01 Jan 2003 20:33

(Updates throughout)

WASHINGTON, Jan 1 (Reuters) - The first day of the new year saw ongoing preparations for a possible war against Iraq, historic political change in Latin America's biggest country and new airline security measures to guard against terror attacks.

Against the backdrop of continuing economic uncertainty, people worldwide welcomed 2003 at scores of celebrations, where tight security prevented serious incidents.

U.S. air authorities marked the new year by screening all checked luggage for explosives in answer to the Sept. 11, 2001, attacks on the United States. Before the hijacked airliner attacks, just 5 percent of the bags were checked.

In New York, up to 1 million people had a night of celebration under tight security, watching the traditional crystal ball drop in Times Square.

As in other cities across the globe, thousands of extra police were on duty. The Coast Guard closed New York harbor to private boats in response to a threat of attack that never materialized.

In London and Paris, tens of thousands celebrated and extra police patrolled after recent arrests of suspects on terror charges. Cars were banned around Paris' famed Champs Elysees.

Violence and accidents claimed some lives, with a grenade attack killing nine and wounding more than 30 in the Philippines and a fireworks explosion in Mexico killing at least 37 and injuring dozens more in the port city of Veracruz.

PROSPECT OF WAR

The U.S. military proceeded with a buildup in the Gulf, moving into position for a possible war with Iraq with the deployment to commence of a full Army combat division, the first to the region since the 1991 Gulf War.

More than 11,000 desert-trained troops were soon to begin heading to the region, where U.S. President George W. Bush has threatened Iraq with attack if President Saddam Hussein does not disarm.

In Baghdad, U.N. weapons inspectors took no break for the holiday, as they searched for evidence of chemical, biological or nuclear weapons programs.

With tensions worsening between the United States and North Korea as well, Pyongyang issued a New Year's message calling on its people to build "a powerful nation" under its "army-based policy." North Korea has started reactivating a complex capable of producing weapons-grade plutonium and has expelled U.N. inspectors monitoring it.

In Vatican City, Pope John Paul II appealed for peace on all fronts in his first message of 2003.

"In the face of today's conflicts and the menacing tensions of the moment, yet again I invited prayer to pursue pacific means for settlement," he said during his homily to celebrate the Roman Catholic Church's World Day of Peace.

POLITICAL CHANGE

In Brazil, throngs were celebrating the start of a new political era as former metalworker Luiz Inacio Lula da Silva was sworn in as the first working-class, elected leftist president of Latin America's largest country.

In Venezuela, a 31-day general strike that has choked the country's lifeblood oil business dragged on with a large New Year's street party that organizers said was a show of determination to oust populist President Hugo Chavez.

In the United States, Americans began the year facing the prospects of continuing economic uncertainty, with concern about the consequences of potential war with Iraq casting a pall over 2003 prospects much as the aftershock of the Sept. 11, 2001, terror attacks did last year.

Bad weather also delayed Philadelphia's annual "Mummers Parade," with organizers fearful rain and wind would damage the Mummers' famed fancy costumes and fanciful displays.

SUSANNAH A. NESMITH, Associated Press Writer Wednesday, January 1, 2003

(01-01) 11:17 PST (AP) --

CARACAS, Venezuela -- President Hugo Chavez left his strikebound and politically riven country Wednesday to attend the presidential inauguration in Brazil, and again refused to bow to opposition leaders who have crippled Venzuela in a month of massive protests.

"It's not a strike, it is a conspiracy," Chavez said after arriving in Brasilia for Luiz Inacio Lula da Silva's swearing in. "Venezuelan workers are on the side of the government. ...The country hasn't stopped."

It wasn't immediately known when Chavez would return, though he was not expected to stay abroad for more than a day. He and Silva planned to have breakfast together Thursday morning. The strike, which began Dec. 2, has paralyzed Venezuela's all-important oil industry and caused gas lines and food shortages.

Venezuela is the world's fifth-largest oil exporter, and the crisis has helped push international oil prices above $30 per barrel.

Opponents blame Chavez's leftist policies for a severe economic recession and accuse him of trying to accumulate too much power. Chavez says he is ridding the country of a corrupt political system that has disenfranchised the poor.

In his New Year's Eve address, Chavez said the country would face more difficulties in the coming months. On Wednesday, he said he didn't know how long the strike would last but said it was "destined to fail."

"I don't think it's a matter of time," Chavez said. "Whether it's a week, one month, six months, the important thing is that they are destined to fail because we are in the right and have the support of the majority of the country."

Since the strike began, Venezuela has been forced to import gasoline and food. Brazil has shipped 525,000 barrels of gasoline, and Trinidad and Tobago said 300,000 barrels would arrive Wednesday.

Chavez has also fired dozens of striking workers at the state-run oil company, Petroleos de Venezuela S.A. The oil industry produces one-third of the country's gross domestic product and 70 percent of its export revenue.

Thousands of people gathered in downtown Caracas on New Year's Eve at political rallies -- one to demand Chavez's ouster, another to show support for the beleaguered president. On Wednesday morning, the city was quiet as workers swept up the refuse of the previous evening.

Opposition leaders said they had nothing planned for Wednesday, but Chavez's trip to Brazil was daring given the upheaval shaking Venezuela. He already survived one brief coup in April.

Strike leaders said Tuesday that if Chavez does not bow to demands for a nonbinding referendum on his presidency on Feb. 2, they will lead a march on the heavily defended presidential palace.

A similar march in April left 19 dead and prompted the failed coup.

Chavez says Venezuela's constitution only allows a binding referendum in August 2003, or halfway into his six-year term.

Negotiations between the government and the opposition were to resume Thursday.

Also Wednesday, lawyers for dissident National Guard Gen. Carlos Alfonso Martinez complained their client was being kept under house arrest, violating a court order granting him complete freedom.

Ten people were injured when Martinez -- one of dozens of military officers who have occupied a Caracas square for three months in rebellion against Chavez -- was arrested Monday.

22:21 2003-01-01

As President Lula da Silva of Brazil was sworn in today in Brasilia, Brazil breathed a collective sigh of relief that the decades of inept rule which characterised the right and centre-right administrations since democracy was restored 20 years ago, are over. Finally, the Presidential palace has an occupant who has the interests of the people of Brazil as his primary objective.

Lula had worked hard behind the scenes to put together a team of ministers which represented a wide political spectrum, avoiding the temptation to bow to the party machine and place only those involved with his party, the Partido dos Trabalhadores (Labour).

In his 45-minute taking of office speech, President Lula said that “Today, Brazil re-encounters itself”, meaning that during his presidency, the Brazilian people will analyse their strengths and weaknesses and will work hard to achieve much improved social indicators by 2010, if not by 2006, the end of his first term in office.

“Hope has finally beaten fear. The people have decided that the time had arrived to tread new paths”, he declared adding that the previous model of government, which saw Brazil’s unemployment rate soar to around 20% of the working population in some areas and 20% of the country’s 180 million inhabitants living below the poverty line on less than one USD/day, was exhausted.

President Lula claimed the eradication of hunger, a fairer distribution of land and a democratisation of the country as his main social objectives in the short term, while claiming that the creation of jobs is his “obsession”. He added that his government will combat corruption implacably, finishing with the culture of impunity which shrouds the political class. His external policy will be centred, firstly, around the promotion of a stronger MERCOSUL.

President Lula speaks of a national project: “Brazil is a huge country. We cannot allow ourselves to float, borne by the winds, lacking a project. We must cultivate patience and perseverance”. It is here that the crux of the matter lies. How much help President Lula’s project will receive from the USA and the international financial community, to whom Brazil owes some 235 billion USD and must meet repayment schedules of 1 bn. USD per week in 2003, remains to be seen.

The eyes of the energy lobby which rules Washington’s external policy are for the time being firmly fixed on Venezuela’s national oil company, which has a monopoly on oil exploration and production. How much longer will it be before this lobby turns its attention to Petrobras?

Marcia MIRANDA PRAVDA.Ru BRAZIL

THE year just ended was one of surprises in the financial markets, which is perhaps in the normal way of things. That being so, it's worth speculating what we could expect to see in 2003, including the wild cards.

First, a recap on the quite extraordinary events of the last year. It was, in brief, a year of continuing carnage in the markets, of corporate skullduggery on a grand scale, a frustrating year for economic policymakers against a backdrop of high political tension. Last year, the Dow Jones industrial index notched up its first three-year losing streak since 1941, posting a 17 per cent loss. The technology-heavy Nasdaq did even worse, shedding more than 30 per cent, as the excesses of the tech bubble of the late 1990s continued to weigh heavy. Fortune 500 companies such as Enron, Arthur Andersen and Worldcom went bust after a wave of accounting scandals. Dozens of others had a close shave.

Across the Atlantic, European markets didn't fare much better, also racking up double-digit losses. Asia's main markets - Tokyo, Hong Kong and Singapore - too were all down by close to 20 per cent. The only markets that yielded decent returns were ones few would have bet on: Pakistan, which jumped 118 per cent in US dollar terms, Indonesia, which rose 26 per cent and Thailand, up 20 per cent.

In general, stock and technology funds had a miserable year, but highly-rated corporate bonds and treasuries did well, as did many hedge funds and some commodity-based funds, especially those with big holdings of gold and oil-price sensitive assets.

This was not how it was expected to pan out at the start of the year, when analysts bet that major stock markets would recover, that bonds had topped out, and commodities looked unexciting; hardly anybody bet that oil prices would end the year at more than US$30 a barrel.

Looking ahead, what can we anticipate? It does not seem unreasonable to expect that oil prices at least will come down, once Iraq-war fears abate (although until this happens, the risks are high), calm returns to oil-rich Venezuela, and the Northern Hemisphere winter tapers off.

In the bellwether equity markets of Wall Street, it would be surprising indeed if the Dow and the Nasdaq were to tank for a fourth straight year; with the US economy likely to avoid recession and with corporate earnings coming off their low base in 2002, the odds-on scenario has to be a market recovery - especially once the threat of war lifts and oil prices moderate. A wild card, however, could be interest rate hikes (after 12 consecutive cuts) by the US Federal Reserve during the second half of the year, once the US economy starts to show signs of strength. That, in turn, could - together with rising US budget deficits - make it a tough year for bonds.

Japan surprise

Major Asian markets should benefit in the wake of a Wall Street recovery. An additional, tantalising, possibility is a rise in the Japanese market, which spent much of 2002 bumping along levels close to its 19-year low. While continuing economic weakness and a hobbled banking system is the baseline scenario for Japan, there is a chance the coming new leadership at the Bank of Japan could wage war on deflation in a way never done before. If this happens, expect Japan's market and economy to start recovering, though this could be accompanied by a weakening of the yen - another possible wild card this year, which implies a strengthening of the US dollar, rather than the widely-expected weakening.

Finally, at home, while the current picture is so-so at best, with low growth, high unemployment and an anaemic stock market, much could change in 2003 as the US economy and markets recover, the electronics cycle picks up, and oil prices trend down. Chances are that both the Singapore economy and stock markets will fare better this year than last.

But for Singapore, it will also be a big year for structural change; the final verdict of the Economic Review Committee will be in early in the year. Some of the changes - such as those relating to taxes, CPF and wage structures - are already known. But reshaping Singapore - by sharpening competitiveness, unleashing entrepreneurship, and setting the stage for a more vibrant, creative society - could involve several additional surprises, so stay tuned. And more generally, as is true just about every year, don't expect this year to be like the last.

January 2, 2003

Shipping News

(CARACAS) Venezuela said it will investigate the grounding of a freighter that got stuck near the Maracaibo shipping channel, normally the conduit for half of the country's oil exports.

The Irene E M, carrying 25 tons of coal, has been grounded in the channel since Monday afternoon, Maracaibo Port Captain Jose Fernandez said. Efforts to refloat the ship are continuing. 'We're conducting an investigation to find out what happened,' he said. The ship ran aground because its pilot - one of the few who has not joined a month-long national strike - was tired, reported El Nacional, citing striking tanker pilot Cesar Vicente.

Before a strike began Dec 2, as many as 1.4 million barrels of oil passed through the channel daily. Oil output has shrunk by about 90 per cent since then.

The risk of accidents earlier prompted the International Association of Independent Tanker Owners to issue a warning to its 240 members. The association accounts for 75 per cent of all independently owned tankers with deadweight above 10,000 tons.

Ships regularly run ashore in the channel, which has a chronic problem with sediment. - Bloomberg