<a href=news.independent.co.uk>/news.independent.co.uk By Jeremy Warner 04 April 2003

Both literally and metaphorically, the world economy is being weighed low by an outbreak of severe acute respiratory syndrome (Sars). Our own small island, where the disease has yet to reach pandemic proportions, first. Manufacturing remains deep in the doldrums, construction is slowing, and now the once buoyant services sector seems to be shrinking too. Don't be fooled by yesterday's Nationwide survey, which showed continued strong growth in house prices, or Bank of England figures showing that equity withdrawal reached near record levels in the final quarter of last year.

The story told by these numbers is a backward looking one which saysvery little about what's happening to demand and confidence right now. The Bank of England tacitly acknowledged that a tipping point had been reached in the economy last February, when it unexpectedly cut interest rates. Things have deteriorated a lot further since, and were it not for rising public sector expenditure, I think we could be pretty sure that the economy as a whole would be in recession. Certainly the private sector is contracting right now.

It's unclear how much of the blame for this can be attributed to Iraq. The continued after effects of 11 September, the end of the investment bubble, and the subsequent 50 per cent collapse in equity values are equally potent factors. To these must now be added a fifth, Sars, which has already prompted a collapse in international air travel and the cancellation of conferences and events across the world. A pandemic was about the last thing the airlines needed on top of everything else, but they've got it.

Throughout large parts of Asia, the effect on economic activity is already devastating. Meanwhile, Europe continues to labour under the sickness of older diseases – a gradual hardening of the arteries for which it seems unprepared to take the cure. The European Central Bank could have cut interest rates yesterday, which may not have done a lot of good, but it couldn't have done much harm either. As usual, the decision was ducked. The best thing to do in current circumstances is to remain calm and confident, said the ECB president, Wim Duisenberg. Strangely, hardly anyone seems to agree with him.

As for the US, the declining dollar tells you all you need to know about what markets think of short to medium-term economic prospects in the land of the free.

That the Chancellor will cut his growth forecasts in next week's Budget is already certain. The question is by how much? Anything less than 1 percentage point for this year and next, reducing the range to 1.5 per cent to 2 per cent for this year and to 2 per cent to 2.5 per cent next, would be regarded as unrealistic. That leaves the Chancellor with a thumping great revenue shortfall to make good, either by taxing us more or by borrowing more from the capital markets.

In my view the economy is already at tax saturation point, in the sense that any further increase in the tax burden is likely to prove counter productive by stifling activity and spending and thereby reducing the overall tax take. Under Government plans, the tax burden is already due to rise from 36 per cent of GDP now to 38.6 per cent by 2007/8. It couldn't sensibly rise further without threatening the tax base as a whole.

We'll learn in less than a week whether the Chancellor shares that view.

In the meantime, there is but one ray of light amid all the gloom. The stock market is beginning to look through the fog of war to sunnier climes beyond. I'm more and more convinced the stock market has seen the bottom, even if the real economy, which tends to trail the markets by a year or more, has not. A serious setback in the war would sink that prediction, which is why caution remains the order of the day, but then only 3.5 per cent of those that develop Sars will die of it. Most of us will survive and, God willing, eventually prosper again.

BT price cuts

First British Telecom cuts the price of telephone calls. Now it's cutting the price of broadband. Well, that's if you count a £2 a month reduction in the wholesale price of ADSL as much of a cut. Rival broadband service providers say it's not worth a fig once you take into account that BT last week doubled the activation charge back to the old rate of £50, and you can see their point.

BT has based its whole growth strategy around the hunt for broadband customers and although it seems to be on target to meet its aim of 1 million ADSL connections by this summer, the marketing drive is plainly not delivering the planned for rise in top line revenue growth. As fast as volumes rise, BT is being forcing to cut prices, both in traditional voice telephony, where it faces increasingly intense competition from the new breed of carrier pre-select operators, and in broadband.

I've long believed that the best way forward for BT is to break itself up further by formally separating the telecom networks, which would sell their services entirely as a wholesale operation to other telcos, from its customer facing retail business.

The retail operation has already moved to exploit its customer base by offering other services and products besides telecommunications, but the fact that it is part of an integrated telco has hampered these efforts and prevented it from acting as aggressively and effectively in alternative utility markets as Centrica and others. Likewise, the wholesale operation is compromised in its broadband offering by the fact that the company's retail arm wants to keep as many new ADSL connections to itself as it can.

Ben Verwaayen, BT's chief executive, has committed himself to continued integration, but he must sometimes wonder whether a better break-up of BT than the one it undertook – the demerger of mmO2 – might have been to keep the mobile and retail interests together but demerge the wholesale operation. It's too late now. Or is it? mmO2, which surely offers better growth prospects than chasing broadband, could be bought for less than £5bn.

Corus bail-out?

How the mighty are fallen. In recent weeks, Sir Brian Moffat, chairman of Corus, the Anglo-Dutch steel maker, has been talking to both Lakshmi Mittal and Benjamin Steinbruch about possible combinations. The former is a less than transparent steel tycoon who nobody outside the industry had ever heard of until he donated money to the Labour Party. The latter is chairman of CSN, the Brazilian company Corus was last year trying to merge with.

The City hated the deal from the moment it was announced, largely because it couldn't stomach the idea of what Luiz Inacio Lula da Silva might do to the Brazilian economy once he became president. As it turns out, Lula seems more cuddly teddy bear than a workers' revolutionary, and if Mr Steinbruch could be prevailed upon to agree the same terms again, the City would bite his hand off to take them. Mr Steinbruch is not so stupid, and today, he would be the dominant partner in any merger, not Corus.

None the less, Sir Brian is right to be talking. The best that any new chief executive of Corus can look forward to is that of managed decline as things stand. If any value at all is to be salvaged from the wreckage of Europe's declining steel industry, Corus must find partners in the developing world, which one day, possibly quite soon will be producing all the world's steel requirements.

The Mittal approach to the remaining British and Dutch steel interests would undoubtedly be a hatchet job, reducing the company to a more specialist core. Sir Brian might reasonably conclude he could do that himself. CSN offers the more appealing route, but it may no longer be a bridge that's open.

jeremy.warner@independent.co.uk

By Carmen Gentile <a href=www.upi.com>UPI Latin America Correspondent From the International Desk Published 4/3/2003 6:07 PM

SAO PAULO, Brazil, April 3 (UPI) -- U.S. and British diplomats in Brazil sought Thursday to justify the war in Iraq and smooth over differences between their nations and their host country, which is an ardent opponent of the U.S.-led attack.

U.S. Ambassador Donna Hrinak and British Ambassador Roger Bone appeared before Brazil's External Relations and National Defense Committee in the capital, Brasilia, to stress how hard both nation's worked with the international community to find a peaceful solution to Iraq's continued defiance of U.N. Security Council measures over the last 12 years.

Quoting in Portuguese to the assembled panel recent remarks made by U.S. Secretary of State Colin Powell, Hrinak reminded Brazilians that the United States and its allies did not ask for a conflict with Iraq and did everything they could to avoid it.

"In other words, force was not our first choice," said Hrinak. "We worked arduously with the international community to approve U.N. Security Council Resolution 1441, which gave to the Iraqi regime a last chance to disarm. ... The Iraqi regime rejected that chance, forcing the coalition to conclude that force was necessary to disarm them."

British Ambassador Bone concurred with his U.S. counterpart saying Iraq's reluctance was "historically one of constant obstruction."

Hrinak also appeared to also strike a conciliatory tone with the committee saying that in conversations with U.S. officials and the media she has attempted to better explain Brazil's opposition to Operation Iraqi Freedom, now in its 14th day.

"During the previous weeks I have been explaining to my bosses, to the Congress and the U.S. media why Brazil, our essential partner in the hemisphere, is not on our side in the conflict in Iraq," Hrinak said.

"I explained the firm belief of this country in working with the scope of multilateral institutions to solve problems," she said, adding that she had also expressed on Brazil's behalf its concerns about the possible economic impact a prolonged war would have on South America's largest nation and economy.

Brazil's President Luiz Inacio Lula da Silva has repeatedly noted publicly his disapproval of the war in Iraq and even attempted to organize an emergency meeting of U.N. nations opposed to war prior to the first strike in the region on March 20.

Since then, Brazil has continued to call for a peaceful resolution to the fighting and recently denied a U.S. request to expel Iraqi diplomats from all nations with an Iraqi mission.

Reuters, 04.03.03, 5:25 PM ET NEW YORK, April 3 (Reuters) - Wall Street was pleasantly surprised by the depth of Brazil's Congressional support for an amendment laying the foundation for central bank autonomy, but credit agencies said they are looking for substantial progress on reforms before reconsidering the country's ratings. On Wednesday evening, Brazil's Congress gave the green light to a bill changing the financial system's legal framework, a necessary step in President Luiz Inacio Lula da Silva's plan to give the central bank more independence. The bill was hailed as a key victory for Lula and his far-reaching reform agenda, which includes social security and tax reforms. With a whopping 442 lawmakers supporting the bill -- only 308 were needed -- the vote signaled that Lula can muster up the support for politically sensitive reforms. For the ratings agencies, it was a step in the right direction but any upward movement on Brazil's rating will hinge on further progress on the reform front. The three major credit agencies rate Brazil deep in speculative territory. "I wouldn't say that this in and of itself has ratings implications," said Morgan Harting, sovereign analyst at Fitch Ratings. "But what we are looking for is for Lula to successfully assemble a workable coalition around reform. Seeing strong support in Congress for this legislation is a positive indication that he's moving in that direction," Harting added. Brazil's financial markets were abuzz with rumors on Thursday that Fitch would revise its outlook for Brazil to positive. The talk helped strengthen the currency, the real, to its strongest point against the dollar since September. Fitch rates Brazil's long-term foreign currency at B, or five notches into speculative territory. In March, Fitch changed its outlook on Brazil's ratings to stable from negative, citing a recovery in its trade performance and signs the new government was committed to policies that may put Brazil's finances on a sustainable path. The ratings agencies added that they are still waiting to see the details of Lula's social security reform, which Lula has said he would send to Congress this month. Since the government took power at the turn of the year, the signals are "broadly in the positive direction in terms of keeping the fiscal accounts on track, raising the primary surplus, monetary policy, and the emphasis on these reforms," said Lisa Schineller, a director in Standard & Poor's sovereign ratings group. "But we would like to see the content of some of the reforms, their own projects, put forward," said Schineller. S&P has Brazil's long-term foreign currency rating at B-plus, four notches into junk territory, with a negative outlook. The credit agencies also noted that Brazil's economy still has its weaknesses. "Brazil remains vulnerable to sudden changes in the direction of capital flows," said Ernesto Martinez-Alas, who analyzes Brazil for Moody's Investors Service. Moody's rates the country B2 with a stable outlook. Wednesday's bill had already been approved in the Senate, or upper house, and now needs a second reading in the lower chamber, something not expected to be difficulty after its strong approval.

Reuters, 04.03.03, 2:17 PM ET SAO PAULO, Brazil, April 3 (Reuters) - Brazil's Central Bank sold another $193 million in dollar-linked debt on Thursday, meaning it has rolled over all of the $921 million in similar securities coming due on April 17. The bank said in a statement it sold debt maturing in July 2005 and January 2008 at interest rates of 10.06 percent and 11.18 percent, respectively. The rates were a bit lower than it paid in recent auctions. Earlier in the day, the bank sold $727 million in similar securities. After struggling to sell debt in the run up to presidential elections last year, Brazil's Central Bank has managed to roll over nearly all of the debt it has had coming due so far in 2003 as investors warm to the new center-left government of President Luiz Inacio Lula da Silva. The successful debt auctions have also helped to prop up Brazil's currency, the real , which has gained nearly 9 percent so far this year despite market jitters sparked by the war in Iraq. On Thursday, the real closed at 3.255 per dollar, its strongest level since early September.

BY MARÍA VICTORIA VALDÉS-RODDA, -Granma International staff writer-

THE majority of Latin American governments have declared their opposition to Anglo-U.S. aggression against the Iraqi people. In the same way, they are fighting for a reactivation of the UN Security Council as the only expedite way to find a solution to any difference with Baghdad, and centrally reclaiming the restoration of international law as opposed to unilateral decisions that could seriously compromise world peace.

In Greece, five European foreign ministers as well as a significant number of their Latin American counterparts (19 in total) agreed on March 28 to continue insisting on a peaceful response to current and future conflicts. A dispatch from AFP adds that there is nothing better to achieve this end than the immediate end of the U.S. so-called "war for democracy"; a war that worldwide consensus deems barbaric.

Chile and Mexico have once again been highlighted as two key voices in the region’s conscience, protected by the moral authority of being non-permanent members of the Security Council, opposed from the outset to the belligerency of Washington and London.

LATIN AMERICAN STRUGGLE IN THE HEART OF THE SECURITY COUNCIL

The Chilean and Mexican representatives, after unsuccessfully attempting to put a brake on the war –deemed imminent since the middle of last month – lamented the war-mongering declarations of the White House.

Supporting this position, President Vicente Fox of Mexico adopted negotiation as the language of understanding as opposed to the use of force. "We are against the war," stressed the Mexican leader, "the use of force should be the last resort."

Prior to the announcement by George W. Bush and his British and Spanish allies that they would attack without UN approval, the Mexican president received the Spanish prime minister in a 24-hour flying visit to Mexico City, where he (unsuccessfully) tried to convince him of the unjust nature of the conflict.

Respected sections of the Mexican press such as Milenio, La Jornada and Siempre reiterated the prevalence of a pacifist position in Mexico’s foreign policy.

Meanwhile, Chilean president Ricardo Lagos wasted neither opportunities nor meetings to endorse the deployment of another group of international weapons inspectors as the best step towards Iraqi disarmament.

On March 12, he stated that despite the inevitability of the war, his country would continue to make every effort to achieve a peaceful solution to the conflict. "If this is not possible", he added, "I trust that the number of innocent civilian deaths is kept to a minimum and I remain adamant in my wish that the UN finds, from now on, a rapid end to the war."

Soledad Alvear, Chile’s foreign minister, spoke to the national press of efforts that had been made to avoid bloodshed. He emphasized the talks between Russian Foreign Minister Igor Ivanov and his Spanish and U.S. counterparts, Ana Palacio and Colin Powell.

FIRM OPPONENTS

"I deeply regret the attack on Iraq, particularly because it has been carried out without the express authorization of the UN Security Council and because multilateralism is the legitimate way to search for a solution to the crisis between the United States and Iraq," stated Brazilian President Lula Da Silva in a recent meeting with his Malaysian counterpart, Mahatir Mohamed.

Likewise from Caracas, Hugo Chávez stressed that joint efforts to solve the problem peacefully should not be abandoned. This was his official position before the attack. Once the U.S. signal to attack the Arab country had been given, the Venezuelan president reiterated his "defense of the multilateral system and the UN Constitution in the face of genocide."

Demonstrations against the arrogance of Washington and its military and political allies have found an echo throughout the hemisphere, most notably in MERCOSUR and the Association of Caribbean States (ACS).

Both organizations reject the attack on Iraq and affirm that commitments made within the international organizations responsible for safeguarding the peace should not be violated by the unilateral opinion of any state. For them only plural and majority will has the right to decide in the name of the international community.

SOME ALLIES AND LATIN AMERICAN RESISTANCE TO THIS POSITION

Despite extensive popular support for peace and a large No! to war, Honduras, Panama, Nicaragua and El Salvador released a joint statement on March 19 backing Bush and British Prime Minister Tony Blair. Likewise, the presidents of Bolivia and Colombia, Gonzálo Sánchez de Lozada and Alvaro Uribe respectively, gave their backing warmongering proposals of those two powers.

Faced with the lamentable opinion of the Colombian president, local daily El Tiempo stated "the law exists as a civilized way to end situations like these and no country or trio of countries can assume the right to play the role of avengers for the world."

Adolfo Pérez Esquivel, 1978 Nobel Peace Prize winner, went further saying, "The war against Iraq has a conductive thread to the Latin American situation. Hegemonic policies like this march over the people and the consequences for Latin America will be seen in re-militarization, Plan Colombia and the Plan Puebla-Panama: the imposition of U.S policy in the region." He urged the people of Latin America to unite in a new way of politics.

Guatemalan amongst the first victims

22-year-old José Gutiérrez, a U.S. immigrant of Guatemalan origin, was one of the first mortal victims in the attack of Iraq by his adopted country.

The Guatemalan consul in Los Angeles, Fernando Castillo, stated that since the conflict began he has received desperate calls from Guatemalan parents in the absence of news from their children.

21-year-old José Angel Garibay, the son of Mexicans resident in California, was also amongst those who died. His mother Simona fiercely criticized the conflict and appealed to Bush, "if you have any feelings for mothers like me, stop this war."

A study by the Pew Hispanic Center revealed that in 2001, 9.49% of the U.S. armed forces were of Latino origin. Alongside this fact came the revelation that in last century’s war on Viet Nam, 20% of the invading soldiers who lost their lives were of Latino origin.