URL The Associated Press 3/25/03 10:58 AM

ORANJESTAD, Aruba (AP) -- Aruba has reported a more than 7 percent increase in tourism in the first two months of 2003 compared to the same period last year, although the growth came before the U.S.-led war in Iraq.

Caribbean leaders fear that the war will hurt their struggling economies, keeping tourists away just as they recover from a slump following the Sept. 11, 2001, terrorist attacks.

The U.S. market had a 9.6 percent increase in arrivals in Aruba and the island had an increase of 9.9 percent in room-night bookings, the Aruba Tourism Authority said Monday. The number of room-night bookings in January and February was nearly 306,000 compared to 278,000 during the same period in 2002.

Aruba reported that the Mid-Atlantic region of the United States, including Delaware, Maryland, Pennsylvania and Washington, D.C., led the upsurge with a 20.4 percent increase. The Northeast followed with a 12.5 percent increase, tourism officials said.

Aruba is an autonomous Dutch Caribbean territory of about 70,000 residents some 15 miles north of Venezuela.

On the Net: www.aruba.com

<a href=www.sunspot.net>URL By Warren Vieth and Aparna Kumar Times Staff Writers Originally published March 25, 2003

WASHINGTON -- Like a slow-acting toxin, higher energy costs are seeping through the economy.

Gerald Lasseigne, a 53-year-old information systems technician in Donaldsonville, La., lost his job last month when steep natural gas prices forced Triad Nitrogen to shut down its fertilizer plant on the banks of the Mississippi River.

Daylight Transport, a freight company in Long Beach, recently boosted the diesel fuel surcharge it adds to customers' bills. At DuPont Inc. in Delaware, higher energy costs are woven into every strand of Lycra, Dacron and Kevlar the company produces.

Crude oil and natural gas prices have been volatile this year, buffeted by anxiety over war in Iraq and supply concerns related to a cold winter in much of the U.S. Crude prices, which had peaked at nearly $38 a barrel before the conflict started, did beat a retreat when it seemed a vigorous U.S.-led military offensive could bring a quick end to the standoff with Saddam Hussein without severe damage to Iraq's oil fields.

But oil prices rebounded Monday, climbing to more than $28 a barrel, marking their biggest gain in 15 months. By contrast, for most of the 1990s, oil traded below $22 a barrel. And natural gas futures prices now are more than double their average during the 1990s.

A few pennies a gallon here, a few dollars a barrel there, and pretty soon a million jobs are hanging in the balance.

If there's no relief from high prices, Americans could find work harder to come by because the economy will grow more slowly, and a double-dip recession won't be out of the question. Layoffs already have hit airlines and might reach other hard-hit sectors such as chemicals. Profits are bound to be squeezed elsewhere, from automakers to fast-food chains. Pump prices and utility bills could remain stubbornly high, leaving consumers with less money to spend on everything else.

"The energy shocks of the '70s and early '80s arguably were more significant," said chief economist Mark Zandi of Economy.com. "But this is significant enough to make a difference, certainly enough to push us back into a recession."

In Louisiana, Triad needs to keep its natural gas costs below about $3.50 per thousand cubic feet to break even, Lasseigne said. At the time he and 40 others were laid off, natural gas was selling somewhere north of $5.

"Nobody wants to lose their job, especially the way we lost ours, but I can't say I'm bitter to the company," said Lasseigne, a 29-year veteran of Triad who was earning about $60,000 annually when the well went dry.

"I think the government should have stepped in a couple of years ago when they had that energy fiasco in California. And I think the oil companies should have opened up some of those wells they capped back during the energy crisis years, knowing that if they held back production, prices were gonna rise."

And rise they did. In the early 1970s, U.S. refiners were paying about $3.50 a barrel for crude oil, while industrial natural gas users such as Triad were paying about 40 cents per thousand cubic feet. Then came the Arab oil embargo in 1973, the Iranian revolution in 1978 and the Iran-Iraq war in 1980.

Both crude oil and natural gas prices have increased tenfold over the years, bouncing up and down in response to periodic wars, recessions, natural gas "bubbles" and OPEC production decrees.

Last week, many oil traders were betting on a "perfect war" scenario: Hussein's forces would be quickly vanquished, Middle East oil exports wouldn't be disrupted and the price of crude would fall back to the low $20s.

Some experts have been less sanguine. At Goldman Sachs, for example, analysts and economists concluded that even if the war were to go well, crude oil would still cost an average of $30 or more this year.

That's because there is more propping up oil prices than just Iraq: Inventories of oil and petroleum products are dangerously low, the strike in Venezuela has taken some production off-line and political unrest in Nigeria is reducing exports from one of OPEC's biggest producers.

Meanwhile, a long-term imbalance in natural gas markets is expected to keep pushing that commodity's price up.

Higher energy prices sap the economy because they force consumers and businesses to pay more for purchases over which they have relatively little control, leaving them with less to spend on discretionary goods and services. Petroleum price spikes are particularly pernicious because America imports nearly 60% of its crude oil; that money goes straight into foreigners' pockets and is not recycled into the U.S. economy.

Economists say a $10-per-barrel increase in oil prices, if sustained for a year, slows the economy's growth rate by about half a percentage point and reduces disposable income by $50 billion, or about $400 per household. That's enough to add a percentage point or so to the unemployment rate as some hard-hit industries lay off workers and others create fewer new jobs.

"By themselves these impacts aren't all that large," said Goldman Sachs economist Jan Hatzius. "The big question is whether we're approaching the tipping point. We're dealing with an economy that's already pretty weak."

For some industries, higher energy prices could be toxic. Jet fuel accounts for 12% of U.S. airlines' operating costs, and analysts say higher prices, combined with post-Sept. 11 declines in passenger traffic, could push additional carriers into bankruptcy. Ground shippers, railroads and air freight companies feel the pinch, too.

Higher prices already have taken a toll on manufacturers of chemicals, plastics, textiles, paper, fertilizer, soap, paint, synthetic rubber and other products that use petroleum and natural gas as feedstocks and energy sources.

A number of chemical and plastics companies have reported lower profits, announced product price hikes or shut down production.

DuPont says a 10% increase in crude oil prices increases its raw material costs by about $100 million a year, while a 10% increase in natural gas adds about $65 million.

"The run-ups in oil and gas prices from last November and December are now flowing through to the prices of some of our feedstocks," said Ray Anderson, DuPont's director of investor relations.

In the last 30 days, family-run Beardsley and Son Inc., an agricultural services fertilizer company in Oxnard, has been paying $10 to $20 more per ton for fertilizer. "I'm passing along the price -- all of it," said President Tom Beardsley. "I've talked to growers about these prices. Their typical take is, 'What choice do we have?'"

A $1-per-barrel increase in the price of crude oil costs Goodyear Tire & Rubber Co.'s North American Tire division $20 million a year, after a similar lag period of up to six months. "In the past, we have sought price increases to cover our raw material costs," said Goodyear spokesman Clint Smith. "We did that last year."

Less directly affected, but still vulnerable, are industries that depend on consumers' discretionary dollars, including hotels, casinos, restaurants, clothing chains and other retail outlets.

Analysts say the businesses hit hardest are those that cater to low and middle-income consumers because gasoline and utility bills claim a bigger share of their disposable income.

The Goldman Sachs analysis noted that Wal-Mart Stores Inc.'s same-store sales fell between 2% and 4% in recent months as energy prices increased 30%. While all restaurants could be hurt, the firm predicted a potentially bigger effect at KFC and other fast-food chains with higher numbers of inner-city patrons. Similarly, profits could be squeezed at lenders such as Providian Financial Corp. that extend credit to low-income borrowers.

Manufacturers of many brands of automobiles and everything that goes into them are expected to suffer as car purchases and vacation travel are put on hold.

As with any spin of the economy's big wheel, however, there are always some who profit from others' losses. In this case, it's makers of fuel-efficient cars.

Jerry Daniels, general manager of Coggin Honda in Jacksonville, Fla., said he expects to sell between 300 and 350 new Hondas in March, compared with about 185 in a normal month. That would be the best sales month in the dealership's 20-year history.

There is even a waiting list for the Honda Insight, a gas-electric hybrid that gets 48 miles per gallon. "We've had considerably more trade-ins of V-8s in the last couple of weeks than we're used to getting," Daniels said.

Why? "Because of the gas prices, absolutely."

For Daylight Transport in Long Beach, the problem is the price of diesel, which in the last month topped $1.70 a gallon. Scott Riddle, vice president of sales and marketing, said Daylight charges customers a fuel surcharge of 6% -- up from the 1% surcharge of last year.

Fuel for the hundreds of trucks and trailers that haul freight around the country is a "huge expense," Riddle said. "Fortunately for us, we have a component to recover some of the costs. We're passing along the increase in costs to our customers to help bear some of the burden."

One customer, Peter Pepper Products Inc., a Compton-based office supplies maker, does the same: It passes the surcharge right along. But Bob Caseres, vice president of manufacturing, said clients understand.

"Everyone is accepting it as a course of business," he said. "Since we don't have a way around it, we just deal with it."

Times staff writers Elizabeth Levin and Hanah Cho contributed to this report.

IRAQ: Business Online Special March 25, 2003

Graham Searjeant, Finance Editor of The Times, explains the strange peaks and troughs in the cost of petrol during the war on Iraq.

Q. We are at war with a major oil producing nation in Iraq, yet the price of a litre of petrol has been cut on some foreecourts this week. How can that happen?

A. The price of crude oil went up by 50 per cent between early November and early March, taking North Sea Brent crude nearly one-quarter over the top of the $22-$28 per barrel range that Opec, the producers’ cartel, has been trying to maintain.

That was partly because of real demand and supply factors. Petrol refiners and armies were stocking up in advance in case of a war shortage or disruption to supplies. There was also a prolonged strike in Venezuela, which normally supplies three million barrels per day, more than Iraq, and is a key supplier to the United States.

At the same time, short-term traders, speculators and trend-following hedge funds joined in on financial markets such as London's International Petroleum Exchange and the New York Mercantile Exchange, using contracts for future delivery. They reckoned that buying and driving up the price was a safe, one-way bet.

But trends never last for ever and trend-following speculators are always looking for the moment when the momentum is spent to take their profits and perhaps move the other way. Since uncertainty was blamed for the turmoil on markets, the obvious trigger was the breakdown of any talks that might have delayed or even avoided war. This finally came two weeks ago. Brent crude then fell by one-quarter to less than $25 per barrel, until that trend went too far. The weekend revelation that the war was not a pushover in turn provided the opportunity for prices to turn up again, so far to $26.50 per barrel.

The sense in the oil price movements is therefore speculative rather than real.

Petrol prices should react to changes in crude oil prices several weeks earlier, since the crude has to be shipped to refineries, turned into petrol and then distributed to forecourts. But retailers often jump the gun, reckoning that rising oil prices make customers more likely to accept a price rise and, as now, that they might as well cut prices a bit early and win some business off competitors.

In this case, competition has brought quick benefits for motorists, but they might not last long if the war drags on.

Q. How does the price of oil affect world stock markets?

A. In such a volatile atmosphere as we have now, all markets can move instantly on the same news. On Monday morning, for instance, after hope was lost that force would dislodge the Iraqi regime in a few days, the oil price went up, the dollar fell, shares dropped sharply and Government bonds rallied simultaneously.

The logic, strictly limited, was that economic recovery might be put off, only in part because of oil prices. For the previous eight trading days, it had been the other way round, with oil prices tumbling, bonds edging down, the dollar recovering and shares staging their most rapid advance since early in the Second World War

Over the longer term too, there are clear links between oil prices and share prices. Big movements in oil prices have often been associated with turning points in stock markets, albeit in the opposite direction.

Oil is the most important single commodity in the world economy. It affects business costs across the globe and also affects people's spending power through the cost of fuel for cooking, heating and transport.

Historically, the impact has often been exaggerated because oil prices tend to change suddenly and violently. In 1973, for instance, a trebling of oil prices caused a world recession. In that case, however, the economy had been overheating and running into inflation and high interest rates anyway. Much the same was happening when the first Gulf War caused a spike in oil prices above $40 per barrel in 1991.

The collapse in oil prices in 1986 produced an economic boom. In that case, however, share prices started booming only many months later, in line with company profits rather than the oil price itself. In retrospect, historians will surely judge that the oil price was ultimately the trigger of the collapse of the dotcom bubble in 2000. Oil costs had remained remarkably subdued during the boom years of the late 1990s, but doubled during 1999, ensuring an end to easy economic growth. Shares then collapsed.

Q. How is the conduct of the war in Iraq likely to affect the oil price in the short to medium term?

A. On a day-to-day basis, oil will follow the mood of how the war is going. If coalition forces are  progressing fast, it will fall. If they are suffering setbacks, it will rise. If the Iraqi regime fell, there should be a short, sharp drop.

The longer military action lasts, however, the more likely it is that genuine supply shortages will arise.

To make up for Iraqi oil and for the loss of nearly one million barrels per day from the world markets due to tribal conflict in Nigeria, other Middle East producers are pumping at near to full capacity. Any further disruptions could cause a genuine shortage.

If and when the war is over, oil prices will first fall but they may later recover. Some analysts, including Goldman Sachs, the investment bank, claim that there would soon be a tight market if the United States and the rest of the world economy were growing at a reasonable pace and that oil might settle at $28 to $30 per barrel.

Iraq, which has been under-producing for the past 12 years or more, has potential to boost supplies greatly once its industry has modernised and invested. But that could take years.

Q. Are there any other important factors that may help to keep the price of oil down during the war?

A. Venezuelan oil is coming back into the market. The country's oil minister claims it is almost back to normal, though outsiders think it could take a long time to recover the final one-third of  previous output. Strife in the Niger Delta seems to be linked to upcoming federal elections, so it could fade away quickly there, but problems there have proved intractable in the past.

Saudi Arabia and other Gulf producers will produce as much as they can to replace missing supplies. An unusually large amount of oil is on ships plying their way from the Gulf.

When this arrives in the West, it should ease the market for refined products such as petrol at the pump, whatever happens to the price of crude oil on financial markets.  

<a href=www.upi.com>Look at the full article By Sonia Kolesnikov UPI Business Correspondent From the Business & Economics Desk Published 3/25/2003 9:53 AM

SINGAPORE, March 25 (UPI) -- Cars have long stopped being looked at as a pure means of transportation. The right car now makes a statement about achievement and personality.

"It's all about expressing ourselves, our own ideas. In a way, it's very similar to fashion," says Justus Schneider, the director for worldwide marketing communication at Mercedes-Benz.

For this reason, the German luxury car manufacturer, part of the DaimlerChrysler group, is actively courting the fashion world on a global basis, as part of a three-pronged marketing strategy, along with sports and films.

It started with the Mercedes Australian Fashion Week, now in its sixth year, which showcases the latest collections from leading Australian designers and giving the opportunity to young designers to present their creations in a setting akin to their contemporaries in Milan, Paris, London and New York.

It was followed three years ago by a similar Mercedes-Benz Fashion Week in New York, and this year Mercedes-Benz going all out to show itself as the car of reference for the fashion world by sponsoring new fashion festivals in Singapore, Seoul -- from Wednesday until April 2 -- and Los Angeles, from Monday through April 4.

More is to come, Schneider told United Press International in an interview, as the company will soon announce a "team-up" with a European designer. Schneider wouldn't reveal this name, only saying "It's going to be very exciting, but it will be announced in May and it's not yet appropriate to give any details."

Schneider was in Singapore at the start of the Singapore Fashion Festival 2003, where the company is for the first time sponsoring the Mercedes-Benz Asia Fashion Week, a platform for rising designer talents in the region.

"We want to establish Mercedes-Benz on a global scale in this vibrant industry that can deliver a lot to our brand. ... We want to be seen at the cutting edge," Schneider explained.

Fashion is part of a three prong marketing strategy for the car manufacturer, along with sports and films.

The company has had its name associated with the German national soccer team for many years, and is also sponsoring the international ATP Tour. The film industry is also an integral part of Mercedes-Benz strategy, though Schneider stressed the company never pays for its product to be placed in, "unlike some of our competitors."

A Mercedes-Benz was recently showcased in "Men in Black II," while competitor BMW "placed" its car in the latest James Bond. "We have an agency in Hollywood that screen scripts for us, and a lot of focus is spend on placement activity," Schneider said.

In the fashion world, the company has embarked on a global initiative, and is planning activities in Mexico, Venezuela, Canada, Hong Kong and Germany. There is a plan for a fashion festival in Hanoi, Vietnam, this year. Mercedes manufactures some of its car there

"Design trends are the same whether in architecture, cars or fashion. The difference is that a building design must survive centuries, while fashion survives a season. Car design has to be sustainable for some time, maybe 20 years, which is why we need to understand what's going on in terms of trends, styles," he said.

Frank Messer, president and chief executive office of DaimlerChrysler South East Asia added, "World class fashion designers push the limits of design in their search for excellence and in the process of setting new trends. In the same way, our Mercedes-Benz designers are challenged to create trendy and timeless designs by combining innovation and style."

<a href=www.oneworld.net>See Source Emad Mekay

WASHINGTON, Mar 24 (IPS) - Joining others that have predicted Latin American economies will fare better in 2003, the Inter-American Development Bank (IDB) said Monday the region will rebound this year after two years of recession and slow growth, but also warned of possible dangers ahead.

"The immediate prospect for the world economy and for our region is one of uncertainties ... exacerbated by the complex situation of the Middle East," Bank President Enrique V. Iglesias said in a statement released simultaneously in Washington and Milan, where the Bank is having its annual meeting of the board of governors.

"Nevertheless, the economies of several countries in the region have begun to improve compared to the beginning of 2002," added Iglesias.

For that improvement to continue and for Latin America to shed its poverty and under-development, the region should adopt more free-market policies, said the Bank, the region's largest public lender, echoing recent reports from the Institute of International Finance (IIF) and the International Monetary Fund (IMF).

In its economic forecast last week, the IIF went so far as to warn governments not to follow the advice of their own people. Recovery could be derailed if governments ''succumb to populist political pressure" and fail to fully implement recommended policies, it added.

The Bank said that if international conflicts do not worsen - in reference to the possibility of a prolonged U.S. war on Iraq - the economy of the region could grow between 1.5 and two percent this year.

If the upward trend continues, growth could reach as high as four percent in 2004, added Iglesias. In 2002, the region's gross national product (GNP) fell 0.5 percent.

The IDB says it approved about 4.6 billion U.S. dollars worth of projects in the region in 2002.

Earlier this month, IMF Director Hoerst Koehler said there were signs of recovery in Latin America but added that recovery would ''need to be nurtured, with the right policies and decisive leadership''.

Last week the IIF, a global association of financial firms and banks, forecast the region's economies are likely to grow modestly next year, buoyed by anticipated improvement in the world economy.

Excluding Venezuela, whose gross domestic product (GDP) would fall by 10 percent, real GDP growth in the region overall will increase 2.4 percent this year and 3.2 percent in 2004, said the IIF, which groups over 310 financial institutions from more than 60 countries.

But the IDB estimates that in order to make inroads on the poverty that affects close to one-half of the population of Latin America and the Caribbean, the region's growth must climb higher and become more consistent - an average of 2.7 percent annually over the next 15 years.

In his statement, Iglesias said some of the past reforms in the region - inspired by the IMF and the World Bank - ''contained weaknesses'', but he was quick to say that they were applied inconsistently, without the necessary legal and regulatory frameworks.

''Corruption and errors in handling privatisation in some cases resulted in a loss of public support that is a prerequisite of a reform's success,'' he said.

One observer said that such remarks give the impression that economic crises are the result of a trend in Latin America to vote for leftist governments, as in Brazil and Venezuela, rather than on policies invented in Washington and other Western capitals.

''It's trying to scapegoat the problems on left-leaning or populist governments or place problems in their hands versus the fact that policies don't work,'' said Vicki Gass of the Washington Office on Latin America. ''Trade is fine but you need it hand in hand with protectionist policies or support for incubator policies.''

The IDB's annual report, also released Monday, warned that Latin America was going through one of ''its most critical periods in several decades beset by serious downtrend indicators''.

The report said that per capita income in the area in now less than it was five years ago while consumption remained stagnant and investment has slid back to its lowest point in the past decade.

Among the factors causing the poor economic performance is the fragile recovery of growth in the United States, the main destination for exports from the region, according to the Bank.

It also said that Argentina, Latin America's second largest economy, has yet to find a way out of its lingering economic crisis, while in Brazil, fears of macroeconomic instability still loomed because of the country's heavy debt burden.

The Bank also said that in several countries, including Venezuela and El Salvador, the economic clouds are compounded by social unrest.

To boost business in the region, the IDB said it would develop new programmes, including: financing exports; providing loans for social emergencies, as in the case of Argentina; and making loans more accessible, with lower interest rates. It will also build trade capacity to prepare the region to join controversial trade agreements.

Even with the changes, the IDB continues to recommend higher doses of its usual recipes for development, including expanding foreign trade, attracting investment, promoting growth of the private sector and increasing business productivity, especially for small and medium-sized enterprises.

That business-as-usual approach has elicited frustration from development and anti-poverty campaigners.

''They are continuing with a one-policy-fits-all sort of policy in the region instead of looking at each country and figuring out what each country needs for development,'' said Gass. ''It's pretty discouraging.'' (END/2003)