<a href=www.menafn.com>MENAFN Middle East Economic Survey - 19/05/2003

Total OPEC oil production in April was little changed from March, falling 0.4% or 98,000 b/d to 26.902mn b/d from 27mn b/d in March, MEES estimates show (MEES, 21 April). OPEC-10 (OPEC without Iraq) production, however, was up by 3% or 782,000 b/d from 25.97mn b/d to 26.752mn b/d as Iraqi production shut-in during April due to the conflict was mostly replaced by other members of the organization. Aside from Iraq, where production fell to an average of just 150,000 b/d in the month, production from Iran and Indonesia was slightly lower in April while all other member countries, with the exception of UAE whose output was flat month on month, increased output.

The data showed that lost Iraqi production was replaced by increased flows of 450,000 b/d from Venezuela, where production levels continue to increase after the strike, with Saudi Arabia, Kuwait and Libya also each lifting output by 100,000 b/d in the month. Venezuela production includes some 380,000 b/d of syncrude. Nigerian output rose 50,000 b/d from March's low as shut-in production capacity was brought back on-stream after civil disturbances in the country eased. Algeria also lifted output by 50,000 b/d, reflecting the gradual increase in upstream and midstream capacity as the Ourhoud development production is ramped up and work on export pipeline expansion nears completion. MEES sources indicate that Iran's output comprised 2.242mn b/d of exports and deliveries of 1.45mn b/d to domestic refineries.

At OPEC's Consultative Meeting on 24 April, the organization agreed to cut production by 2mn b/d effective 1 June, set new quotas for members and thereby raise the ceiling from 24.5mn b/d for the OPEC-10 to 25.4mn b/d (MEES, 28 April). The move was aimed at consolidating prices within the organization's preferred $22-28/B price band and laying the groundwork for a possible return of Iraqi production in the coming weeks.

OPEC Crude Oil Production 2H 2002-April 2003 (MEES Estimates - '000 B/D) Quota 2003 2002 1 Feb Average Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul 2003 2002 Algeria 1,200 1,150 1,150 1,050 1,050 900 1,000 900 870 860 782 883 Indonesia 1,050 1,090 1,050 1,110 1,100 1,120 1,100 1,100 1,120 1,120 1,270 1,117 Iran 3,692 3,730 3,950 3,713 3,750 3,740 3,500 3,700 3,350 3,560 3,597 3,470 Iraq 150 1,030 2,430 2,550 2,270 2,370 2,420 1,820 1,500 1,830 2,014 Kuwait* 2,400 2,300 2,100 1,900 1,820 1,800 1,800 1,920 1,910 1,910 1,966 1,853 Libya 1,500 1,400 1,400 1,350 1,330 1,340 1,330 1,330 1,320 1,320 1,312 1,317 Nigeria 1,850 1,800 2,150 2,150 2,100 2,000 1,980 2,000 1,950 1,900 2,018 1,978 Qatar 760 750 750 720 700 680 670 660 650 630 635 640 S Arabia* 9,500 9,400 9,200 8,400 8,000 7,800 7,850 7,700 7,600 7,550 7,963 7,551 UAE 2,250 2,250 2,200 2,100 2,000 1,970 2,000 1,960 1,990 1,970 2,138 1,952 Venezuela 2,550 2,100 1,500 620 1,000 2,970 3,200 3,100 3,000 2,700 2,819 2,635 Total 26,902 27,000 27,880 25,663 25,120 26,690 26,850 26,190 25,260 25,350 25,409 OPEC 10** 26,752 25,970 25,450 23,113 22,850 24,320 24,430 24,370 23,760 23,520 24,500 23,394

• Includes 50% share of Neutral Zone output, which averaged 600,000 b/d in April, steady with 1Q. Neutral Zone output averaged 597,500 b/d in 2002. ** Excludes Iraq.

Demand Recovery Imminent, Says Hetco Markets always appear weakest when they are about to turn, and the market's turning point should be about now, according to Edward Morse of Hess Energy Trading Company (Hetco). In the report May: It's Another Turning Point, published on 12 May, he says: "From now on, global product demand will be on a relentless seasonal increase that should continue through August. On average, OECD product demand grows by 1.7mn b/d between May and mid-summer, with the rest of the world kicking in another 500,000-600,000 b/d. Similarly, OECD refinery demand for crude also increases seasonally from May to August by an average of 1.7mn b/d, with the rest of the world adding another significant increment as well." Seasonal demand projections are central to the report's optimistic viewpoint: "2Q demand is invariably lower than 3Q demand, given the impact of summer driving in the northern hemisphere and of increased demand for oil in power generation to fuel air conditioning. On average 3Q demand rises by 1mn b/d over 2Q demand in the OECD. More striking, however, is the rise in demand between the low point in May and its peak in July/August. Since 1990, the average increase between May and mid-summer has been 1.735mn b/d in the OECD. There have been two years when the increase was significantly lower (1991 and 1995). But there have also been years when the increase has been significantly higher. In most of the 13 years between 1990 and 2002, the increase in OECD demand between May and mid-summer has hovered around or exceeded 2mn b/d. Our own projections foresee a demand increase in the OECD of 1.9mn b/d between May and mid-summer, about at the median of demand increases over the past 13 years." The report says that there are currently plenty of bears among market analysts, who point to 2Q as the low demand season, supported by indications that global demand was 1.8-2.0mn b/d lower in April than March, and that May is expected to be even lower: "Added to this sentiment are concerns about the impact of SARS on the Asian demand growth engine and generalized weakness in the global economy. They also point to OPEC's continuing overproduction along with expectations that Iraq could be back in the market quickly and robustly. But OPEC watchers should know better than to read ministers lips, in a world in which actions speak louder than words. OPEC appears to be taking an appropriate amount of oil out of flows in May and June. Iraq aside, the OPEC 10 appear ready to produce about 26.3mn b/d in May, or 440,000 b/d under April levels. They also appear ready to reduce flows by another 300,000 b/d in June, reining in output to about 26.0mn b/d, a mere 600,000 b/d above the quotas set for June (25.4mn b/d)." Mr Morse expects a "reasonable" build in stocks during 2Q, in the region of 1.6mn b/d: "That's just under the historical average for 2Q and will at best barely replenish global stocks toward the normal range by the beginning of 3Q." The real question mark over the market is not OPEC, the report says, but Asia: "It relates to Asian demand, real and apparent, and whether it will decline because of SARS and a cautionary, huge stock build in Asia over the past half-year." The report adds: "On the supply side there looms a very large unknown: extra stocks bought and hoarded in Asia from August 2002 through April 2003, to deal with a potential supply disruption from Iraq. Will the estimated 100mn barrels of extra stock build come back onto the market? If so, when?" On the demand side the report says that the largest estimates of the impact of SARS saw a demand reduction of 300,000 b/d for two quarters: "That is probably not enough to have a tangible impact on inventory levels, oil trade or prices, because there are two countervailing factors at work. These countervailing pressures include Japan's continuing problems with getting Tepco's nuclear reactors re-started and running. Current estimates focus on 200,000-300,000 b/d of incremental fuel demand for running thermal plants to replace nuclear energy through 3Q. They also include fuel switching in the US, which is resulting in at least 200,000 b/d of oil substitution for natural gas through 3Q as well. This depends on natural gas prices remaining higher than product prices on a BTU-equivalent basis, which now seems highly likely."

<a href=www.newsday.com>NewsDay By Reed Lindsay SPECIAL CORRESPONDENT May 18, 2003

Buenos Aires, Argentina - In the 1990s, no Latin American leader more unreservedly embraced the market-oriented policies promoted by the International Monetary Fund and the U.S. government than former Argentine President Carlos Saul Menem.

So when Menem bowed out Wednesday from his campaign to win a new presidential term, his departure symbolized the end of an era of unrestrained economic liberalization in Argentina. Following the election of left-leaning presidents in Brazil, Ecuador and Venezuela, it also was the latest sign in South America of the political shift against U.S. policies.

Menem's opponent in the election planned for Sunday, Nestor Kirchner, will assume office on May 25. He has vowed to pull Argentina out of one of the worst crises in its history by replacing a "model of economic concentration and financial sectors" with a large-scale public works program, subsidies for small- and medium-sized companies and increased social welfare.

"This new model means taking a stronger position towards the IMF, rejecting the idea that the market will solve everything, and consolidating Mercosur," the South American free- trade bloc, said Torcuato Di Tella, a white-haired left-leaning Buenos Aires intellectual who has spoken in favor of Kirchner's candidacy.

Kirchner has said he will give priority to relations with Brazil and the rest of Latin America, at the expense of the intimate ties Menem had knit with the United States.

Kirchner has voiced opposition to the U.S.-led invasion of Iraq, which was hugely unpopular here, while praising outgoing President Eduardo Duhalde's decision to abstain on a U.S.-backed resolution in the United Nations to condemn Cuba for human rights violations.

"I haven't come this far to make pacts with the past, or for this to all end in an agreement among the elite," said Kirchner, 53, at a news conference on Wednesday. "I'm not going to fall prey to the corporations."

Governor for 11 years of the vast, sparsely populated Patagonian province of Santa Cruz, Kirchner has won praise for running an efficient administration that has stayed debt-free and has boasted relatively low poverty rates despite more than four years of recession in Argentina.

Critics say that's the least that might have been expected from an oil-rich province where the government is the main employer. Kirchner's opponents in Santa Cruz say he held power through authoritarian methods and a system of political patronage.

What is certain is that the president-elect, who has not held federal office, will face challenges far more daunting than he did as governor. These include a monstrous $130-billion debt, an entrenched political elite riven by factions, unprecedented levels of unemployment and poverty and a crisis-weary nation that has come to view its leaders, and even its institutions, with scorn.

Worse, Menem's withdrawal prevented Kirchner from solidifying his mandate with an electoral majority. Kirchner was set to trounce Menem in a runoff Sunday, but won only 22 percent of last month's first-round vote - a record low for an elected Argentine president.

"Kirchner has a strong discourse, but in Argentina people are used to leaders who say one thing and do something entirely different," said Graciela Ocaña, a legislator with the center-left ARI party. "He's got an enormous opportunity to make up for his lack of legitimacy by pushing through some of the popular measures he's promised."

This opportunity will be limited, however, by a lack of money. While the economy has showed signs of rebounding in recent months, the Duhalde administration will leave some potentially explosive financial problems.

Most grievous is the ever-rising external debt. To avoid default, Argentina will need a new deal with the IMF after a temporary agreement ends in August. "The IMF is going to demand a high budget surplus and a tough monetary policy to keep inflation low, but this could contradict with the government's plans for spending and growth," said Alejandro Vanoli, an economist at the University of Buenos Aires.

Like Brazil's new president, Luis Inacio Lula da Silva, Kirchner has tempered nationalist rhetoric with assurances of fiscal responsibility to international investors and creditors. He has vowed not to renationalize the formerly state-owned companies privatized during the 1990s and has announced that Economy Minister Roberto Lavagna, who negotiated the last agreement with the IMF, will stay on.

"Kirchner's not a leftist," said Buenos Aires-based analyst Analia Del Franco. "He isn't bringing a revolution. This is going to be a government of transition, which will be more nationalist than anything."

According to Del Franco, Kirchner must win a consensus from a wide range of antagonistic sectors, both within and outside his long-dominant and much-discredited Peronist Party.

Menem's supporters hold a significant minority in congress and in the provincial governments, and new anti-Peronist political leaders from both the left and right are gaining force after surprisingly strong showings in the first-round vote.

Kirchner must consolidate support from the main Peronist faction, led by Duhalde, his most influential ally in the election. Analysts warn that Kirchner's need for alliances with Duhalde and other party bosses who backed his candidacy may compromise his vow to reform politics and fight corruption. For now, this seems a minor concern for Argentines who, like Ernesto Argento, yearn for normalcy. "We just want this mess to end," said Argento, 69, who runs a shoe-shine shop. "We want a president who will last four years."

<a href=www.falkland-malvinas.com>MercoPress, Elected Argentine president Nestor Kirchner, who takes office next May 25, anticipated he will struggle to recover the government’s action capacity and “Argentines can count that I’m not going to be an employee of financial interests”.

Resting for the weekend in the Patagonian province of Santa Cruz which he has ruled for the last twelve years, Mr. Kirchner made it a point to underline that he wasn’t going to become a manager for the corporations, but rather a president who will look after the interests of all Argentines.

“We’re the representatives of a new way of making politics that is emerging”, said Mr. Kirchner adding that “our government will be present to thrust open and ensure access to education and health to all Argentines, to guarantee as much as possible jobs and social inclusion”.

When asked about his plans to end poverty and improve distribution, the elected president said that his governments main targets will be to put an end to poverty and social injustice, and to reduce the gap between the rich and the needy.

“We’re going to launch a production and job-creating model including a public works program, following Keynes but without fiscal deficit, and a tax reform plus a head on fight against tax evasion and elusion; those who don’t pay their taxes will be jailed, take my word”.

When asked more specifically about his plans, Mr. Kirchner anticipated a program to build three million homes; a stable exchange rate that helps promote export industries and “a reasonable estimate is 3 Argentine pesos to the US dollar” (the current exchange is 2,80 to the greenback); and strong discussions with the International Monetary Fund.

“We need time to recover our economy, we need several years to improve our payment possibilities with a growing economy and social inclusion”, said Mr. Kirchner. Argentina has a provisional (postponing payments) agreement with the IMF that ends next August, and in September is scheduled to repay over 3 billion US dollars.

Further on Mr. Kirchner admitted that the support of caretaker president Eduardo Duhalde was critical to win the presidential election.

“Without the support of the “duhaldismo”, the maximum I could have reached on April 27 was 12 to 14% of the vote. However this Sunday if Mr. Menem had competed I would have won with 70 to 75% of the vote”.

In his statements to the press Mr. Kirchner has also made it clear he will be taking office not as president of a political party structure (in direct reference to Mr. Duhalde’s stronghold in the province of Buenos Aires, the country’s main electoral circumscription), but as president of all Argentines.

As to the political support in Congress, Mr. Kirchner said he appeals to all sectors, because “this is a unique opportunity to turn the page and build a new country. I’m sure after all that Argentina and its people have gone through, that we’re all determined to build a new country”.

Regarding foreign corporations and privatizations, Mr. Kirchner was positive, “if they begin working for the reconstruction of Argentina, great; if they are only interested in financial and individual speculation, evidently they don’t know what kind of Argentina is emerging”.

Finally Mr. Kirchner stated that most Patagonians feel “very distant” from the rest of Argentina, but “when you look at Patagonia it’s like looking at Argentina: it’s all there, but everything is to be done”.

The elected president is scheduled to return to Buenos Aires on Tuesday when he will announce the names of his cabinet and prepare for the taking office ceremony next Sunday that will have several Latinamerican political stars as first line guests, Hugo Chavez from Venezuela; Fidel Castro from Cuba; Lula da Silva from Brazil; Ricardo Lagos from Chile; Lucio Gutiérrez from Ecuador; Alejandro Toledo from Peru.

Roberto Lavagna the current Minister of Economy is the only confirmed name of the future cabinet. He’s the architect of Argentina’s current quick recovery who held months long negotiations with the IMF and is considered a crucial man for the transition period.

Mr. Lavagna has been promised Foreign Affairs once the new administration settles down.

Insight On the NewsPosted May 19, 2003 By Kelly Patricia O Meara

The outsourcing of U.S. jobs via companies such as Outsource Partners International to Bombay, India, does little to revive the sputtering U.S. economy.

"Hey, it's good work if you can get it," says New Jersey state Sen. Shirley Turner about the outsourcing of the Garden State's welfare-processing contract. But neither New Jerseyans nor any other Americans are getting the work, so she has introduced legislation that she believes will keep those jobs at home.

Turner, a Democrat, filed her proposal after learning that the New Jersey Department of Human Services had contracted with an Arizona-based company to service paperwork for the state's welfare recipients at the "cost-saving" price of $326,000 a month. The Arizona company had established a call center in Green Bay, Wis., but once the New Jersey contract came through, the call center was relocated to Bombay, India.

"It seems like a race to the bottom," says Turner. "All these jobs are leaving the state and the country, and our unemployment rate continues to climb. We're in a recession and you have to wonder where it ends. The point of the contract was to save money - assuming that these people overseas can do it cheaper and more efficiently. But this is a ruse because we're supposed to help provide jobs to these [unemployed] people here."

The irate Turner continues, "Neither the people in India who have the jobs, nor the people who are unemployed here in the U.S., are giving anything back in the way of taxes or buying and consuming U.S. goods and services, which is what stimulates our economy. By outsourcing these jobs to other countries we're helping the poor remain poor in this country. We have a $5 billion deficit in New Jersey and outsourcing these jobs to foreign countries only adds to the burden that the state must pick up when our citizens need [welfare] services. When people lose their jobs, and their unemployment benefits run out, the state must step in and take up the burden to provide the services. That's not cost savings and it really just snowballs when jobs are taken offshore."

Turner's bill has made it through the New Jersey Senate but has run into stiff opposition in the General Assembly from lobbies representing companies taking advantage of the cheap offshore labor. And no wonder: Outsourcing to countries that exploit cheap labor appears to be the corporate wave of the future. Kishore Mirchandani, president of Outsource Partners International, a U.S.-based company specializing in outsourcing finance and accounting services, tells Insight, "There are a lot of companies in India handling the accounting and finance of major corporations. General Electric, American Express and Citibank all do business in India."

Mirchandani's company, although U.S.-based, handles the tax-return preparation for the business clients of the accounting firm Ernst & Young at Outsource Partners' facilities in India. "We get business from CPA [certified public accountant] firms in the U.S.," explains Mirchandani, "who then contract with us to get the processing of returns in India. We have about 700 people working for us between India and the United States. A lot of people have raised concerns about the privacy of information, but we have taken steps to ensure that all information is secure."

According to Mirchandani, "the cost savings are tremendous." He says, "The cost to process these returns is anywhere between $100 to $200, whereas in the U.S. the processing would cost $400 to $600. If they outsource it to us the CPA firm saves $300. We hire accountants at about 25 percent of what it costs here in the U.S. A lot of major corporations have already done the outsourcing on their own and our company is an alternative to the companies who don't want to handle the outsourcing directly. General Electric has 12,000 people in its office in India to do its processing of financial information, and these are mostly Indians working there."

To get a better idea of just how many corporations are exporting jobs to take advantage of cheap labor overseas, this magazine followed up on those Mirchandani leads. General Electric did not return Insight's calls. Ken Kerrigan, a spokesman for Ernst & Young, confirmed that his company outsources tax-return processing to India. "Ernst & Young," explained Kerrigan, has "an office in India and we send [tax] information through our networks so there is no physical paper that goes there. The people who work in our offices in India are locals but are trained by Americans who know tax law."

According to Kerrigan, just "2 percent of all U.S. tax returns done by Ernst & Young are processed in India. It's a tiny percentage that allows us to work faster and better. The labor is cheaper, but that's not an issue for anybody. For us it's more of a time factor."

Tim Connolly, a spokesman for the accounting firm KPMG, tells Insight that "we are not currently outsourcing returns to India. However, if we did proceed, we would ensure that it was a joint decision and that each client was consulted beforehand. Any firm involved in tax-preparation business is continuously seeking to provide the highest-quality service in the most efficient manner. As technological advances progress, we're considering all options to serving our clients."

Rob Black, a spokesman for the International Brotherhood of Teamsters, sees the current tidal wave of American jobs floating boats to foreign shores much in the same way as state Sen. Turner. "Essentially what you've got," says Black, "is a race to the bottom for the cheapest wages." Black explains: "First we saw corporations in the Northeast move to the Southern states where there were no strong unions. Then, in the 1990s with the unfair trade deals like the North American Free Trade Agreement [NAFTA], we saw corporations move to Mexico. Now these companies have been in Mexico awhile and the workers' standards are rising a little so, sure enough, the jobs are being moved to Guatemala, China and India. So really, these corporations are just chasing the globe for the cheapest labor rates possible."

According to the Teamsters spokesman, "The people with big business that are on the side of unfair trade love to talk about the markets this allegedly will open for U.S. products, but the fact is workers in Bangladesh aren't buying our personal computers and video games. And any cost benefits that are gained by shipping jobs overseas clearly are going to the top executives, not the consumers. It's hard to accept salary reductions and layoffs when the executives of these corporations aren't feeling the same pain. Slash and burn may be the overnight cure for shareholders' woes, but if you invest in workers you will build a stable citizenry that will buy your products."

The U.S. Department of Labor released figures for the last week in April that revealed U.S. employers had cut jobs for the third straight month. Unemployment rose to 6 percent, meaning that 448,000 people filed new claims for unemployment benefits the last week of April, which was only slightly down from the previous week's 461,000 claims. This is not good, even without outsourcing American jobs to India and elsewhere.

But, Insight found, trying to get solid figures about the level of outsourcing is about as difficult as finding Iraq's weapons of mass destruction. Corporations such as American Express, rather than identify the number of jobs that are being handled outside the United States either by Americans or foreigners, tells Insight that "we've built flexibility into our business model to better withstand external fluctuations in the marketplace. This includes outsourcing some work." Such as the IBM deal.

According to Susan Korchak, a spokeswoman for American Express, the "IBM deal" is a $4 billion, seven-year contract awarded to IBM to provide American Express with utilitylike access to its vast computing resources. Whether IBM is outsourcing any of those services to foreign countries is "unknown" to Korchak. However, IBM has acknowledged having such service centers in India, Mexico, Argentina, Brazil, Venezuela, Canada and China.

According to market-research firms Gartner Inc. and Forrester Research, as reported by Ed Frauenheim of CNET News, "More than 300 of the Fortune 500 firms do business with Indian information-technology-services companies." And it is predicted that "by 2004, more than 80 percent of U.S. companies will have considered using offshore IT services." Furthermore, Frauenheim reports that according to Forrester Research, "by 2015, some 3.3 million U.S. jobs and $136 billion in wages will transfer offshore to countries such as India, Russia, China and the Philippines."

These figures represent only outsourced information-technology services such as credit-card and bank financial transactions that are contracted by U.S. companies to be performed for miniscule wages by foreign citizens. The figures do not account for the $500 billion trade deficit the United States now is facing with its trading partners.

Kelly Patricia O'Meara is an investigative reporter for Insight magazine.

Grace Livingstone in Caracas Monday May 19, 2003 The Guardian

A puppet show at the US ambassador's residence in Caracas has strained Venezuela's already tense relationship with Washington.

A comedian brandishing a rubber-lipped effigy of Venezuela's leftwing president, Hugo Chavez, entertained an audience of Venezuelan newspaper proprietors and television moguls at an event hosted by the American ambassador, Charles Shapiro, last week.

Venezuela's vice-president, Jose Vicente Rangel, said the "grotesque" performance contravened the Vienna conventions on diplomatic relations.

He said he did not know whether it was a "calculated provocation" or an example of Mr Shapiro's "personal irresponsibility".

The government is considering what diplomatic action to take, while the Venezuelan parliament has announced it is sending a delegation to make a formal complaint to the US Senate and the Organisation of American States.

The leader of parliament, Francisco Ameliach, described the performance as "a total lack of respect for the Venezuelan Republic".

The US embassy admitted in a statement that the act was "in bad taste, because of its political content. We regret that some people were offended. The embassy does not know in advance nor does it censor what its guests are going to say."

Bilateral relations have been cool since Washington gave official recognition to a short-lived government which replaced Mr Chavez for 48 hours during a bungled coup attempt in April 2002.

Venezuela is the fourth largest supplier of oil to America and the US state department is uneasy about Mr Chavez's nationalist rhetoric and overt friendship with Cuba's Fidel Castro.

A journalist who was a guest at the embassy function, Laura Weffer, said the performance, which featured "fart jokes" and impersonations of Mr Chavez, did not go down well with the Venezuelan audience.