed to "take the final opportunity" afforded it to disarm.

"People view that as another step toward war," said Tom Bentz, an analyst at BNP Paribas Futures.

Traders worry that an attack will result in a disruption of Iraqi oil exports and cause a supply disruption in the Middle East, the world's principal source of oil.

Western officials say they expect a vote on the resolution within the next two weeks.

But approval is far from guaranteed. Earlier Monday, key U.N. Security Council members France, Germany and Russia submitted an alternative proposal for step-by-step disarmament of Iraq

Despite the opposition, however, the U.S. has said it is prepared to lead an attack on Iraq without a new resolution.

With the market's focus on Iraq, traders shrugged off news of continued increases in Venezuelan oil output.

On Sunday, state oil company President Ali Rodriguez said Venezuelan crude oil output, crippled by a strike in December and January, has risen to more than two million barrels a day.

Before the strike, Venezuela exported about 3.1 million barrels a day of crude oil.

With output on the rise, state monopoly Petroleos de Venezuela SA, known as PdVSA, will partially lift a force majeure on exports, a company source said.

www.sfgate.com CHRISTOPHER TOOTHAKER, Associated Press Writer Monday, February 24, 2003

(02-24) 15:04 PST CARACAS, Venezuela (AP) --

Every night for two months, Venezuelans knew where to find Carlos Ortega. The labor leader was sure be standing before cameras in Caracas, predicting the imminent downfall of President Hugo Chavez.

"The dictator's days are numbered," Ortega would thunder at his news conferences, flanked by business leader Carlos Fernandez.

Now Ortega, the leader of the strike that failed to oust Chavez, is in hiding, charged with treason and rebellion. Fernandez, accused of similar crimes, was seized by federal agents last week and is under house arrest.

Chavez wants both men sentenced to at least 20 years in prison for inflicting pain and suffering on Venezuelans with a strike that crushed the economy.

"See how the others are running to hide," he mocked in a speech after Fernandez's arrest.

Hiding is uncharacteristic of Ortega, the most visible and pugnacious of Chavez's opponents. He is the only government opponent to claim a measure of victory against Chavez since the leftist president was elected in 1998 and re-elected in 2000.

As president of Venezuela's biggest oil workers union, Fedepetrol, Ortega led a four-day strike in 2000 for back pay and a collective contract for 20,000 workers. Chavez ceded on both counts.

Ortega subsequently rose to the top of the Venezuelan Workers Confederation, or CTV, which boasts 1 million members. In a bid to grasp control of the labor movement, Chavez called a nationwide election for CTV leaders over the protests of the International Labor Organization, which argued union elections were a private matter.

Since then, though, Ortega hasn't been so successful against Chavez.

Last year, he joined his labor forces with Fedecamaras, the leading business chamber, and convoked a general strike in April 2002 to support striking oil workers. Workers were upset with Chavez's intervention in Venezuela's semiautonomous state oil monopoly.

Ortega urged thousands to march on Miraflores, the presidential palace. Nineteen people died during the march, which prompted a two-day coup.

Chavez returned to power when an interim government composed mostly of business executives abolished Venezuela's constitution. Ortega seethed on the sidelines.

Ortega was last seen in public Wednesday, a day after a warrant for his arrest was issued. Alfredo Ramos, executive secretary of the CTV, said Ortega is moving from safehouse to safehouse.

"He will stay underground because there is no guarantee for his physical safety. He's received numerous death threats," Ramos said.

Ortega's whereabouts have become a national obsession. Rumors have put him in Aruba, Colombia or in remote ranches on Venezuela's vast central plains.

"He probably left the country already, but that bandit could be anywhere," said Ramon Ramirez, a construction worker who supports Chavez.

The latest strike, which ended Feb. 4 in all but the oil industry, cost Venezuela more than $4 billion, created shortages of food and medicines, and forced the world's fifth-largest oil exporter to import gasoline.

The strike focused attention on Venezuela's simmering political crisis but failed to bring about either early elections or Chavez's ouster.

The future of talks mediated by Cesar Gaviria, secretary general of the Organization of American States, is in doubt.

Chavez responded angrily Sunday to foreign critics of the charges against the two strike leaders. He directed warnings at some members of a "Group of Friends" initiative created to bolster the negotiating process.

"Don't mess with our affairs!" Chavez said, singling out Gaviria, the United States, Spain and Colombia.

Opposition representatives on Monday sent a letter to Brazilian Foreign Minister Celso Amorim, coordinator of the "Friends" group, calling for an urgent meeting to discuss "the worsening of the Venezuelan situation."