www.rediff.com March 18, 2003

Amman: Everyone in the Jordanian capital takes it for granted that I am a journalist. How do they know? Because everybody else, even diplomats, is making a beeline out of the Middle East before the shooting starts.

So, when is the war due to start? Jordanians are sure it will ignite as soon as 'The Resort' is complete. Thinking this to be a code-word of some sort, I ask for a clarification. It turns out that 'The Resort' is just what the name suggests, 150 luxurious villas on a hundred sprawling acres of land somewhere in the north of Iraq, about 70 kilometres from the Syrian border. Owned by a Kurd, the capital is apparently coming from the United States. Jordanians are convinced this has been earmarked as the operational headquarters for this part of the world by American and British officers. As soon as the last inch of optic-fibre cable is laid and the last satellite dish tilted just so, the invaders shall arrive to take possession.

Jordan seems to be resigned to the inevitability of war. They are most worried about the fallout on their own kingdom. Most of Jordan's petroleum comes courtesy Iraq, and they have wangled a special deal -- a whopping 50 per cent -- 75 per cent below the market rate. The United States has promised to find a replacement, but oil supplies are low everywhere thanks to an unusually cold winter in the northern hemisphere and civil unrest in distant Venezuela.

I found it interesting that everyone in Amman speaks of an American 'invasion;' the United States evidently has its work cut out for it if it seeks to convince the Arab street that it is coming to 'liberate' Iraq. Everyone is convinced it is Iraq's oil that is drawing the world's greatest military power to the sands of Mesopotamia.

One gentleman offers an innovative twist on the same theme. It is, he insists, actually about money and teaching 'old Europe' a lesson. The dollar is the world's de facto currency, and Washington would like to keep it that way. But of late there is a challenger, the Euro. In the wake of September 11, Arab money, collectively worth US $200 billion, has shifted across the Atlantic. Consequently, the Euro, once trading well below the dollar, is now being quoted slightly above it. Saddam Hussein, this theory goes, signed his death warrant when he began insisting that Iraq would accept payment only in Euros, rather than in dollars as of old.

Suspicion about American motives does not translate into any great love of France, Germany, or Russia. France, as the Arabs point out, has a vested interest in keeping the current regime in power. According to Iraqi dissidents, Iraq approached the French in 1974 to purchase a nuclear reactor. It should have cost $50 million, but Baghdad ended up shelling out $200 million. The Habbaniya Resort project cost $750 million, and France made the same kind of profit on that too. And French companies are also up to their neck in oil deals.

In fact, Iraq's two largest trading partners in the world are France and Russia. Guess which permanent members of the Security Council threatened to veto any resolution aimed at bringing down the government of Saddam Hussein?

Coupled with the cynicism are frustration and anger. Jordanians seethe because a neighbour's fate is being debated in New York, Washington, London, Paris, and Moscow, with the Arab voice going almost unheard. (Syria is the only Arab nation in the Security Council.)

Oddly, the issues raised by the home-grown Left in India are accepted as a matter of course. Some Indians are still questioning whether Saddam Hussein has access to weapons of mass destruction. In Jordan, this is taken for granted. Of course, the Iraqi leader himself has accepted that he did possess them at one stage, but claims they have since been destroyed.

This, of course, is the problem. The United Nations inspectors weren't supposed to travel around looking for arms violations, they were only asked to check declarations made by Iraq itself. But if Iraq refuses to cooperate, what option is there but war?

The bottomline is that every nation is looking to its own interests. The Jordanians worry about rising oil bills. The United States and Britain are concerned about their own security. France and Russia are protecting their commercial interests. When will Indian foreign policy makers learn to be equally cold-blooded?

T V R Shenoy

members.whattheythink.com

Despite the general weakness in the economy, MAN Roland ( Web Site Related Articles) has been able last year to realize a number of successful sheet-fed press projects in both Latin America and Asia.

Demand for ROLAND 700 in Venezuela

In 2002, the sheet-fed press market throughout Latin America suffered not only from the widespread economic weakness but, on top of it and in particular, from the crisis in Argentina. Just the same, MAN Roland has enjoyed in this world region - especially in Venezuela - an increasing demand for presses of the ROLAND 700 series. A ROLAND 705 3B LV was ordered by packaging and label printer Poligrafica Industrial C.A., and a ROLAND 704 by Intenso Offset C.A., specializing in commercials, book printing and magazines. Another sheet-fed machine from Offenbach - in this case a ROLAND 706 LV - went to Gráficas Armitano C.A., also in Caracas. The new press will be used primarily for producing high-quality books.

Asia Pacific sales region the fastest-growing economic area in the world

Having successfully consolidated its leadership in the Chinese market for newspaper presses, the company now sees numerous interesting opportunities opening up also in that country's sheet-fed market: the new MAN Roland trading company in Shanghai will in future allow optimum market coverage close to customers. At the same time, the MAN Roland branch office in Shenzhen has been expanded in space and personnel. At the opening ceremony for the new office, the local Shenzhen Blue Star Art Printing Company and the New Spring Group signed buying contracts for a ROLAND 704 und two ROLAND 505 LV.

Man Sang, Hong Kong again adds to its MAN Roland machinery

MAN Roland's biggest Asian sheet-fed press customer - Man Sang in Hong Kong - in 2002 ordered four additional machines with 20 printing units: one each ROLAND 906 and 704 plus two ROLAND 705. All ROLAND 700 presses are equipped with the PECOM process automation system. So far, 46 printing units from MAN Roland Offenbach are already in operation at Man Sang.

Sales achievements in Korea and Thailand

The MAN Roland branch in Seoul, South Korea, successfully completed various projects in 2002: a total number of 55 printing units in 3B format was sold to different customers last year. A ROLAND 704 went to Won Dang in Kyungnam. Good news about the past year is also reported from Thailand: in order to further strengthen its leading position in the Thailand market, the Amarin printing and publishing enterprise ordered, as part of an extensive three-year plan, no fewer than five ROLAND 700 sheet-fed presses from Offenbach. The decision to invest in latest printing technology from MAN Roland, was based to a crucial extent on the PECOM networking for a transparent workflow with reliable and verifiable product quality.

Stepped-up activities in Japan

In addition, MAN Roland hopes - as a result of taking over the majority interest in its Japanese sales and service partner DIC-MAN ROLAND and its stepped-up marketing activities in the country - to re-achieve a stronger footing in the Japanese sheet-fed press market as well.

www.bday.co.za

THE low price at which Telkom listed has been criticised and praised in government and business circles. At R28 a share, Telkom was valued at R15,6bn on listing, against a valuation of R19bn when a 30% stake was sold to US and Malaysian investors in 1997.

While there is lots of upside potential for small investors, the lower-than-expected valuation has left Ucingo Investments, the empowerment group which holds 3% of Telkom, in a pickle.

Ucingo acquired its stake in the phone monopoly in 2000 at a share price of more than R33, funding the R566m bill entirely through debt financing.

This took place during the midst of the telecommunications boom globally, and lenders presumably envisaged enormous growth potential for Telkom.

Shortly after Ucingo took delivery of its shares, the 3% stake was valued at about R3bn. Ucingo had grand plans. These included selling a portion of its holding after Telkom listed, hopefully at a profit. The proceeds were to be used to establish about 360 telecentres over five years, at a cost of about R100m. These would include telephones, photocopiers, computers, faxes and access to the internet.

However, with Telkom's valuation sliding along with the bursting of the telecoms bubble, Ucingo is facing a cash crunch. It has turned to government for help, no doubt pointing out that another black economic empowerment failure will not do the empowerment initiative any good.

Government appears unwilling to intervene, and rightly so.

What could it do, anyway buy back the 3% stake for more than it is currently worth? That seems unlikely. However, if Ucingo is unable to restructure the debt the lenders may decide to foreclose, leaving the bankers holding a stake in Telkom.

Given the experience of Ucingo and other empowerment groups, more innovative ways of empowering companies in a bear market must be considered.

More or less is right

TOWARDS the end of last year the SA Institute of Chartered Accountants called on its members to comment on the changes the International Accounting Standards Board proposed making to its rules on the treatment of share-based payment systems.

The board wants companies to recognise all share-based payment transactions in their financial statements, including share options and phantom share schemes. SA auditors' collective response to this proposal is not yet known, but from the point of view of shareholders the issue is clear-cut there is no respectable argument against the expensing of share options. They are a form of compensation that involves an economic cost, so it makes no sense for accounting rules to treat them any differently from cash compensation or the award of actual shares.

The global technology sector remains implacably opposed to expensing, and understandably so. By some estimates, having to expense share options would cut many tech firms' reported profits by as much as 70%.

As was to be expected, the most voluble opponents are in the US, where the Financial Accounting Standards Board announced earlier this month that it was reopening the debate. Round one was won by Silicon Valley after intense lobbying. However, too many corporate governance scandals have been revealed for them to pull that off again.

There is room for debate over how the cost of options should be calculated, and there are sound arguments that the most commonly used method, the Black- Scholes model, produces excessive values.

Yet protests that estimates of stock option expenses are only approximations are disingenuous many accounting steps are approximations. Anyway, it is better to expense inaccurately than not to expense at all.

If US growth stops

THE threat of war is not the only impediment to the US economic recovery. The post-bubble adjustment continues: excess capacity has not gone away and companies remain focused on balance sheet repair.

The decline in stock market wealth is one reason for concern about US consumer spending. That, along with a weak jobs market and war fears, explains why the US Conference Board's index of consumer confidence fell to its lowest in nine years in February.

However, clearly the rise in oil prices, with West Texas Intermediate crude up from $25 a barrel in November to as high as $38 at one stage, is worrying when the US economy is already at stallingspeed. High energy prices eat into corporate profitability but expectations concerning the capital spending recovery should already be modest.

Of greater concern is the tax effect on consumer spending; income spent on fuel is desperately needed to keep other industries afloat. Unfortunately, the consensus that oil prices will quickly recede following a short war in Iraq may be too sanguine. While the northern hemisphere winter is coming to an end, the International Energy Agency has highlighted the Organisation of Petroleum Exporting Countries' limited spare capacity.

Venezuela's problems continue, and inventories in oil exporting countries are low. If the US is forced to dip into its strategic petroleum reserve, that will have to be replenished.

Goldman Sachs commodity researchers argue that, even in the event of a short war, oil prices will remain volatile. They could average in the mid-30s this year, rather than falling to the mid20s in line with the consensus.

To a large extent the fate of SA and the rest of the world economy rests on the US. Morgan Stanley estimates that the US has accounted for two-thirds of total global growth since 1995. If the US economy stumbles again, neither Europe nor Japan look ready to take over as a growth engine.

Cape Editor Dave Marrs edits The Bottom Line. E-mail to bottomline@bdfm.co.za

Mar 18 2003 06:49:43:000AM Business Day 1st Edition

www.thestar.com Mar. 18, 2003. 07:57 AM

NEW YORK—World oil prices eased further yesterday as dealers wagered that the looming war in Iraq would be short and inflict only limited damage on Middle East oil flows.

The possibility that the United States could release oil from its 600-million-barrel emergency oil stockpile further weighed on prices, which have fallen more than 8 per cent over the last three trading sessions.

"The market believes the war will be short and quick, so there should be a relatively soft landing for crude prices," said Charlie Luke at Aberdeen Asset Management.

U.S. light crude futures dropped 45 cents (U.S.) to $34.93 per barrel, down from a 12-year high of $39.99 late last month. The current price is $6 short of a $41.15 all-time peak during the 1990-91 Gulf War crisis.

Brent crude oil fell 65 cents to $29.48 per barrel on London's International Petroleum Exchange, which was forced to close for two hours when anti-war protesters raided the London market waving banners saying "Oil fuels war."

Prices fell as the United States and its allies ended diplomatic efforts to win U.N. approval for an ultimatum to Iraq, clearing the way to launch war without Security Council authority.

Speculative investors who fuelled a 60 per cent rise in oil prices in just over three months are now selling to avoid being caught out by a sudden price slide if Middle East oil flows escape severe disruption.

In the first Gulf War, prices sank from over $30 to barely $20 when the United States launched its January, 1991, offensive as it became clear that Iraq would not harm oil fields in Saudi Arabia.

But prices could go back up quickly if Iraq inflicted substantial damage on its own oil fields, or the war was prolonged, analysts said. Iraq and its Gulf neighbours together pump about 40 per cent of global crude exports.

U.S. plans to secure Iraq's northern Kirkuk oil fields quickly in the event of war have been undercut by Turkey's refusal to let U.S. troops through its territory.

"The market is betting on a short, straightforward campaign that would be over fairly quickly," said Steve Turner of Commerzbank in London.

"But there is definitely upside if the war is long and difficult and there are repercussions across the Middle East."

A cold winter and prolonged supply hitch from Venezuela simultaneously drained commercial stockpiles to historic lows, and the OPEC oil cartel has little spare production capacity to cover further supply disruption.

U.S. gasoline pump prices already have hit a new all-time high of $1.719 a gallon for an average price of regular unleaded, the American Automobile Association said yesterday. A sustained increase in energy costs could weaken an already soft economy, analysts say.

Iraq's U.N.-supervised oil exports, which recently averaged almost 2 million barrels daily, will slow to a trickle this week as dealers have stopped buying for fear of an imminent attack.

Iraq's two authorized export terminals in Turkey and the Gulf were both idle yesterday.

Further pressuring prices, the chairman of the U.S. House energy and commerce committee said the energy department told him the Strategic Petroleum Reserve, or SPR, is ready to release oil to counter a disruption in crude supplies, if necessary.

"The SPR has, for some time now, transitioned from the fill' mode to the flow' mode and is prepared to flow upon orders from the president," Republican Billy Tauzin said in a letter to fellow lawmakers.

The United States and other members of the International Energy Agency has said it will allow OPEC oil producers to try to cover any shortages in war, releasing inventories from emergency stockpiles only as a last resort.

www.msnbc.com By Paul Blustein THE WASHINGTON POST

March 18 — Four trading days ago, financial markets the world over seemed on the verge of melting down because of fears that the impending war against Iraq would inflict severe damage on the global economy. NOW THE markets are sending a jarringly different message about the war: Bring it on — because the sooner it’s over, the faster the world’s major economies can begin to mend. As if rejoicing over the dissipation of a perplexing fog, investors issued a collective roar of approval yesterday to weekend news indicating that the United States and its allies would allow no further time for diplomacy before attacking Baghdad. The Dow Jones industrial average, which had fallen close to five-year lows last Wednesday morning, rose 282.21 points, or 3.6 percent, to close at 8141.92, the fourth straight day of gains. Oil prices dipped, and the main stock indexes of Britain, France and Germany, which were plumbing depths in the middle of last week not seen since 1997, posted percentage increases almost as large as the Dow’s. The jumps capped the biggest three-day rallies in recent memory for the London and Paris exchanges and the biggest for German stocks in 15 years. An exception to the positive trend was the Tokyo stock market, where the Nikkei index fell 1.6 percent to close barely above its 1983 level. [In early trading today, however, the Nikkei rebounded strongly, rising 2.3 percent, to 8050.94.]
Fueling the gains was the widespread belief that the odds favor a relatively short war, and that whatever the benefits and drawbacks of an attack, at least an end is in sight for a period during which war jitters — and the accompanying rise in oil prices — have kept businesses from pursuing expansion plans and consumers from feeling in a buying mood. But as the recent market downturns suggest, worries abound that the invasion will lead to a political and military quagmire, with possible fallout ranging from anti-American uprisings in Islamic countries to the destruction of Middle East oil fields to terrorist attacks on U.S. soil. So while the commencement of hostilities will probably prove a tonic for listless economies if the war goes smoothly, dangers to the economic outlook remain huge, analysts warn. “The worst thing for markets is uncertainty, and after the summit on Sunday, it’s clear the war is likely to start this week,” said Stefan Schneider, chief international economist at Deutsche Bank AG in Frankfurt. “So now people think, if this whole thing is unavoidable, it’s better to get over it soon, so we don’t have all these negatives weighing on the economy.”

FRAGILE GLOBAL ECONOMY But Schneider shares the concern of many other experts that the global economy is fragile and that recessions could hit in the United States and the European Union — the world’s two biggest economies — because of the potential ramifications of war, including the prospect that oil prices fail to subside or rise even further. Crude oil prices rose to a 12-year high of nearly $38 a barrel last week, though the price settled at under $35 yesterday.
“If oil stays above $30 a barrel for the remainder of the year, that could well do it for both economies,” he said, adding that Europe is particularly vulnerable because its economy is already crawling at about a 1 percent annual growth rate. “It wouldn’t take too much of a negative impact to push euro-land into recession,” Schneider said, referring to the 15 nations that use the euro.

SIMILAR TO ’91? If there is one thing economists agree on these days, it is that forecasting has rarely been more difficult, given the imponderables about how the war and its aftermath will proceed. But broadly speaking, the debate over the economy’s future divides analysts between those who believe chances are high that the upshot to the war will closely track the events that followed the first Persian Gulf War in 1991 — when oil prices plunged and stock markets surged — and those who doubt such an outcome is likely. “We think this looks just like 1991 — the pattern of stocks is the same; the action in oil is almost the same,” said Frederick P. Leuffer, senior energy analyst at Bear Stearns & Co. “You’ll recall that the night the war started, within five minutes of the first bomb being dropped, oil prices fell from $34 [a barrel] to $20 — whssst, straight down.” The same will be true this time, he predicted, “unless Iraq torches its fields, or if there’s not some exogenous problem that we can’t foresee.” But others contend that current circumstances are very different. In 1991, “the U.S. economy benefited from the fact that everyone perceived America had won a clear and decisive victory,” David Hale, an independent Chicago-based economist, wrote in a newsletter last week. “The clarity of the outcome had an immediately beneficial impact on oil prices, stock market prices, and the confidence of both companies and households. It is far from clear that the coming war will produce as decisive and clear an outcome.” Even a quick victory over Iraq leaves open a host of ugly possibilities, Hale noted — insurgent actions against occupying U.S. forces being just one. Beyond that fundamental issue lie differences over several other crucial points.

GAUGING OIL PRICES Among the most important is whether conditions in oil markets are ripe for a price decline. Optimists reckon that a “war premium” of as much as $10 to $12 a barrel has been built into prices because of fears about nightmare scenarios in which extensive destruction of oil facilities could cause crude to shoot into the $60 to $80 range. That premium will evaporate, many energy specialists believe, once it is clear that missiles launched by Iraqi President Saddam Hussein haven’t hit neighboring countries’ oil fields and refineries. “He could act like a complete lunatic and destroy his own oil industry in desperation,” said Leo Drollas, chief economist at the Centre for Global Energy Studies in London. “But I personally doubt it, and if all goes smoothly, we’ll have a little bit too much oil, causing prices to fall once we get into April and the summer.” But a gloomier view holds that oil prices will stay high regardless, because the market is reflecting reductions in world oil supplies associated with turmoil in Venezuela and other factors. “Right now, inventories are at the lowest level in 30 years. The last time they were at this level, Dick Cheney and Don Rumsfeld worked for Jerry Ford,” said Philip K. Verleger Jr., an energy specialist at the Council of Foreign Relations. And even if President Bush and other world leaders order a release of crude from their nations’ strategic reserves, the downdraft in prices will be short-lived, Verleger said, because as soon as prices fall below $30 a barrel, the Organization of Petroleum Exporting Countries will curb production. The effect on the major industrialized economies of hikes in the price of foreign crude is not as severe as it once was, optimists say, because of energy efficiencies that have been achieved since the first oil shocks of the 1970s. Paying OPEC more for oil once imposed a stiff “tax” on the U.S. economy, but per dollar a barrel, that tax has abated over time. In 1980, oil imports were about 3 percent of U.S. gross domestic product; in the fourth quarter of 2002, they were 1.1 percent. “But regardless of the fact that we are less dependent than 30 years ago on energy, and the impact of a $1-per-barrel increase is not as large as it used to be, if you get a lot of dollars of increase, it’s going to have an impact,” said Richard Berner, chief U.S. economist at Morgan Stanley, who said that because of the danger that prices will stay high, “we’re flirting with a double-dip [recession].”

WAR’S OUTCOME Finally, there is the ultimate, unknowable question of how the war will affect business and consumer confidence. John Llewellyn, global chief economist at Lehman Brothers in London, puts the risk of global recession at 30 percent because he believes the public has not factored in the potential cost of rebuilding Iraq’s economy and controlling its ethnically fractured populace. “Even if this goes militarily quickly, the peace may be long and expensive,” Llewellyn said. “That’s the potential shock to confidence. People will realize that the United States, and other allies, are going to get bogged down in a long, expensive process. That will not be good for confidence.” Other indicators: The Nasdaq composite index rose 51.94, to 1392.27; the Standard & Poor’s 500-stock index rose 29.52, to 862.79; the New York Stock Exchange composite index rose 142.32, to 4783.95; the American Stock Exchange index rose 5.58, to 820.65; and the Russell 2000 index of smaller-company stocks rose 11.01, to 365.40. Advancing issues outnumbered declining ones by 8 to 3 on the NYSE, where trading volume rose to 1.67 billion shares, from 1.52 billion on Friday. On the Nasdaq Stock Market, advancers outnumbered decliners by 2 to 1, and volume totaled 1.84 billion, up from 1.57 billion. The price of the Treasury’s 10-year note fell $11.25, and its yield rose to 3.84 percent, from 3.70 on Friday. The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 118.44 yen, up from 118.34 late Friday, and a euro bought $1.0635, down from $1.0745. Light, sweet crude oil for April delivery settled at $34.93, down 45 cents, on the New York Mercantile Exchange. Gold for current delivery rose to $337.10 a troy ounce, from $336.50 on Friday, on the New York Mercantile Exchange’s Commodity Exchange.