By Gwynne Dyer SPECIAL TO THE JOURNAL Sun, January 5, 2003

The past year has been dominated by a U.S. obsession with Iraq which, remarkably, seized the Bush administration only three months after the terrorist attacks on the United States in September, 2001. In my year-end survey 12 months ago, just after the U.S. occupation of Afghanistan, I simply wrote that Middle Eastern Muslims were waiting to learn "which of their countries the United States would hit next: Iraq, Somalia or Sudan." Washington was clearly looking for a fresh target, but nobody had a clue which way it was going to jump.

Whatever the original motives for the choice of Iraq, the project now has an almost unstoppable momentum within the introverted world of Washington politics, and the Bush administration almost certainly will attack Iraq, probably in the next few months. But the weird thing about 2002 is that the international news has been virtually monopolized by a non-event. There has been no fighting in the Middle East apart from the familiar cycle of violence between Israelis and Palestinians, and no regimes have toppled. Indeed, nothing tangible has yet changed in the region, apart from a gradual increase in the usual pace of U.S. and British bombing in Iraq's "no-fly zones."

Almost unnoticed amidst all the media hype about coming events, there was dramatic progress in closing down the real wars that have been ravaging whole regions and killing huge numbers of people. First came the 27-year-old Angolan civil war, which suddenly ended in April after the rebel leader, Jonas Savimbi, was caught in an ambush and killed. Next, in July, there was a breakthrough in peace negotiations in Africa's oldest war, between the Arabized Muslim northerners and southern, mostly Christian, Africans of Sudan. There is not yet a definitive cease-fire in Sudan, but a war that has killed 2 million people over 33 years finally seems to be subsiding. Then, still in July, a peace agreement in the Democratic Republic of Congo (formerly Zaire) ended what has been called "Africa's First World War.. Most of the six foreign armies have already gone home, and the fighting that caused more than 2 million Congolese deaths in four years has subsided to sporadic outbreaks of banditry.

The miracles then moved east, to the two longest-running wars in Asia. In September, the Liberation Tigers of Tamil Eelam dropped their demand for a separate state for Sri Lanka's Tamil minority, opening the way for negotiations to end the 19-year war that has devastated the island nation. In December, Indonesia signed a peace deal with the separatist rebels of Aceh in northern Sumatra, ending a 26-year war by granting the provincial governments of the region a 70 percent share in Aceh's oil and gas revenues. Also in December, the Tutsi-dominated government of Burundi signed a power-sharing agreement with the largest of the Hutu opposition groups, which gives the Central African country its best chance for peace since 1963.

There was bad news, too: A new civil war broke out in once-stable Ivory Coast in September, and the Maoist insurgency in Nepal, gaining strength by the month, threatens to produce a new Year Zero in that impoverished and misgoverned country. But from 15 wars only five years ago, Africa is now down to only three or four (depending on whether Sudan is really over), and Asia is down to just three (in Nepal, Kashmir and the southern Philippines). Even allowing for one civil war in the Arab world (Algeria) and one in Latin America (Colombia), the world is a more peaceful place this month than it has been at any time since September 1939.

More peaceful, but far from out of the woods. The most terrifying confrontation of the past year was the summer stand-off between India and Pakistan, two newly fledged nuclear powers that have fought each other three times already. If they were to do so again, using their new weapons, the death toll would exceed the total losses in all the other wars of the past 10 years in a matter of days. New Delhi and Islamabad have stepped back from the crisis for the moment, but huge armies still face each other across the border.

There has been one great change in the world this year, however, not in the Middle East at all, but in Latin America. An unsuccessful U.S.-backed attempt in April to overthrow the continent's one existing left-wing leader, President Hugo Chavez of Venezuela, was notable for the speed with which the poorest section of the population came to his defense, despite his failure to improve their economic plight. That was followed by the imposition of a state of emergency in Paraguay and widespread looting and bank closures in Uruguay in July, and an electoral upset in Bolivia in August that gave over a third of the seats to candidates of Indian descent and brought Evo Morales, the leader of the Movement Towards Socialism, to within a hair's breadth of the presidency.

Then in quick succession came the victory of Workers' Party leader Luiz Inacio Lula da Silva in the October presidential elections in Brazil; populist Lucio Gutierrez's capture of the presidency in Ecuador's November elections, less than two year after he was jailed for leading an attempted leftist coup; and a renewed confrontation between Hugo Chavez and Venezuela's right-wing white elite that halted oil exports from one of America's largest suppliers in December. Almost half of Latin America's people now live under left-wing governments. While the Bush administration has been focusing obsessively on the Middle East, it has lost control of its own back yard.

The United States remains the great conundrum of the planet. Americans have been so traumatized by a single terrorist attack on their own soil that they have handed the country over to an administration with a radical right-wing agenda for domestic change and foreign expansion, though fewer than a quarter of them voted for it. The question is whether the American people can recover their balance without having to go through some painful and expensive, though ultimately instructive, experiences in the Middle East. The answer, at the moment, appears to be no, so a great deal of the rest of the world's business is being put on hold.

By Kenneth Rapoza, Globe Correspondent, 1/5/2003

IO DE JANEIRO - Maria do Carmo Brito says she owes her life to leftist militants who kidnapped the German ambassador here in June 1970. They would only release him in exchange for her freedom.

Brito, then a 25-year-old leader of an antigovernment militia, had been caught smuggling a gun to a prisoner and was thrown in jail with 43 others labeled terrorists during the most brutal years of Brazil's 21-year dictatorship. She said she was tortured daily for two months.

''If the ambassador wasn't kidnapped in exchange for our freedom, I would have been killed,'' she said recently. ''These aren't good memories.''

Deported after her release, she returned to Brazil only after the government provided amnesty to former political prisoners in 1979.

Former militants like Brito are having their say in a new series of five best-selling books by newspaper columnist Elio Gaspari. His collection, titled ''Armed Illusions,'' is among a number of recent books that chronicle the dictatorship era.

Gaspari details how the US military was poised to support the coup plotters who toppled leftist president Joao Goulart on March 31, 1964, as well as President Nixon's subsequent financial support of the military regime.

The books are creating a stir, as former guerrillas begin serving in the administration of President Luiz Inacio Lula da Silva, who was sworn in Wednesday. Many are pictured handcuffed in the pages of Gaspari's books.

Jose Genoino, president of da Silva's Workers Party, was arrested in the jungles of northern Para State. Jose Dirceu, da Silva's chief of staff, fled to Cuba and returned to Brazil undercover under the name Carlos Henrique, even going so far as to undergo plastic surgery to disguise himself.

Gaspari's first book in the series, ''A Dictatorship Disgraced,'' describes the days before the coup up until the creation in 1968 of the controversial National Security Council to spy on and eliminate political subversives. Gilberto Gil, a popular musician and newly appointed minister of culture, and Fernando Henrique Cardoso, Brazil's former president, were among those exiled under the law in 1969.

The second, ''The Dictatorship Laid Bare,'' focuses on torture and political repression. More than 1,000 cases of torture were reported in both 1969 and 1970. Young leftist guerrillas began training in Para in reaction to the military crackdown, often engaging in armed conflict with government forces.

Gaspari cites US documents showing top-level US support for the regime and a desire to back those working to overthrow Goulart. But Lincoln Gordon, US ambassador to Brazil from 1961-1966, denies in his own book about Brazil that there was any US assistance in the coup.

Nonetheless, Gordon admits that the United States would have helped the military, if necessary. In ''Brazil's Second Chance,'' recently translated into Portuguese here, Gordon published a copy of a telegram he sent to Washington five days before Goulart was overthrown.

In the message, Gordon recommended that the United States support Humberto de Alencar Castello Branco, a general and coup leader who took power after Goulart, by preparing ''undercover weapons not of North American origin for those who support Castello Branco in Sao Paulo.'' He also called for unmarked US Navy vessels to be on standby in case of armed political and civilian resistance to the coup.

''We became concerned about the possibility of a civil war and made contingency preparations,'' Gordon, a former Harvard University professor said recently in an e-mail from his office at the Brookings Institution in Washington, D.C., where he is a guest scholar. ''No civil war occurred, and the contingency preparations were not used.''

The American publisher of Gordon's book, the Brookings Institution Press, did not include the telegram in the US version. Gordon says Brookings intends to publish the telegram in a second edition of his book this year.

Gordon, a staunchly anticommunist Democrat, said the United States feared that Goulart's advisers would press him to seek closer relations with Moscow or overthrow him. Leftist leaders in the government threatened civil war if the military deposed Goulart, but the warning proved unfounded. Goulart simply stepped down and was exiled to Uruguay.

''It was an easy coup,'' said Kenneth Maxwell, a historian of Brazil and senior fellow at the Council on Foreign Relations. ''But if the US had to intervene, they would have supported the military.

Leo de Almeida Neves, a political insider in the Goulart years, said Goulart worried about his country descending into chaos. ''The coup went smoothly because he wanted to avoid bloodshed and civil war,'' said Neves, author of ''Living Historical Facts,'' an account of the dictatorship years. He said Goulart had military support ready to help him.

''Goulart was informed of the coup the day before it happened by his ex-finance minister,'' Neves said. ''He was a fervent nationalist, but he had nothing to do with communism.''

Military aggression grew under President Emilio Medici, a general who ruled from 1969 to 1974. US diplomats in Brazil became deeply divided over the regime. Some worried that the United States had turned a blind eye to torture. Others were focused on the Cold War and interested in preserving US financial interests in the region.

In 1970, Medici became the first Latin American dictator to meet with President Nixon. His fear of communism led Nixon to develop military relations with Brazil and to financially support Medici.

That same year, the United States trained 562 Brazilian military personnel. Washington sold Brazil $20 million in weapons in 1971, despite US congressional hearings on human rights abuses, Gaspari writes, citing US documents.

Gaspari's next book, to be released later this year, will focus on how the coup plotters ironically helped to dismantle the dictatorship, starting in the late 1970s.

The dictatorship book trend will continue in 2003, with Maria do Carmo Brito's life story to be published in February.

This story ran on page A21 of the Boston Globe on 1/5/2003.

Knight Ridder News

WASHINGTON - Tiny Central America may soon benefit from an outsized eagerness in Washington to energize the march toward a free-trade area stretching from Alaska to Argentina.

This week, the Bush administration will launch formal talks with five Central American nations to strip away trade barriers. The goal: reach a free-trade accord by the end of the year.

The five Central American nations have tiny economies. But taken together, the region's 36 million people buy and sell nearly $20 billion worth of goods and services a year with the United States, even amid grinding poverty in corners of the isthmus.

"We buy half of what China buys from the United States," said El Salvador's economy minister, Miguel Lacayo, during a recent trip to Washington, referring to the region's purchasing power. "We buy more than what Chile, Colombia and Peru combined buy from the States. So we certainly are a significant trading partner."

Trade between Central America and the United States has nearly doubled in the past seven years, and any further increase would bring new jobs to South Florida, a conduit for a significant portion of exports and imports.

Washington's efforts toward hemispheric trade liberalization have stumbled in recent years. Economic collapse in Argentina and a leftward political tilt elsewhere in South America, most notably Brazil, have dimmed prospects further. A skeptic of free trade, Luiz Inacio Lula da Silva, took office Wednesday as leader of Brazil, the regional economic powerhouse.

The Bush administration - seeking to build on the 1994 agreement that united Canada, Mexico and the United States in a powerful North American trade bloc - hopes to invigorate the march toward a Free Trade Area of the Americas (FTAA), and it has had some recent successes.

On Dec. 11, the Bush administration wrapped up a free-trade agreement with Chile, the first with any South American nation. Congress is expected to approve the accord in coming months. Adopting a piecemeal approach, administration officials believe a less ambitious free-trade accord with Central America may give vigor to the FTAA talks.

"The administration is saying, 'Look, the FTAA is a lugubrious process, and we want to show some quick progress with Central America,' " said Jerry Haar, a trade expert at the North-South Center of the University of Miami.

Global terrorism has also stirred the Bush administration to push harder for free-trade agreements, believing they will bring greater prosperity and stability to a troubled region.

Whether a free-trade agreement would be an overall boon to Central America is still under debate. Some experts believe the value of free-trade agreements is oversold.

Huge disparities mark Central America. In prosperous Costa Rica, per capita production of citizens is $3,960 a year, while in neighboring Nicaragua, it is $420 per year, the World Bank says. The other countries in the free-trade talks are Honduras, El Salvador and Guatemala.

Leftist opponents say a Central America trade accord would weaken unions, lower wages, foster sweatshops and generally enrich those who already have money.

Others suggest that it will boost overall economic performance of the region, but that the five nations will benefit to different degrees and income disparities may grow.

"At the end of the day, the rich will get rich faster than the poor," said Gary C. Hufbauer, a senior fellow at the Institute for International Economics, a Washington think tank.

Several of the Central American nations lack mechanisms of modern economies, and cling to rigid labor laws, inefficient judiciaries or state ownership of key areas that may inhibit investment even with a free-trade accord, U.S. experts said. "Costa Rica and El Salvador are very entrepreneurial. They probably have a business community ready to exploit it," said Ricardo Hausmann, an economics professor at Harvard University. Disparities between the five nations should not block an accord, proponents say.

After the trade negotiations kick off on Thursday in Washington, they will resume in the last week of January in San Jose, Costa Rica. Nine meetings have been scheduled for the year.

"They are not incompatible. Costa Rica will move into the higher echelon or higher niches, while Nicaragua will be more linked to the lower end of manufacturing," said Alfredo Milian, executive coordinator of the Central American and Caribbean Textile and Apparel Council.

One of the obstacles to reaching an agreement is "great concern" within the Bush administration over corruption in Guatemala, the most populous nation in Central America.

At a congressional hearing Oct. 10, State Department officials said "high-level officials" in President Alfonso Portillo's government in Guatemala maintain close links with drug trafficking and organized crime syndicates.

Most of 2002 was so bad for stock funds that a strong finish couldn't save the year from being a downer. By KENNETH N. GILPIN The New York Times Sunday, January 5, 2003

The fourth quarter was a good one for stock mutual funds, but the market had declined so sharply in the nine previous months that 2002 ended as the third consecutive miserable year.

"It was nice to see something go up, but compared to where we were three years ago, it was a drop in the bucket," said Russ Kinnel, the director of funds research at Morningstar. "We are still looking at some pretty sizable losses in many areas."

Fueled by the rise in major market averages, which spent the first two months of the quarter rallying from lows set in early October, the average domestic equity fund gained just less than 6 percent in the quarter, according to Morningstar data. But that gain merely pared nine months' worth of sizable losses: For the year, the average domestic equity fund lost more than 20 percent of its value.

Last year was the worst for stock funds since 1974 and contrasted sharply with the 1990s, when the group rose in eight of the 10 years.

The 2002 declines were breathtakingly pervasive across the fund industry. Lipper Inc., which tracks fund performance, said 96 percent of equity funds finished the year in negative territory.

For the year, only three groups of funds had positive returns: gold funds, up more than 60 percent; specialty diversified equity funds, which include funds that short the market, up more than 8 percent; and real estate funds, up a bit more than 3 percent.

"Last year was about as bad as it can get," said Thomas M. McManus, chief investment strategist at Banc of America Securities. "But the good thing about the sharp fall in stocks is that it makes the market more resistant to further declines.

"I suppose you could come up with some scenario in which people would want to sell stocks below their October lows," McManus added. "But we think the market is making a gradual recovery."

Those who did well in 2002 did so by "avoiding mistakes" in the stock market, said Thomas F. Marsico, the president and chief investment officer of Marsico Funds. "If you avoided Tyco, WorldCom and Enron, you outperformed the market," he said.

At the end of 2001, he said, he was wary about what might happen over the next 12 months. "A year ago, our portfolios were pretty defensive," he said. "We are now somewhat more optimistic."

It was a good quarter for natural-resources funds, which rode the sharp rise in the price of oil. The end of Brazil's two-stage election process, and the decisive victory of Luiz Inacio Lula da Silva in the presidential race, was a tonic to Latin American stocks. Emerging-markets funds in general did well, as did most funds that focus on foreign stock markets.

Tom Soviero, who manages the $2.2 billion Fidelity Advisor High Income Advantage fund, said that if one event helped the high-yield market, it was the Fed's rate cut in early November. "That was a statement that liquidity was going to be provided," he said. "Also, the equity market helped quite a bit, led by technology and telecommunications stocks."

Although High Income Advantage was up more than 13 percent for the quarter, it fell by more than 5 percent for all of 2002.

"It's been a tough year," Soviero said. "I'm not bragging. But I hope the recent trend continues."

It seemed to be a good quarter for technology and telecommunications stocks, which bounced sharply off what some analysts said were oversold levels. Still, many said fundamental indicators suggested weak demand for products from personal computers to fiber-optic cable.

Nevertheless, technology funds posted a gain of just under 20 percent in the quarter. And telecommunications funds rose nearly 16 percent, according to Morningstar.

But those gains did little to transform a horrific year for the sector.

In 2002, science and technology funds lost more than 40 percent of their value, according to Lipper. So did telecommunications funds – their worst performance on record. Over the past three years, both groups have lost more than 70 percent of their value.

Steven F. Crowley, co-manager of one of the quarter's best performers, Kopp Emerging Growth fund, has about 90 percent of its assets in health care, medical technology and technology stocks.

"In our opinion, these stocks went down to a valuation extreme," he said. "If the economy doesn't grow next year, you will be hard-pressed to make the case that technology spending is going to grow."

Possible War in Iraq Could Drive Up Oil Prices Unless U.S. Successful in Securing Oil Fields The Associated Press

If the United States invades Iraq, there could be oil shortages and gas lines or an oil glut and falling prices.

Much depends on whether American troops can secure Iraqi oil fields and whether other producers continue the flow of oil uninterrupted.

In the growing drumbeat over war with Iraq, the Bush administration rarely mentions oil, even though Iraq has one-tenth of the world's oil reserves. But a military campaign almost certainly will have a major impact on world markets.

In the event of a war, Secretary of State Colin Powell said recently, "We would want to protect those fields and make sure that they're ... not destroyed or damaged by a failing regime on the way out the door."

The growing prospect of war, combined with the monthlong political strife in Venezuela that is hamstringing that country's oil production, already has caused unease among energy traders.

Last week, prices for crude to be delivered in February jumped to more than $33 a barrel, 65 percent higher than a year ago. The average price of gasoline has risen steadily to more than $1.40 a gallon. On Dec. 26, pump prices in several cities jumped by as much as 20 cents a gallon overnight.

World oil stocks have been tight and fell sharply last week, the Energy Department says.

"The loss of Venezuelan oil is beginning to hurt," says Robert Ebel of the Center for Strategic and International Studies. "What people are beginning to worry about is suppose the loss of Venezuelan oil continues when we intervene in Iraq."

Together, Iraq and Venezuela produce about 5 million barrels a day. Ebel and other energy experts wonder whether increased production from other countries will be able to make up such a shortfall.

With global production at about 76 million barrels daily, a loss of several million barrels could cause prices to soar, economists say.

U.S. officials emphasize that oil markets have changed dramatically since the 1970s, when Mideast supply disruptions led to fuel rationing, high prices and long lines at gas pumps.

Nearly 4 billion barrels of oil are in emergency stocks worldwide, including nearly 600 million barrels in a U.S. reserve. If withdrawn at 2 million barrels a day, the U.S. stocks could counter a disruption of 286 days, the administration told Congress this past summer.

"It's premature to say we're heading for any price spiral up or down," says Yasser Elguindi, an analyst with Medley Global Advisors in New York. "We have to see what kind of conflict emerges."

Among the scenarios outlined by economists:

President Saddam Hussein's government falls quickly, the Iraqi oil fields remain intact and the country's already dwindling oil exports about 2 million barrels a day disappear for a few months. Venezuela's exports resume and other countries, led by Saudi Arabia, boost production to make up any losses.

Prices briefly spike, as they did in the onset of the Gulf war in 1991, to more than $40 a barrel, but within three months recede to normal levels or even lower with supplies plentiful.

An invasion meets stiff resistance, Iraqi oil fields are set aflame, production is disrupted elsewhere in the Persian Gulf, global supplies fall by 6 million barrels a day. Emergency stocks cannot close the gap.

In such a case, oil prices could climb to $80 a barrel and stay above $40 well into 2004, halting the U.S. economic recovery and triggering a global recession, according to Ebel, whose group has mapped out a range of scenarios. There is gas rationing and lines at service stations.

George Perry, a Brookings Institution economist, analyzed a similar "worse case" possibility and forecast a potential loss of 7 million barrels a day, a tripling of crude prices and $3 per gallon gasoline.

From all indications, the administration believes Saddam can be toppled without severe impact to oil flow, and some officials have even suggested clear, long-term economic benefit.

With Saddam gone, "you could add 3 million to 5 million barrels of production to world supplies," Larry Lindsey, then Bush's top economic adviser, said in September, suggesting a successful war "would be good for the economy."

The White House retreated from the comment and Lindsey was later replaced.

Economists agree that a revitalization of Iraq's decimated oil industry in a post-Saddam, more pro-Western atmosphere, could have lasting impact on global markets.

"A quick victory in Iraq followed by relative stability in the region could lead to increases in oil production capacity in Iraq, Iran and other countries, putting downward pressure on oil prices," Yale economist William Nordhaus recently wrote.

Iraqi oil experts maintain production could reach 3 million barrels a day within a year and double that in a decade claims viewed by many as overly optimistic.

"When people talk about Iraq, there are so many unknowns," says John Felmy, chief economist of the American Petroleum Institute. "We haven't been in the country for years."

It is estimated that it would take billions of dollars to get Iraq's oil industry into shape where production could be expanded significantly.