War threatens Caribbean --Banana exports suffering in the Caribbean

www.lapress.org Charles Arthur.  Mar 22, 2003

Caribbean economy could suffer fallout from war.

At a time when most of the region’s countries are suffering economic difficulties resulting from the collapse of traditional agro-export industries such as sugar and bananas, further economic disruption as a result of the war against Iraq, which began March 20, could have dire consequences.

The Caribbean is particularly vulnerable because it is now heavily reliant on revenues from tourism — a sector that each year provides some 30 percent of the region’s gross domestic product, and employment for around one in seven workers. (LP, June 21, 1999).

At a Trinidad summit meeting in mid-February, the 15-member Caribbean Community (CARICOM) released a statement opposing the use of armed force against Iraq. The communiqué, which urged the US and its allies to exercise restraint, stressed that Caribbean leaders were "deeply troubled over the humanitarian tragedy that an outbreak of war could bring about and the disastrous effects it could have on global economic stability."

Tourist arrivals declined sharply in the aftermath of the September 11 attacks in the United States, as a dip in the US economy and heightened fear of air travel deterred many potential visitors during the following winter holiday season. The World Tourism and Travel Council estimates that 364,000 people in the region lost jobs as a result.

According to the Caribbean Tourism Organisation (CTO), an aggressive publicity campaign and slashed airline ticket and hotel prices succeeded in reviving the Caribbean tourist sector during 2002. But this recovery is now in jeopardy.

The CTO bulletin for the first quarter of 2003 warned, "The possibility of war in Iraq undercuts the stability which international tourism, especially long haul travel, needs in order to operate at its best ... The onset of war will likely hit international travel quite hard."

A heightened terror alert could again hit passenger confidence in air travel with immediate repercussions for those Caribbean islands dependent on airlines to bring tourists to their beaches and resorts.

Neither is the important cruise ship sector immune. In December 2002, the P&O Princess Cruises company started canceling stops in Trinidad in the wake of a warning of possible terrorist attacks issued by the British Foreign Office. The warning, made in the context of the Bali tourist resort bomb blast, is believed to be connected to a Trinidad police investigation of a black Muslim cleric known to sympathize with Osama bin Laden. A total of six planned visits to Port of Spain, each of which would have brought about 1,200 passengers ashore, were cancelled before the travel advisory was withdrawn.

In January 2003, Jamaica’s Minister of Tourism, Aloun Assamba, called for the implementation of new security measures at the islands’s main cruise ship ports if her country was to avoid the same fate.

Although few Caribbean politicians have risked incurring the wrath of the US by speaking out against the war, CARICOM Secretary-General, Shridath Ramphal, has been prepared to sound the alarm. Pouring scorn on optimism that the Iraq war might be quickly over, he said, "Do not believe that the Americans sent half a million forces and hundreds of tons of weaponry into Iraq for a couple of weeks. We are in for the long haul. What will that war environment mean for the tourism industry on which the Caribbean relies so heavily?"

The possibility of rising fuel prices is another issue of concern to the Caribbean. The previous hike in the price of crude oil on the international market, coinciding with interruptions to Venezuela's output as a result of the campaign to destabilize the government of President Hugo Chavez, (LP, Jan. 15, 2003) has already had an impact.

In Jamaica, bus and taxi drivers and operators have threatened violent disturbances in response to a hike in fuel costs, while in Guyana and Haiti there have already been a number of strikes to protest recent fuel price increases. If war in Iraq lasts any length of time, or if it is accompanied by sabotage of the country’s oilfields, then international fuel prices would be expected to skyrocket.

As Maurice Odle, economic adviser at the Guyana-based CARICOM Secretariat, warns, "We are still reeling from the effects of 9/11 and we know for sure that our high-energy sectors like the aviation industry would be seriously affected. We can see airfares and jet fuel (prices) going up and that would be tough on airlines and our tourism industry."

One of the region’s main airlines, the ailing BWIA, is already facing monthly losses of around one million US dollars, and in January it laid off 617 of its 2,400 workers, many of them maintenance engineers.

The wider consequences of a prolonged war could also negatively impact on the Caribbean. Higher oil prices would further undermine the fragile economies of the United States, Germany and Japan, and might in the long run lead to a worldwide economic contraction.

Such a scenario would be disastrous for countries like the Dominican Republic and Jamaica that are heavily dependent on external financial sources in terms of investment and capital flows, and Haiti where the economy is sustained almost entirely by the remittances sent back by nationals working abroad.

At a time when most of the region’s countries are suffering economic difficulties resulting from the collapse of traditional agro-export industries such as sugar and bananas, further economic disruption as a result of the war against Iraq, which began March 20, could have dire consequences.

The Caribbean is particularly vulnerable because it is now heavily reliant on revenues from tourism — a sector that each year provides some 30 percent of the region’s gross domestic product, and employment for around one in seven workers. (LP, June 21, 1999).

At a Trinidad summit meeting in mid-February, the 15-member Caribbean Community (CARICOM) released a statement opposing the use of armed force against Iraq. The communiqué, which urged the US and its allies to exercise restraint, stressed that Caribbean leaders were "deeply troubled over the humanitarian tragedy that an outbreak of war could bring about and the disastrous effects it could have on global economic stability."

Tourist arrivals declined sharply in the aftermath of the September 11 attacks in the United States, as a dip in the US economy and heightened fear of air travel deterred many potential visitors during the following winter holiday season. The World Tourism and Travel Council estimates that 364,000 people in the region lost jobs as a result.

According to the Caribbean Tourism Organisation (CTO), an aggressive publicity campaign and slashed airline ticket and hotel prices succeeded in reviving the Caribbean tourist sector during 2002. But this recovery is now in jeopardy.

The CTO bulletin for the first quarter of 2003 warned, "The possibility of war in Iraq undercuts the stability which international tourism, especially long haul travel, needs in order to operate at its best ... The onset of war will likely hit international travel quite hard."

A heightened terror alert could again hit passenger confidence in air travel with immediate repercussions for those Caribbean islands dependent on airlines to bring tourists to their beaches and resorts.

Neither is the important cruise ship sector immune. In December 2002, the P&O Princess Cruises company started canceling stops in Trinidad in the wake of a warning of possible terrorist attacks issued by the British Foreign Office. The warning, made in the context of the Bali tourist resort bomb blast, is believed to be connected to a Trinidad police investigation of a black Muslim cleric known to sympathize with Osama bin Laden. A total of six planned visits to Port of Spain, each of which would have brought about 1,200 passengers ashore, were cancelled before the travel advisory was withdrawn.

In January 2003, Jamaica’s Minister of Tourism, Aloun Assamba, called for the implementation of new security measures at the islands’s main cruise ship ports if her country was to avoid the same fate.

Although few Caribbean politicians have risked incurring the wrath of the US by speaking out against the war, CARICOM Secretary-General, Shridath Ramphal, has been prepared to sound the alarm. Pouring scorn on optimism that the Iraq war might be quickly over, he said, "Do not believe that the Americans sent half a million forces and hundreds of tons of weaponry into Iraq for a couple of weeks. We are in for the long haul. What will that war environment mean for the tourism industry on which the Caribbean relies so heavily?"

The possibility of rising fuel prices is another issue of concern to the Caribbean. The previous hike in the price of crude oil on the international market, coinciding with interruptions to Venezuela's output as a result of the campaign to destabilize the government of President Hugo Chavez, (LP, Jan. 15, 2003) has already had an impact.

In Jamaica, bus and taxi drivers and operators have threatened violent disturbances in response to a hike in fuel costs, while in Guyana and Haiti there have already been a number of strikes to protest recent fuel price increases. If war in Iraq lasts any length of time, or if it is accompanied by sabotage of the country’s oilfields, then international fuel prices would be expected to skyrocket.

As Maurice Odle, economic adviser at the Guyana-based CARICOM Secretariat, warns, "We are still reeling from the effects of 9/11 and we know for sure that our high-energy sectors like the aviation industry would be seriously affected. We can see airfares and jet fuel (prices) going up and that would be tough on airlines and our tourism industry."

One of the region’s main airlines, the ailing BWIA, is already facing monthly losses of around one million US dollars, and in January it laid off 617 of its 2,400 workers, many of them maintenance engineers.

The wider consequences of a prolonged war could also negatively impact on the Caribbean. Higher oil prices would further undermine the fragile economies of the United States, Germany and Japan, and might in the long run lead to a worldwide economic contraction.

Such a scenario would be disastrous for countries like the Dominican Republic and Jamaica that are heavily dependent on external financial sources in terms of investment and capital flows, and Haiti where the economy is sustained almost entirely by the remittances sent back by nationals working abroad.

www.forbes.com Reuters, 03.19.03, 1:44 PM ET By Pablo Bachelet

WASHINGTON, March 19 (Reuters) - A rosier economic outlook for most of Latin America in 2003 could be clouded by a prolonged war in Iraq that would send oil prices upward, a group of global financial institutions said on Wednesday.

The Institute of International Finance (IIF) is forecasting a 2.4 percent growth rate for almost all countries in Latin America this year, reversing two straight years of economic contraction.

But that recovery depends on lower oil prices in the second half of the year and improved investor and consumer confidence that would in turn spur the U.S. and European economies, the main motors for a Latin American recovery.

The 2.4-percent growth forecast, which would be the highest since 2000, excludes Venezuela, which saw its economy shrink 8.9 percent last year and could see a further 10 percent drop in 2003, according to the IIF report, which is to circulate at the annual meeting of the Inter-American Development Bank (IDB), to be held in Milan on March 24 and 25.

Venezuela has been ravaged by political strife and a strike that hit oil exports, the lifeblood of its economy.

"We do believe that the region is largely well-positioned, I would even say poised, for some modest recovery on the critical assumption that in the second half of this year the global economy rebounds," said Charles Dallara, managing director for the industry group that represents most big banks and insurance companies worldwide.

Latin America, hard-hit by massive downturns in Uruguay, Argentina and Venezuela last year, has been struggling to regain its economic footing since private capital flows dried up in the late 1990s.

But now a war in Iraq could extend Latin America's hard times.

"So much depends upon the duration of the war and the ultimate effect on two key variables: oil prices and confidence among consumers and investors," Dallara told reporters at a briefing.

The Latin America forecast also assumes that Mexico and Brazil will undertake key fiscal reforms in the second half of the year to spur growth.

Latin America is viewed as less vulnerable to global economic shocks than in the past, Dallara said.

"We believe the commitment to sound macro policies and the commitment to flexible exchange rates creates some cushion to respond to global shocks," he told reporters at a briefing.

CHEAPER OIL

Even so, the base scenario behind the bullish Latin America forecast calls for oil prices to average $28 per barrel this year. This would enable the U.S. economy to grow 2 percent for the year, with a 4-percent jump in the second half of 2003. In early afternoon, international benchmark Brent crude oil was trading at $27.50 per barrel.

But the group's chief economist, Yusuke Horiguchi, said that an average $10 per barrel increase for the year in the price of oil would shave off 0.6 or 0.7 percentage point from gross domestic product growth in rich oil-importing economies. This would cool the growth of imports by 2.5 percentage points.

"The elasticity is pretty big," he said. "This affects exports" from Latin America to rich economies.

The IIF did not provide a specific growth number for a high-oil-price scenario. However, most economies, with the exception of big oil exporter Venezuela, would suffer.

Oil importer Chile would suffer a "double whammy" effect of higher crude import prices and cheaper prices for its copper exports, according to Frederick Jaspersen, director for the Latin America department at the IIF.

For oil producer Mexico, an annual price per barrel of $40 would translate into $6 billion in extra earnings. But that would be offset by a $9 billion drop in exports to the U.S., due to a slowing economy there.

"Mexico is affected in a counterintuitive way," he said.

sg.biz.yahoo.com Thursday March 20, 1:40 AM

WASHINGTON -(Dow Jones)- Improving policies in Latin America should promote a modest recovery in economic growth this year and next, barring a decline in the U.S., the Institute of International Finance said Wednesday.

Excepting a 10% collapse in Venezuela's gross domestic product, Latin America as a region should expand its economy by 2.4% in 2003 and another 3.2% in 2004, the IIF said.

"The commitment to sound macro policies, both monetary and fiscal, coupled with flexible exchange rates have provided some flexibility to respond to a slowing world economy," IIF Managing Director Charles Dallara told reporters.

The group, representing some of the largest banks and financial institutions around the world, also predicted a moderate recovery in net private capital flows to the region to $36 billion in 2003, before rising to $42 billion next year. In 2001, net private flows to Latin America dropped to a historic low of $28 billion.

The forecasts assume the U.S., the largest trading partner for most countries in the region, will experience an average rise in economic growth of about 2.4% for the year, reflecting 1.5% in the first half and almost 4.0% in the second. Oil prices have been penciled in at an average of $28 a barrel for 2003.

Dallara acknowledged the fate of the predictions depends first and foremost on the outcome of an impending U.S. war with Iraq and its impact on oil prices and investor and consumer confidence. "Today is an especially dubious time to be sharing exact forecasts, but the trends are there," he said.

IIF Chief Economist Yusuke Horiguchi reckons a $10 increase in the benchmark average for crude oil shaves 0.6% to 0.7% off of the forecast for U.S. GDP. The effects of higher-than-expected oil prices on the economies of individual Latin American countries differs as many are oil producers. On balance, the effect of higher oil prices is negative for the region because the resulting slower economic activity in some trading partners hurts non-oil exports and offsets revenue gains, the IIF said.

For example, an average oil price of $40 per barrel would raise Mexico's oil earnings by $6.0 billion, but reduces its exports to the U.S. by $9.0 billion, resulting in a net loss, IIF Director for Latin America Fred Jasperson said.

Still, most countries are better positioned to handle the economic uncertainty thanks to more responsible fiscal and monetary policies and flexible exchange rates, Dallara said.

In Brazil, which faced a crisis in market confidence during presidential elections last year, the new government is building credibility and shows a "very real" commitment to pension reform -a key factor in controlling public spending, Dallara said. The IIF predicts 2.0% GDP growth there for 2003.

Mexico has maintained public deficits and is reducing debt as a share of GDP, and is expected to continue a program of tax and energy reforms, the IIF said, predicting growth this year of 2.5%. Peru, the star performer in the region with a forecast for 3.8% GDP growth this year, should continue to do well as long as newly autonomous regional governments don't destabilize public finances.

The IIF sees growth picking up in Colombia to 2.0% this year and then rising to 3.0% next year.

Even Argentina should see a rebound of 3.3% this year, following four years of recession. The outlook there depends on the outcome of presidential elections next month, and whether the winner garners support from the legislative elections in October, the IIF said.

Venezuela, locked in escalating political violence and an imploding economy, is suffering an even greater output drop than the 8.9% contraction in 2002, the IIF said. A possible drop in oil prices following a quick U.S. war with Iraq would only worsen the situation there.

On the whole, the region is improving, the IIF said. External debt is declining to an expected 186% of exports this year from 227% in 1999, according to the IIF. The interest service ratio has fallen to 13% of exports. The trade surplus is expected to exceed $40 billion, or 2.5% of GDP while the current account deficit is dropping to under 1.0% of GDP. Foreign reserves have risen to the highest level ever, the IIF said.

-By Elizabeth Price, Dow Jones Newswires; 202-862-9295; elizabeth.price@dowjones.com

reuters.com Tue March 18, 2003 09:58 AM ET

NEW YORK (Reuters) - Satellite television operator DirecTV Latin America LLC said on Tuesday it filed for Chapter 11 bankruptcy protection, as economic turmoil in the region forced the company to restructure its costs and debts.

DirecTV Latin America, the largest pay-television operator in Latin America, has been hammered by recessions and strife in Argentina, Venezuela and Brazil that have resulted in fewer subscribers.

The filing does not apply to the company's parent, Hughes Electronics Corp GMH.N , or to DirecTV Latin America's operating companies in Latin America and the Caribbean, which will continue regular business, the company said. Hughes is controlled by General Motors Corp GM.N .

DirecTV Latin America said it would ask the bankruptcy court to reject contracts that are "uneconomic and not in (the company's) best long-term interests," including a contract to broadcast the 2006 World Cup and a deal with Walt Disney DIS.N to carry the Disney Channel Latin America.

In the United States, Disney and Hughes are embroiled in a dispute over Disney's ABC Family Channel, with DirecTV threatening to drop the channel rather pay the 35 percent price increase that Disney is demanding.

DirecTV Latin America, owned in part by Latin American media conglomerates Cisneros Group and Grupo Clarin, said Hughes has agreed to provide $300 million in debtor-in-possession financing, subject to bankruptcy court approval. The filing was made in the U.S. Bankruptcy Court in Wilmington, Delaware.

DirecTV Latin America also said that Kevin McGrath has retired as chairman, and that Larry Chapman has been named president and chief operating officer, effective immediately.

ogj.pennnet.com By an OGJ correspondent

PARIS, Mar. 17 --A general lack of markets and pipeline infrastructure is the main reason South America has scarcely developed its abundant natural gas resources, said officials of Paris-based International Energy Agency in a recent study.

Few South American countries have both large natural gas reserves and correspondingly large potential domestic markets to justify the high upfront costs to develop these reserves and to build the transportation network.

Only Argentina has both massive domestic gas reserves and a mature gas market, with a well-developed infrastructure, the IEA study noted. Bolivia, Peru, and Trinidad and Tobago have large reserves but limited gas markets. Brazil and Chile have large populations whose annual gas demand is growing at double-digit percentages; yet they depend primarily on imports.

Venezuela and Columbia are constrained in the development of associated gas reserves that are dependent on oil production. "It is doubtful that their domestic gas markets alone will provide enough opportunities and incentives to spur exploration and production of nonassociated gas," concluded the IEA study. With 91% of its proven gas reserves associated with oil, Venezuela is particularly hampered by its oil production quota as a member of the Organization of Petroleum Exporting Countries, said the study.

Except for Argentina where gas has high penetration of all market sectors, most South American countries use gas primarily to fuel industry and the energy production sector itself. Residential and commercial markets are limited, with no need for space heating in most of the continent. But opportunities could develop for summer cooling, said IEA officials. On the other hand, the use of compressed natural gas (GNG) as a transport fuel is expanding rapidly; Argentina is a world leader in that field.

Large and well-developed hydropower resources also have a limiting effect on gas use for power generation in South America, the study said. But it also found that the recent drought in Argentina, Brazil, Chile, and Venezuela, combined with the high cost of developing more hydro power plants, have caused several South American countries to diversify power generation towards gas.

The report projects that future South American gas demand will be driven largely by increased gas use for electricity: In 1995-2000, gas-fired power generation grew by 8.4%/year in South America, compared with 4.5% annual growth for total power generation. The study also sees the possibility for further substitution of gas for oil in the industrial sector.

Meanwhile, it said, gas pipeline interconnections are most advanced in the Southern Cone, encompassing parts of Brazil, Argentina, Chile, Bolivia, Paraguay, and Uruguay where most South American population and industry is located and where energy demand is highest. Both Argentina and Bolivia have abundant nonassociated gas reserves that they want to export to neighboring countries in this area.

In 2001, gas trade in the Southern Cone amounted to 9 billion cu m, 16% of the area's marketed gas production.

Pipelines, LNG plans Pipeline connections among the Andean countries—Bolivia, Bolivia, Peru, Ecuador, Colombia, and Venezuela—will be slower to materialize, the study said. The only project currently under study is a Colombia-to-Venezuela gas link.

While the large gas reserves in the north are too far away to pipe to the Southern Cone, the study found that LNG projects have a promising future.

Trinidad & Tobago is well ahead in LNG trains with two in operation and three more planned by 2005, making Trinidad & Tobago one of the largest LNG suppliers of the Atlantic market.

Bolivia, with its enormous gas reserves, is exploring the possibility of exporting LNG to the west coast of Mexico, via Chile or Peru. Peruvian gas from the giant Camisea field also may one day be exported as LNG, because the local market is small and exports to Brazil must compete against Bolivia's abundant gas supplies, IEA reported.

There are plans to build an LNG import terminal on Brazil's eastern coast to receive gas from Trinidad & Tobago, Nigeria, or, eventually, Venezuela.

The trend towards increased gas production, consumption, and trade is expected to continue, said the IEA study, albeit at a slower rate due to Argentina's financial crisis and its effect on the investment climate in South America as a whole.