By DONALD RATAJCZAK For the Journal-Constitution

As the Federal Reserve is about to begin a two-day meeting on the economy that probably will culminate Wednesday with yet another reduction in their targeted overnight bank rates, I thought I would provide a brief summary of what I would be saying if I were there.

First, there already is a lot of economic stimulus being pumped into the economy. Previous tax cuts have not yet used up all their stimulus medicine. The latest tax reduction removes some timing problems that prevailed when child tax credits, marriage penalties and reduced marginal tax rates were scheduled for future reductions. Making them effective this year and changing the July withholding tables will provide significant stimulus.

Second, the dollar's weakness has removed some impediments to export growth. At present currency rates, American producers have a fair chance to gain sales abroad. Yet productive international producers still have incentives to increase their international sales. Relative to domestic costs, currencies outside China probably are the nearest to desired levels in several years.

Third, despite the dollar's more appropriate valuation, not enough stimulus and economic reform are occurring in many world markets. The recent shift toward expansive monetary policies in Europe is only a first step toward needed stimulus in that part of the world.

Japan needs more bank reform, possibly allowing international mergers of its major banks to inject much-needed lending capacity into its economy. Pension reforms and the removal of inflation-indexed devices that no longer are needed must be accelerated in some of the Latin American economies.

In short, the global recovery is not yet assured.

Fourth, near-term energy uncertainties still could derail expansion. Iraqi oil has been slower to reach world markets than anyone expected. Fortunately, a cool spring has allowed North America to partially rebuild inventories, but Europe has not been so fortunate. The longer-term outlook remains favorable for energy, but weather-induced price spikes are possible through next year.

Fifth, despite assertions that short-term rates could fall to zero, such a low rate would create serious problems for liquid assets, such as interest-bearing checking accounts, short-term certificates of deposit and money market rates. The ability to market and administer such instruments might require fees, with unintended consequences on liquidity holdings.

A quarter-point reduction in overnight rates would not create problems. Indeed, such a reduction is so widely anticipated that failure to make such a move would unsettle financial markets. A half-point reduction may be absorbed without problems, but anything larger would create distortions. Therefore, the effective remaining ammunition in rate reductions is half a point.

To use up all this ammunition before the global and energy uncertainties are resolved would leave the Fed with few traditional methods to deal with further weakness.

Is the danger so great that all that available ammunition should be used at this time? I think not.

While manufacturing clearly is suffering from continued declines in unit costs from abroad, especially China, economywide deflation has not occurred. In the past year, consumer prices have increased 2.1 percent. Excluding the direct impact of food and energy, the increase has been 1.6 percent.

To be sure, consumer prices are unchanged in the past three months, but that is because of falling energy prices. A concurrent dip to 1 percent in the core inflation rate also should be viewed without serious concern. Falling energy prices indirectly affect transportation service, lodging service and rental costs. In these areas, energy is not effectively removed from the core inflation rate. Thus, falling energy prices push down the core while rising energy prices hold it up.

If these indirect effects of energy are removed, the core inflation rate has been relatively stable at slightly more than 1.25 percent in the past year. This is desirable price stability, not undesirable deflation.

Thus, hold that extra quarter percent in case global and energy uncertainties turn into more serious issues. Believe in economic theory.

The previous monetary expansion, current tax cuts and a more appropriately aligned dollar should begin to stimulate this economy. Uncertainty is the reason it has not done so thus far.

As those uncertainties diminish, and they are doing just that, the strength of the stimulus medicine will begin to take over.

Nothing is certain. A new terrorist attack would be damaging. Further oil disruptions in Nigeria, Venezuela, Iraq or elsewhere could be disruptive. So, to the Fed: Keep some ammunition and only cut by the quarter-point that already has been virtually promised to the marketplace.

Donald Ratajczak is a regents professor of economics emeritus at Georgia State University.

Fri June 20, 2003 05:29 PM ET (updates with joint statement) By Randall Mikkelsen

WASHINGTON, June 20 (<a href=reuters.com>Reuters) - U.S. President George W. Bush, who comes from the business world, and Brazilian President Luiz Inacio Lula da Silva, his country's first working-class president, agreed on Friday to seek closer ties despite differences over Iraq.

The commitment came in a joint statement issued after Bush and Lula held their first face-to-face talks since the Brazilian was sworn in as president on Jan. 1. The statement made no mention of the U.S.-led war on Iraq, which Lula strongly opposed.

"The United States and Brazil resolve to create a closer and qualitatively stronger relationship," it said.

The two men agreed their governments will have regular and high-level consultations on issues ranging from counter-terrorism to African poverty relief -- a pet issue for both.

The warming ties between the seemingly political odd couple has come as a surprise, and reflects U.S. hopes Brazil can be a stabilizing influence in Latin America at a time when the region's democracy movement has come under strain.

The countries announced joint initiatives including U.S. support for Lula's anti-hunger program in Brazil, cooperation on energy and fighting AIDS in Africa.

"Without any question, I believe that we can surprise the world in terms of the relationship between Brazil and the United States," Lula told reporters in the Oval Office with Bush at his side.

Lula brought 10 ministers with him. For the United States, Agriculture Secretary Ann Veneman, Special Trade Representative Robert Zoellick, and Energy Secretary Spencer Abraham were among those expected to take part an expanded meeting following the Bush-Lula meeting.

Brazil and the United States have clashed over trade in the past, particularly subsidies and tariff barriers slapped on key Brazilian exports like orange juice, textiles and steel.

The two countries also co-chair the Free Trade Area of the Americas talks to create a hemisphere-wide free trade zone by January 2005. The FTAA is central to Bush's policy of promoting trade and democracy in Latin America, and the joint statement reaffirmed the leader's aim to conclude negotiations on time.

Most of the region suffered a recession in 2002, with Venezuela and Argentin

Friday, June 20, 2003
(06-20) 14:59 PDT MEXICO CITY (<a href=www.sfgate.com>AP) --

Mexican stocks closed flat to lower Friday, pressured my modest losses in the liquid shares of wireless phone carrier America Movil.

The market's key IPC index closed down 3.3 points, or 0.1 percent, to 7080.69 points, ending the week with a gain of 96 points. At the end of 2002, the IPC stood at 6127.09.

Volume was a light 79 million shares worth 685.2 million pesos, compared with Thursday's also thin 72.3 million shares worth 778.1 million pesos. Volume in the past two sessions has been well below the average turnover of 1.3 billion pesos so far this month. SAO PAULO, Brazil (AP) -- SAO PAULO (Dow Jones)--After being closed for the Corpus Christi holiday Thursday, Brazil's stock market saw a sell-off Friday as the local investors reacted to declines on overseas exchanges the previous day and talk that the country's development bank, the BNDES, could sell shares of local companies from its portfolio.

The main Ibovespa index ended Friday's session at 13,130, down 2.8 percent from Wednesday's close at 13,510 points. Trading volume was moderate with 587 million reals exchanging hands.

Investors reacted negatively to Thursday's declines on the New York indices, selling off shares early and continuing the trend throughout the day.

The market was also spooked by a looming congressional inquiry into allegedly irregular overseas remittances of US$30 billion. Investors fear the inquiry could hamper efforts at reforming the nation's money-bleeding social security program and unwieldy tax system. Some analysts believe the current profile of Brazil's pension and tax regimes contribute to the nation's risk profile.

Share prices also moved on word that the national development bank, or BNDES, may sell shares from its portfolio to boost its financial position in the wake of defaulted loan payments by U.S. power group AES Corp. BUENOS AIRES, Argentina (AP) -- Argentina's large-cap Merval Index broke through the 800-mark for the first time in five years Friday, as investors took heart from International Monetary Fund approval of the second review of January's debt rollover accord.

At the close of Friday's session, the Merval had picked up 18.26 points, or 2.3 percent, to close at 801.17 points. The broader General Index registered more tempered gains and was up 600.38 points, or 1.76 percent, at 34,556.80 points.

Trading volume reached a strong 111.4 million, as heavy buying pushed the Merval up by more than 3 percent at several points during the day.

Analysts said the latest day of rises was the result of a combination of general optimism about the economy and IMF approval of the second review. That approval opens the way for negotiations on a new, long-term debt rollover accord, the IMF has previously indicated.

"With this news, there is just a general feeling that the business climate of the country is improving," said Rafael Ber, senior analyst at Argentine Research.

The market was also lifted by the announcement from the government statistics agency late Thursday that the economy grew 5.4 percent in the first quarter from a year earlier - the first interannual rise since 1998. SANTIAGO, Chile (AP) -- Chilean shares on the Santiago Stock Exchange fell Friday for the third session in a row, with heavyweights Entel and D&S declining, on the background of a sharp retreat in Brazilian shares.

Chile's blue-chip Ipsa index slipped 0.7 percent to 1244.85 points from 1253.56 Thursday, as did the Inter-10 index of more liquid, internationally traded Chilean shares, which ended at 121.51 from 122.31.

Volume bounced back to 13.22 billion pesos from 8.89 billion.

Brazilian shares fell far faster than their Chilean peers. Brazil is often considered a barometer for sentiment toward South America.

However, the declines in Chile continued to be gradual, considering the market's near-30 percent surge this year. CARACAS, Venezuela (AP) -- Venezuelan shares ended slightly lower Friday, with the IBC General Stock Index losing 0.1 percent to close at 13,681 points.

The exchange's biggest stock, CA Nacional Telefonos de Venezuela, which accounts for 40 percent of the IBC, ended 25 bolivars lower at 4750 bolivars.

CANTV has found buyers after a decision by the company's transfer agent to resume converting local shares to American Depositary Receipts.

The process was suspended in February when the government imposed currency controls to protect reserves severely affected by a two-month general strike that began Dec. 2, 2002.

The transfer agent resumed the conversions after it received clarification the process wasn't against the new rules, officials said.

Some investors are converting CANTV shares to ADRs, and selling them in the U.S. as an alternative to buying the greenback on the black market, traders said.

<a href=www.vheadline.com>venezuela's Electronic News Posted: Friday, June 20, 2003 By: Vitali Meschoulam

Date: Fri, 20 Jun 2003 17:10:26 -0400 From: Vitali Meschoulam meschoulam@eurasiagroup.net To: Editor@VHeadline.com Subject: clarification

Dear Editor: I appreciate the attention given to me in David Coleman's June 6 article in which I am quoted as saying, "he's basically shut the opposition down by signing an agreement that says let's do what's in the Constitution."

Apparently, (and according to the same article) some in Caracas could not fully understand what I was trying to say.

In order to clarify: What I meant to say is that for the last few years, Chavez has been demanding that the opposition abide by constitutional processes (i.e. revocatory referendum, etc...).

By signing the agreement with the opposition, Chavez exposed the shortcomings in their heretofore failed strategies to oust him by other means.

In my view, this was yet another Chavez victory ... even though it also clearly opens up the possibility of holding a referendum sometime in the future.

I hope this helps, Regards, Vitali Meschoulam meschoulam@eurasiagroup.net Senior Analyst, Eurasia Group

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, June 20, 2003 By: David Coleman

In the latest issue of his Gold Stealth Bull Market financial newsletter, analyst John Ing says that one of the biggest myths on the North American stock markets is that Toronto headquartered Crystallex International Corporation (KRY) does not own the rights to the gigantic Las Cristinas gold mine in southeastern Venezuela.

Ing writes: "Las Cristinas was awarded to Crystallex on September 17, 2002 ... this exclusive operating agreement was signed with Venezuelan Guayana Corporation (CVG) a multi-billion state-owned company that was given authority to contract with third parties over the Las Cristinas property from the Ministry of Energy and Mines, as the executing authority under the Mining Law."

"Following the cancellation of the Placer Dome contract due to a notice of default (no gold was produced) the property was repossessed on behalf of the Republic of Venezuela under Venezuelan mining law. The contract was cancelled in early November 2001 and the assets were repossessed November 16, 22001. The contract was gazetted and the copper concessions were cancelled on March 6, 2002 ... Crystallex owns the rights: fact."

Ing continues: Crystallex has reported a reserve update at the 100% owned Las Cristinas gold project in Southeastern Venezuela where an independent study by Reno-based Mine Development Associates shows the deposit holds proven and probable reserves of 9.5 million ounces, grading 1.33 grams per tonnes.

Crystallex has hired SNC Lavalin, to complete a feasibility study of Venezuela's largest undeveloped deposit is expected this fall ... current plans call for an initial 20,000 tonnes per day operation, capable of producing oxide and sulfide ores with a capital expenditure between $225-$230 million. The first phase should produce 275,000-280,000 ounces of gold.

Deutsche Bank has been selected as project finance advisor and, despite earlier ownership questions, we believe that Las Cristinas does not have any of the political problems or lack of economics of other major projects.

Crystallex will not have to move villages, cemeteries or change their processing facilities to mine Las Cristinas ... the government is Crystallex' partner and with power, water and abundant labor, this is an excellent project.

The Gold Stealth Bull Market financial newsletter concludes: "We continue to recommend purchase since Crystallex has one of the lowest market cap per ounce of production with respect to other major underdeveloped projects. As such the longer the shares drift down here, the more likely the company will become a takeover candidate. Maison has assisted the company in recent financings."