www.timesofoman.com By Palazhi Ashok Kumar

MUSCAT — Though fiscal position of the Gulf and Middle East economies are seen improving on considerable rise in oil prices, importers have to pay through the nose for their imports from Europe and a few Asian markets.

More precisely, because of the steep fall in the value of dollar and an unprecedented rise in the value of euro consumers are paying more dollars for importing goods from Europe and Asia. According to yesterday’s international cross-currency rates, one euro is equal to $1.076, and one dollar is equal to 0.9289 euro, with the result that the Gulf and Middle East consumers ending up paying more on their imports from countries with strong currencies.

The euro and a few other Asian currencies, including the Japanese yen, are expected to test new highs against dollar in the next two months as the value of dollar is expected to fall further against major international currencies, foreign exchange dealers forecast yesterday.

Till today, the price of oil is fixed in dollar and the largest oil consumer in the world is the United States.

“Technically speaking, when you pay one dollar you get only 0.929 euros and when you pay one euro you get $1.076, making the euro stronger and dollar weaker,” foreign exchange dealers added.

Oil-producing countries in the region are extremely exposed to trade shocks because of their heavy dependence on oil export earnings. Oman has estimated a fiscal deficit of RO400 million for the year 2003, constituting over 15 per cent of the total revenue. As the price of Oman crude in the international market has been considerably increasing in the last two-and-a-half months, and likely to remain firm at least till March-end, the budgeted deficit of RO400 million will come down drastically and help achieve a balanced fiscal situation. The price of Oman crude on March 14 stood at $30.64 a barrel.

During the last three decades, the drop in oil prices in the international market affected Gulf economies adversely on more than one occasion and the steep fall in oil price had prompted Gulf economies to embark on highly focussed diversification programmes. The currencies of Gulf economies have been pegged to the US dollar and any fall in the value of dollar could have a negative impact on the imports of Gulf economies.

During 1991-95, most economies in the region were stuck with instability because of Gulf war. However, it did not have any tangible adverse impact on some of the economies in the region, including Oman. In fact, consequent rise in oil prices boosted the economic expansion.

Though the budgeted deficit for the year 2002 was RO380 million, the actual deficit for the year reduced to below RO100 million, because of the significant increase in oil price in the second half of 2002.

The largest oil consumer in the world is the United States while the Middle East has the largest proven oil reserves.

According to the International Energy Agency (IEA), the world crude oil production surged by 1.96 million barrels per day (bpd) in February this year. Opec crude supply rose by 1.5 million bpd, Venezuela adding 850,000 bpd and Saudi Arabia 330,000 bpd. Non-Opec supply increased by 340,000 bpd.

According to BP statistical review, the total oil production per day in the Middle East stood at 22.23 million as of December-end 2001. The daily oil production of Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Syria, UAE, Yemen and others stood at 3.68 million, 2.41 million, 2.14 million, 959,000, 783,000, 8.76 million, 551,000, 2.42 million, 458,000 and 49,000, respectively. Total proven oil reserves of Middle East countries as of 2001-end stood at 685.6 billion barrels — Iran 89.7 billion barrels, Iraq 112.5 billion barrels, Kuwait 96.5 billion barrels, Oman 5.5 billion barrels, Qatar 15.2 billion barrels, Saudi Arabia 261.8 billion barrels, Syria 2.5 billion barrels, UAE 97.8 billion and Yemen 4 billion barrels.

Though war fears would continue to heat up prices, a war would result in a fall in prices. During the Gulf war, a decade ago, oil prices spiked past $40 a barrel at over $41 because of disruption in oil supply. The oil installations of Kuwait were attacked and supplies had been affected.

IEA had said that effective Opec spare capacity fell to 1.7 million bpd in February, and could drop below one million bpd in early March. This is less than the potential loss of supply in the event of war in Iraq.

Cash crude prices climbed further last month, with averaging $35.73 and product prices outpaced crude, boosting refining margins in all major refining centres.

Oil demand for 2003 stands unchanged at 78.01 million bpd. Low European demand in January was offset by strong growth in Asia and North America, driven partly by fuel switching into oil in Japan and in the US. Chinese apparent demand growth is expected to slow after strong gains in January, especially if prices remain high.

Increase in world oil price had aided increase in government expenditures of all Gulf economies in the past. Because of increase in oil price, during 1980 in particular, Oman’s fiscal situation had improved significantly. During 1981-85, the domestic economy entered into an expansionary phase. However, the beginning of 1986-90, as a result of steep fall in oil prices and decline in world oil demand led the nation to a severe economic crisis. Fall in oil price had even affected one of its previous development plans and the government was forced to re-work its target set in the plan.

Over the last few years, oil price fluctuated considerably and so were the external current account balances and fiscal positions of oil exporting countries.

Nevertheless, the promising policies coupled with sound macro economic management to address internal and external imbalances may help Gulf nations to achieve a higher growth. In fact, the uptrend in euro is making vacations in Paris and Rome more expensive for Arab (including the Gulf) tourists, but offering relief to manufacturers by making their goods cheaper in comparison to those of European competitors. As the currencies of the six-member Arab states have been pegged to the US dollar, the fiscal positions of these governments will not suffer.

www.brazzil.com John Fitzgerald

Lula's party, the PT, cannot re-nationalize those areas and companies privatized during the Fernando Henrique Cardoso administrations, but it is determined to retain state control even if this means undermining them. The prime targets are the regulatory watchdogs set up to prevent abuse and formation of monopolies.

When the idea of setting up Petrobras was put forward in 1951 (it was called then Petrobrás, with an accent) the slogan "O petróleo é nosso" (the petrol is ours) was used by its proponents to persuade the Brazilian people that the state should have a monopoly on the right to explore and exploit Brazil's oil reserves. When the company was partially privatized in 2000 and lost its monopoly, the then director of the national petroleum agency (ANP) announced "o petróleo é vosso" (the petrol is yours).

This was a bit of an overstatement since the government had no intention of giving up its majority stake in a company, which is not only the biggest in Latin America but of strategic importance to the country. There is virtually no prospect of Petrobras being privatized in the near future. "O petróleo é deles" (the petrol is theirs) would have been more appropriate.

As events this week showed, the PT is still against privatization and sees Petrobras as an asset to be held onto at all costs. A row started after the ANP (Agência Nacional de Petróleo—National Oil Agency) issued an announcement on Tuesday March 11 stating that huge deposits of high quality oil, amounting to 1.9 billion barrels, had been discovered off the coast of Sergipe state.

This immediately triggered a run on Petrobras shares, with the common share jumping by almost 6.5 percent before falling back to end the day almost 4.5 percent higher. Although the PT radicals need no encouragement to see conspiracy behind any stock market activity they were secretly delighted when it subsequently emerged that, on the day before the announcement, there had been an unusually high amount of trading of Petrobras shares. According to the Estado de S. Paulo newspaper, US$22 million in business was done that day compared with a daily average of R$13 million in the previous three weeks. The Brazilian equivalent of the US Securities and Exchange Commission, the CVM, announced an investigation.

To make things more complicated, Petrobras itself issued a statement claiming that the ANP's statement had been "incorrect, confusing and wrong". The company said the ANP had based its statement on insufficient data and had given what could prove to be an exaggerated estimate of the oil reserves.

The PT leader in the Lower House of Congress said any announcement on the Petrobras find should have been left to the company. However, experts quoted in the press said the ANP had behaved correctly and wondered why Petrobras had not issued the information on Friday March 7, the day it provided the ANP with the information.

What a gift all this has proved to be, not just to the PT radicals but to the whole government, including President Luiz Inácio Lula da Silva, which likes neither the way Petrobras has been run recently nor the ANP. The mines and energy minister, Dilma Roussef, cleared her diary and headed off to Brasília for a meeting with Lula and his right-hand man, Jose Dirceu. We do not know what these three old comrades discussed, but we can be sure that their plans included ways of stripping the ANP's authority and further strengthening the government's hold on Petrobras.

Although the PT knows it cannot re-nationalize those areas and companies privatized during the Fernando Henrique Cardoso administrations, it is determined to retain state control even if this means undermining them. The prime targets are the regulatory watchdogs, which were set up to ensure that the newly privatized companies did not abuse their power and that monopolies did not emerge.

Eight such agencies were set up to regulate areas such as oil, energy, telecommunications, electricity etc. These bodies have the power to set tariffs and, more importantly, their members have fixed mandates. This means that the directors cannot be routinely fired when a new administration takes over. The PT does not like these agencies because it believes they have assumed powers which should be in the hands of the politicians.

The government has other priorities at the moment than changing the laws covering the regulatory bodies, so minister Roussef will have to grit her teeth and wait until the mandates run out before acting. In the case of the ANP director his mandate lasts until 2005. However, Mrs. Roussef was an arms quartermaster for left-wing guerrillas in her younger days and hardly seems the type to wait that long.

Pressure will start being applied not only to the ANP but the other regulators. ANATEL, the telecommunications watchdog has already been given notice by the communications minister, Miro Teixeira, that he and not it will assume responsibility for renewing concession contracts for fixed-line telephone services when the present contracts expire in 2006. The other agencies, such as ANEEL, which regulates the electrical energy sector, are also in the firing line.

As for Petrobras, one of the first moves by Lula's government was to change its board of directors and appoint a former PT senator as its chairman. Dirceu himself was even appointed a board member but stood down after the move was poorly received on the market place. For old-style nationalist types of the Left or Right Petrobras is still a symbol of the country and not just another oil company. One recalls the fuss in December 2000 when the company announced that it would change its name to Petrobrax. The hostility to such a minor change was such that Cardoso himself had to intervene and the name was dropped instantly.

Maybe the name will be changed again—this time to PTbras.

John Fitzpatrick is a Scottish journalist who first visited Brazil in 1987 and has lived in São Paulo since 1995. He writes on politics and finance and runs his own company, Celtic Comunicações—  www.celt.com.br, which specializes in editorial and translation services for Brazilian and foreign clients. You can reach him at jf@celt.com.br

www.bernama.com.my March 15 , 2003 19:26PM
From Mokhtar Hussain

BRASILIA, March 15 (Bernama) -- Datuk Seri Dr Mahathir Mohamad will arrive in Brazil's capital city on Sunday for a four-day official visit to further enhance bilateral ties.

The Prime Minister, who is currently on two months' vacation abroad, will be arriving from the Manaus resort town in central Amazon with his wife Datin Seri Dr Siti Hasmah Mohd Ali.

Briefing Malaysian journalists, here, Deputy Foreign Minister Datuk Dr Leo Michael Toyad said Dr Mahathir's visit, his second since 1991, was at the invitation of the newly-elected President Luiz Inacio Lula da Silva.

Besides Dr Toyad, the 31-member delegation from Malaysia include Foreign Ministry Deputy Secretary-General Datuk Abd Aziz Mohammad, Malaysia's Ambassador to Brazil Ban Kat Meng and senior officials from the Prime Minister's Department and the Foreign Ministry.

According to Dr Toyad, Dr Mahathir and President Lula would discuss regional and international issues such as globalisation, terrorism, impending war on Iraq and bilateral trade between the two countries.

"It is also an opportunity to discuss with the new president issues relating to our relations with Brazil at international forums such as the World Trade Organisation (WTO) and the Group of 15 (G-15) developing countries.

"The two leaders may also talk on common issues such as Malaysia's experience in poverty eradication and tackling the financial crisis," he said.

Lula, 58, took office on Jan 1, 2003 after securing a 61 per cent vote in the presidential election in October last year. His victory had brought a new dream for the poor and marginalised as Lula himself was a former metal worker, who migrated from Brazil's impoverished northeast and worked as a shoeshine boy.

Dr Mahathir and Dr Siti Hasmah would also attend a luncheon hosted by the Brazilian President at his palace.

On bilateral trade, Malaysia is Brazil's biggest trading partner in Asean while Brazil is Malaysia's second largest in Latin America after Mexico.

Dr Toyad said the three main Malaysian investors in Brazil are Supemaxx Import Adora SA, which distributes rubber gloves and other rubber products, Abric SA, which manufactures seal for containers and trucks and Amaplac SA Ind. de Madires which is involved in the plywood industry, with a combined investment of about US$18.8 million.

Sugar, soyabean and recently military weapons make up about 50 per cent of Malaysia's total imports from Brazil, he said.

Malaysia purchased its Artillery Saturation Rocket System from Avibras Aerospacial in October last year.

He said Malaysia's major exports to Brazil include electronic, television and radio parts, semiconductors and computers together with its components.

On Tuesday, Dr Mahathir is expected to visit a commercial and military aircraft manufacturer and Avibras Aerospacial, the manufacturer of air-to- ground and surface weapon systems in San Jose, near Sao Paolo.

From there, Dr Mahathir will fly to Rio de Janeiro before leaving for Kuala Lumpur the next day.

Brazil, located in the central eastern of South America, is about 26 times bigger than Malaysia with an estimated population of 176 million.

-- BERNAMA