www.forbes.com Reuters, 03.19.03, 10:19 AM ET By Alexander Manda

LONDON, March 19 (Reuters) - Emerging market debt, which has returned a hefty seven percent to investors this year, may face selling pressure if war in Iraq is concluded quickly, as expected, due to falls in the prices of oil and safe-haven debt.

Oil has long been a key support for emerging economies, but prices are declining as war draws closer, apparently ending a drawn out period of geopolitical uncertainty.

Oil exports support Russian and Mexican government finances, whose bonds together are more than 40 percent of key emerging bond indices. A host of smaller credits also depend on oil.

"Credits like Russia, Ecuador, Venezuela, Mexico, Ecuador, Kazakhstan, Nigeria are going to experience changing perceptions about high oil prices," said Isaac Tabor, emerging market economist at Merrill Lynch in London.

Iraq has the world's second largest proven crude oil reserves and four of the world's top 10 oil exporters are its near neighbours.

Prices for benchmark Brent crude oil peaked at around $34 per barrel in early March, after climbing steadily since November, when the United Nations passed a resolution giving Iraqi President Saddam Hussein a final opportunity to disarm or face "serious consequences".

Iraq denies having weapons of mass destruction.

The U.S. has set a deadline of 0115 GMT on Thursday for Saddam and his sons to leave Iraq or face war, an offer Saddam has rejected.

BEWARE SLIDING OIL

"The first reaction on Russian bonds is going to be negative if the price fall is very sharp," Tabor said.

Russia's Urals crude benchmark has already fallen fast. At around $26 per barrel on Wednesday, it is now well below its March 10 peak of $33.54 per barrel.

Russian debt has already slipped a little. Its benchmark 2030 dollar bond <RUSGLB30=RR> was trading at 85.25 percent of face value on Wednesday, about two points lower than before oil prices began their fall.

But analysts said that even with a tumbling oil price, the Russian economy was unlikely to experience the sort of crisis that led to a painful currency devaluation and debt default in 1998.

"Russia should be well protected. Oil could go down to $14 or $15 per barrel, before it would hit fiscal or balance of payments difficulties," said Peter Botoucharov, emerging market economist at Commerzbank in London.

BEWARE FALLING T-BILLS

A quick war, which is widely forecast, is also likely to trigger a sell-off in safe-haven assets, including U.S. Treasury debt.

Treasury yields have already begun rising, with investors switching into rallying equity markets, after shrinking to historic lows as the threat of conflict in Iraq grew.

"The main risk (for Treasuries) is a super-sharp recovery in equities," said Michael Ganske, emerging debt fund manager at DWS Investments in Frankfurt.

But a prolonged equities rally could also pull cash out of emerging debt, which has benefited from buying by investors seeking higher returns than those offered by Treasuries, but unwilling to plunge into a very bearish stock market.

A Treasury sell-off could also have a secondary effect, in that it would reduce the value of collateral attached to some emerging market bonds, dulling their appeal for investors.

Brady bonds make up a large portion of the emerging debt market, including Brazil's C bond <BRAZILC=RR>, the most traded emerging debt instrument.

Named for former U.S. Treasury Secretary Nicholas Brady, such bonds were issued under a scheme to ease developing countries' debt burdens by repackaging defaulted loans into tradable bonds backed with U.S. Treasuries.

Collateralisation has helped boost demand for such debt this year, pushing prices higher.

Brazil's C bond has climbed to 78.125 percent of face value, up from 66.5 percent of face value at the start of the year.

Analysts said domestic investors especially were likely to sell if they saw Brady bonds losing value, even if the fall only reflects a slide in the U.S. Treasury collateral, rather than a higher perception of risk regarding the issuing country. "If Treasuries sell off massively it could trigger strong selling, because the locals trade on yield," said DWS's Gankse.

"For the local investor that is negative price action. They may get nervous and sell, (and) that could produce the momentum for a sharp sell off."

www.stockhouse.ca Bank of Nova Scotia (The) Quick Quote: T.BNS 52.60 (+0.45) 3/19/03

Scotiabank's Commodity Price Index, which measures price trends in Canada's major exports, surged by 6.4% in February to a level 30.5% above a year earlier. Gains over the past two months have been the third highest in the history of the All Items Index, with data back to 1972. The previous jumps occurred at the time of the Arab oil embargo in 1973 and in early 2001, when natural gas prices spiked during an exceptionally cold winter. 'The latest advance was led by another double-digit increase in the Oil and Gas Index, which rose 13.7% in the month of February alone, and 131% above the soft levels of a year ago,'says Patricia Mohr, Vice-President and commodities specialist, Scotia Economics. 'The Oil and Gas Index, including propane, climbed 75% above peak levels during the 1990-91 Gulf War - the result of geopolitical tensions, lower U.S. stocks of oil and refined products and fundamentally tighter North American supplies of natural gas.'

Non-energy commodity prices also rose by 3% in February, with gains in the Forest Products, Metal and Mineral and Agricultural Indices. 'While G7 industrial activity has softened since last summer, strong demand in China for a wide variety of materials has provided some offset - especially for nickel and copper,'comments Mohr.

West Texas Intermediate crude oil prices climbed from US$32.70 per barrel in January to US$35.73 in February. However, prices eased back to US$31.67 on March 18th, with Nymex traders unwinding long positions, expecting a short and successful U.S.-led military engagement in Iraq.

'Supply concerns are also easing,'says Mohr. 'While Iraq exports under the United Nations administered 'oil-for-food'sale are being suspended, as U.N. personnel leave Iraq, Saudi Arabia has given assurances that it will offset any potential Middle East supply disruptions. The Kingdom has already stepped up production from about 7.97 million barrels per day in November (prior to the Venezuelan oil workers'strike) to more than 9.2 million barrels per day in March and reportedly has stocks of more than 50 million barrels to offset any shortages.'

'The rest of OPEC - aside from Saudi Arabia, Iraq and Venezuela - has also increased output by about 910,000 barrels per day since November and Venezuelan flows are gradually recovering. The net result, OPEC is now likely producing at a rate above world demand for its crude oil,'says Mohr.

Nymex natural gas prices strengthened markedly in February, rising to US$6.66 per million British thermal units from US$5.38 in January. Concerns over rapidly dwindling stocks drove prices up as high as US$9.58 on

February 25th - almost triple year-earlier levels and approaching the daily peak of US$9.98 during the extremely cold winter of late 2000. As of March 7th, U.S. gas-in-storage dropped further to a level 55% below a year earlier.

'Natural gas prices have also slipped back to US$5.34 in mid-March with slower storage withdrawal, expectations of an end to the heating season on March 31st and some industrial 'demand destruction','adds Mohr. 'While prices may ease further during the second quarter, a period of seasonally weak demand, we continue to believe that natural gas prices have moved to a higher plane.'

The Metal and Mineral Index strengthened in February alongside widespread gains in base metals and gold. Nickel led the advance, rising from US$3.64 per pound in January to US$3.91 in February. Nickel-containing stainless steel consumption surged in China by 26% in 2002. China is relatively dependent upon imports of nickel to meet its burgeoning demand, with only one producing nickel mine.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

CONTACT: TEL: (416) 866-4210 Patricia Mohr, Scotia Economics TEL: (416) 933-1093 Michael Arbour, Public Affairs

www.canada.com MALCOLM MORRISON
Canadian Press Wednesday, March 19, 2003

TORONTO (CP) - Stock markets were close to the unchanged mark Wednesday morning hours before a U.S. invasion of Iraq is likely to begin.

The countdown to an attack continued as long columns of U.S. troops, armoured vehicles and trucks advanced through swirling sand in the Kuwaiti desert toward the Iraqi border, positioning themselves to invade on short notice.

Toronto's S&P/TSX composite index moved 13.35 points higher to 6,451.96 after closing up 31.98 points.

The Canadian dollar lost territory as the American currency continued to strengthen, losing 0.19 cent to 67.63 cents US.

The euro was quoted at $1.0598 US, down from $1.0621 Tuesday.

The loonie had climbed 0.26 cent Tuesday after Bank of Canada governor David Dodge reiterated in a speech in Rome that more interest rate hikes will be needed to get Canada's inflation back down to the central bank's targets.

New York's Dow Jones industrial average rose 0.91 of a point to 8,195.14 after advancing 52.31 points Tuesday, moving up a total of 669 points in the past five sessions.

The Nasdaq lost 8.92 points to 1,391.63 after edging 8.28 points higher on Tuesday while the S&P 500 was flat at 866.45.

In corporate news, trading in chemical company DuPont Canada was halted on news that its U.S. parent is offering $1.4 billion Cdn to privatize it. Dupont Canada's shares closed Tuesday at $17.24.

Shares in DuPont and Co. were 20 cents lower at $39.88 US.

Softness on the Nasdaq came after software maker Oracle Corp. reported a cautious outlook for a recovery in technology spending late Tuesday.

The company posted a 12 per cent rise in fiscal third-quarter profit and said revenue grew modestly, helped by growth in sales of software upgrades to existing customers.

But the company said revenue from new software licences and sales of its flagship database product line each fell four per cent. Its shares were down 60 cents to $11.65 US.

Generally, stock markets have been driven higher since the middle of last week as investors look to the rally that followed the start of the 1991 Persian Gulf war and hope history repeats itself.

"There's a hope that a swift victory will create a perverse twist in Wall Street theory: Sell on the rumour and buy on the fact," said market commentator Bryan Piskorowski of Prudential Securities Inc. in New York.

But there's plenty of reasons for caution, including the possibility of torched oil fields, use of biological weapons and terrorist attacks.

Overseas, Tokyo's 225-issue Nikkei Stock Average rose 96.58 points, or 1.21 per cent, to close at 8,051.04, led by key exporters including automaker Honda and technology issues Nikon and Sony.

Hong Kong shares enjoyed a second consecutive day of gains, with some traders placing bets ahead of several key earnings announcements. The Hang Seng Index climbed 117.08 points, or 1.29 per cent, to 9,158.59.

London's FTSE 100 index rose 49.1 points or 1.3 per cent to 3,796.4 in mid-afternoon trading, Frankfurt's DAX added 1.55 per cent and Paris's CAC 40 rose two per cent.

Crude oil prices were on the way up with Brent crude futures in London up 48 cents to $27.73 US a barrel while futures in New York advanced 24 cents to $31.91 US.

On Tuesday, prices in New York plunged $3.25 in the biggest one-day drop in almost a year.

While U.S. crude inventories remain uncomfortably low, OPEC producers other than Iraq and strife-torn Venezuela have been increasing production for weeks. Much of that oil is now in storage or in tankers on the high seas, say oil analysts.

Saudi Arabia is believed to have as much as 50 million barrels in storage in the country and more en route to other storage facilities. That's enough to replace Iraq's 1.5 million to two million barrels a day for about a month.

Gold moved lower with the price of the metal slipping $1.70 to $335.50 US an ounce.

In other corporate news, Transat A.T. Inc., a major travel company and operator of Air Transat, slashed first-quarter losses as revenue jumped 20 per cent from a year earlier. Losses came in at $7 million, down from a $17-million loss a year earlier.

Air Canada has drafted a plan to cut $200 million in labour costs by closing two call centres, cutting 30 per cent of the jobs in the remaining centres and slashing some employee wages by 27 per cent.

www.theaustralian.news.com.au By Dennis Shanahan, Political editor March 20, 2003

MANY years ago I can remember flying across the Indian Ocean on the way to Zimbabwe in the Prime Minister's VIP 707. Like the rest of the travelling press I was down the back of the plane in economy-style seats with a colleague's sleeping head upon my shoulder.

It was expensive – the media paid business class fare equivalents to travel on the VIP jet – and uncomfortable: the head of the colleague was male and there was drool involved.

But we were with the Prime Minister (then Bob Hawke) and arrived when and where he arrived and were generally given some in-flight personal briefings from him.

At times this close travelling relationship led to some testiness, some inside information and some camaraderie.

With the acquisition of the new prime ministerial BAJ 737 all of those things appear to have come to an end. Last month John Howard made his first around-the-world trip sans media, and it is unlikely any prime minister will break the precedent he has established of travelling without the press corps.

Malcolm Fraser ensured the PM could enter the new Parliament House without running a press gauntlet, Paul Keating introduced velvet ropes and now Howard has ensured the PM can travel with more privacy than the US President. After all, even on September 11, George W. Bush had media travelling on his plane – even if they couldn't disclose his whereabouts.

The transition from the ailing and embarrassing old VIP fleet, which was barred from landing in a number of countries because of environmental concerns, to a shiny new 737 minus the media has been smoothly achieved.

There has been a period of adjustment when Howard travelled commercially, mixing it with public and media and generally having a chat even with those travelling press who didn't fly business or first class.

On his long trip to Europe last year the PM chartered a jet – used by football teams and pop stars to ferry around their entourage – for part of the trip. The media travelled in that jet, although on some legs went in a German air force C30 transport or on commercial flights.

But the weaning period is now over – and it would seem that the opportunity for the press to mix with travelling officials and prime ministers has ended. Howard's recent seven-day trip around the world is a worst-case scenario but proves the point.

Given only four days to plan, the media intending to travel with the Prime Minister on his most important international trip yet, had to arrange commercial travel between Canberra, Sydney, Washington, New York, London and Jakarta while keeping to a schedule set by the PM's VIP jet.

Five overnight trips were needed to ensure the media were in place to question Howard after he met the Bush Administration and the President himself, plus British Prime Minister Tony Blair and Indonesia's President Megawati.

Part of the justification for keeping the media off the plane – and remember they have been the only paying customers on these flights – is that it is not comfortable enough for the entire media contingent.

Consider this:

Canberra to Washington is a long trip made more tedious and lengthy by security measures at Los Angeles, which mean standing in at least four queues for more than two hours and the strong prospect of a body search. Anything less than a two-hour gap between arrival and a link with domestic flights virtually means you will miss the flight.

The media had to set out before Howard, who stopped en route in Hawaii and conducted Commonwealth business over bans on Zimbabwe without any pesky press interference. Indeed, it was Howard who had to raise the issue himself at a press conference in Washington because the media was oblivious as to what had happened in transit.

To be in New York in time for Howard's meetings with Hans Blix and Kofi Annan it was necessary for most of the press – as opposed to the television crews – to travel by train to New York, arriving after 2am and then filing stories written on the red-eye express.

The TV people had the luxury of sleeping in until 4am and catching a plane the next morning. The PM's team did find room on the plane for some media to record his departure and arrival and to do a pre-recorded radio interview.

New York was a blur, bleary journalists blitzing Blix in the winter wind, a quick press conference and then a four-hour preparation for an overnight trans-Atlantic flight to London.

Arrival in London was to a Heathrow tarmac surrounded by military in tanks and high-level security warnings. Arrival at 6am meant working straight through the day and night as Howard met British ministers prior to his early morning meeting with Blair at No 10 Downing Street. Standing in sub-zero temperatures after being frisked for the 20th time in four days, the travelling media knew they faced a rush to the airport for various flights to Singapore, Bangkok or Hong Kong to make on-flights to Jakarta in time for Howard's arrival.

Because someone from Venezuela had brought a hand grenade to Gatwick in his luggage, the security checks at Heathrow were doubled. It took more than two hours at the economy check-in to lodge luggage and get seat allocation. Security queues took another hour.

Some of the media had begun to flake off the tour de force, giving up on the Indonesia leg and heading straight to Australia.

After more searches in Singapore it was a late-night arrival in steamy Jakarta after having been in freezing ice and snow for six days.

Once again, the travelling media saw the Prime Minister at a press conference and a couple of meetings. Unfortunately for the ABC's Jim Middleton, the only informal contact with the PM was a dressing down in the hotel foyer after the ABC newsroom had wrongly rewritten one of his stories.

The Prime Minister was on the way to his plane and the flight to Australia. The media were left like a flight of broken geese to straggle back commercially, deprived of Howard's company and end-of-trip insights. A pattern for the future.

www.latintrade.com 03/19/2003 - Source: Business News Americas

(BNamericas.com) - German telecoms vendor Siemens (NYSE: SI) beat out Ericsson, Alcatel and Nortel to win a US$54mn contract to provide the GSM network equipment for startup PCS operator Colombia Movil, local daily Portafolio reported. Siemens will deploy a network to cover all of Colombia's departmental capitals and main urban areas, in addition to the country's major thoroughfares.

The US$54mn bid was "very aggressive" given such coverage objectives, Pyramid Research analyst Carlos Rodriguez told BNamericas. Rodriguez noted that the contract represents about half of what Colombia Movil had budgeted for capex this year.

Siemens probably bid near or below the real cost of deploying the network, with the idea to recoup the investment with future contracts in coming years, he said. However, Rodriguez said other contracts would not be just around the corner. The current deployment would yield a network good for at least three years, unless growth far exceeds what is expected, he said.

Yankee Group analyst Wally Swain told BNamericas that Siemens' bid might not be undervalued, depending on what is included in the contract. "A switch is around US$5mn. Cell sites are US$150,000-250,000. This could be as little as one switch and 200 cell sites which should give enough coverage," he said.

Swain also noted that the contract does not cover transmission between sites, most of which they will rent from their parents, which are Colombia's two largest fixed line operators. "It is not clear because we have no details, but it is likely [the contract] doesn't cover the physical tower work or electrical work," he added.

Rodriguez saw the bid as part of a wider market expansion strategy in Latin America. "Siemens knew that this is one of the last opportunities it has to enter a large Latin American mobile market," he said, adding that the company is also playing hard to gain the contract with Ecuador's new PCS concessionaire, Andinatel.

Siemens will also look to benefit its handset division from the Colombia Movil contract, Swain said. The German vendor can now leverage the contract to push into the local handset market as well, he said.

Rodriguez agreed, noting that Siemens does not have any handset presence in the region except through its GSM network agreements with Telecom Italia Mobile (TIM) in Brazil and Venezuela.

According to the paper, Siemens would have the infrastructure in place by mid-year. Earlier estimates by Colombia Movil executives had the network up and running by October of this year.

However, Swain said such a time frame would be very aggressive. The existing cellular carriers take an average two months per cell site to find sites, negotiate contracts and obtain permission from the authorities to install, before installation can begin, he said.

It should be easier to get approval for PCS sites from Colombia's civil aviation board and the municipal environmental agencies because their towers are lower, and in many cases antennas can be flush-mounted on the side of a building. However, Swain said it would still be a considerable logistical challenge to mount a sufficiently extensive network for an adequate service launch.

A more realistic objective is to have a network running before the Christmas holiday season kicks in, Swain said, noting that the Colombian market has traditionally seen a big end-year push, with as much as 40-50% of sales occurring in the second half of the fourth quarter. Colombia Movil must have a stable network before then, or it will miss this critical sales period, he said.

Colombia Movil, a joint venture between Colombia's two largest fixed line operators, Bogota-based ETB and Medellin-based EPM, won its PCS license in January.

The PCS operator has indicated it will invest US$550mn over the next five years for GSM network buildout, and ETB has already approached the capital markets to finance its part of the cost.