www.alertnet.org NEWSDESK   24 Feb 2003 19:09

By David Ljunggren

OTTAWA, Feb 24 (Reuters) - Canada wants the Organization of American States to hold an extraordinary summit this year to discuss the growing chaos in South America but Brazil is effectively blocking the idea, officials said on Monday.

The 34-nation OAS is due to hold its next Summit of the Americas in Argentina in early 2005, but the officials said Canadian Prime Minister Jean Chretien felt the grouping needed to take stock of increasing disarray in some member states.

"In the last 18 months, close to two years, there have been all kinds of difficult times in the hemisphere," a senior Canadian official told reporters, saying Chretien wanted to look at "the convulsions" that have rocked the OAS recently.

"It (the proposed summit) would partly be an occasion to reassure ourselves, to examine our main objectives and to reaffirm hemispheric cooperation," he said.

The leaders of the OAS held their last summit in Quebec City in April 2001 and since then several South American nations have experienced severe problems.

Argentina suffered an economic meltdown that spilled over into Uruguay. Venezuela is in the grip of an increasingly violent standoff between friends and foes of President Hugo Chavez, 32 people died last week in riots in Bolivia, while Colombia is still in the grip of a decades-long civil war.

Mexican President Vicente Fox is volunteering to host the proposed OAS summit if all member states agree on the need to meet but Brazil has said more than once that it needs more time to study the idea, the official said.

Diplomats said Brazil -- already locked in a protracted dispute with Ottawa over subsidies to aircraft manufacturers -- was reluctant to let Canada take the lead on problems mainly affecting South America.

Canadian Foreign Minister Bill Graham raised the idea of the summit during an official visit to Brazil last month but did not get any firm commitment.

In Brasilia, no one was immediately available for comment at the foreign ministry.

The Quebec City summit focused on the need to strengthen democratic institutions in the OAS and the official said Chretien did not doubt that the organization was heading in the right direction.

"We're getting there. But at the same time there are convulsions in the hemisphere which deserve attention," he said, adding that the proposed summit would discuss "questions of governance, the big principles of democracy and where the hemisphere is going in this regard".

Another reason to hold an interim summit was the fact that since Quebec City, around a dozen OAS members had elected new leaders, he said.

www.nationalpost.com Paul Vieira Financial Post Saturday, February 22, 2003

A number of major U.S. airlines and courier services announced yesterday they are being forced to slap on extra charges for their services to offset the rising cost of oil.

American Airlines, a unit of AMR Corp., announced it would add a US$20 charge on round-trip domestic tickets to cover the rising cost of fuel. The move matches an across-the-board surcharge levied by Northwest Airlines Corp. Other airlines have, or are expected to, follow suit.

Air Canada spokeswoman Laura Cooke said her airline moved Thursday to impose a fuel surcharge on trans-border, or U.S.-bound, flights of $14.30 one-way or $28.60 on a round trip. The Montreal-based airline already has a $15 fuel charge on domestic flights and it is set to impose a similar levy on international flights. Air Canada has said in the past that a US$1 increase in a barrel of oil adds $40-million to its costs.

WestJet Airlines Ltd., which tries to keep air fares as low as possible to attract demand, was compelled earlier this year to add its first-ever fuel surcharge.

Airlines are not the only ones feeling the pinch of high fuel costs.

Airborne Inc., the No. 3 express shipper in the United States, said it will raise its fuel surcharges for plane and truck customers.

A barrel of West Texas intermediate, the standard benchmark for oil, closed yesterday at US$3x.xx, inching closer to highs not seen for 13 years. Besides fears of war in Iraq, the other two big factors driving up the price of oil are the slow export recovery in Venezuela and a tight supply-demand balance.

Seattle-based Airborne said the levy for U.S., Canadian and international air express shipments will rise on March 3 to 5.1% from 4.3%. Also on that date, it said, it will raise its fuel surcharge for ground shipments to 1.8% from 1.3%.

Airborne rivals FedEx Corp. and United Parcel Service Inc. have also announced higher fuel surcharges effective March 3.

"Volatility in the Middle East and the threat of war has caused a sharp rise in fuel prices, one that is not expected to be short-lived," said Carl Donaway, Airborne's chief executive. "As fuel prices rise in the marketplace, it causes a considerable increase in our operating expenses."

Patricia Mohr, vice-president of economics for Bank of Nova Scotia, said added fuel charges are the norm when oil prices climb. "[Oil] has really gone up past $30 since last year," she said. "It's quite high ... And the airlines are quite sensitive to fuel prices."

Ms. Mohr said railways and truckers, who engage in export trade, may have to increase rates charged to recover added fuel costs. Of course, consumers are seeing the effect of surging oil prices at the gas pumps, where gas prices in the mid-80¢ range for a litre is the norm across the country.

However, she added the fuel surcharges are likely a temporary measure, and will be removed once the price of oil drops.

But how soon that will be is in question. UBS Warburg issued a report yesterday saying it was increasing its oil price forecast for 2003, to US$28 a barrel from US$25, and 2004, to US$22.50 from US$21.50. It cited as its main reason for the upward revision the "crawling pace" of recovery in Venezuelan oil production and exports.

Exports are at barely half the pre-strike levels of three million barrels of oil a day. And the continuing refusal of Hugo Chavez, Venezuela's president, to reinstate workers of the state-owned oil company "means the industry lacks the technical expertise and the funds to restore operations quickly," UBS said.

For the airline industry in particular, the high oil prices could not have come at a worse time. Airfares in Canada and the United States are hitting lows not seen in more than a decade, due to increased competition from no-frills players and an effort to spark demand.

Major airlines continue to lose money, and some executives have said that a war with Iraq would cause such a falloff in already-weak air traffic that they would be forced to ask for government aid to stay in business.

pvieira@nationalpost.com

www.nationalpost.com Peter Morton Financial Post Saturday, February 22, 2003

WASHINGTON - Americans have only a vague idea that their largest trading partner is Canada, according to a new poll done for a Canadian softwood lumber lobby group.

Only 12% knew Canada was the largest buyer of American goods and services but others believed the Japanese, China, Britain and Mexico were further ahead, the poll done by Taylor Helsom Sofres Intersearch found.

In addition, only 1% of Americans were aware Canada is the leading source of oil and natural gas to the United States, with most pointing to Saudi Arabia, Iraq, Venezuela, Kuwait, Mexico and Iran as bigger suppliers of energy.

The poll was conducted between Feb. 14 and 16 for the U.S.-Canada Partnership for Growth, a Washington-based group partially funded by the Canadian Forest Products Association and Ottawa.

"The citizens of the United States remain unaware of the enormous interdependence of the U.S. and Canadian relationship," said William Brock, a former U.S. senator who, with James Blanchard, the former U.S. ambassador to Canada, co-chair the group founded last fall.

"These survey results show just how far we need to go to inform Americans on their neighbours to the north," he said yesterday.

Canada and the U.S. are world's largest trading partners with two-way trade hovering around US$1.3-billion a day, much of that in automobiles and parts as well as exports from Western Canada of oil and natural gas.

"Americans are stunned every time they learn that Canada -- and not a country in the Middle East -- is the largest provider of oil and natural gas to the U.S.," said Mr. Blanchard, a former governor of Michigan.

Canada supplies more than 15% of natural gas consumed in the United States but shares top spot as oil exporter with Saudi Arabia and Mexico, depending on market and seasons. Generally, The United States imports heavy oil from Canada but usually imports lighter grade oil, used for gasoline and heating oil, from Saudia Arabia and Venezuela.

Chris Sands, a Canada expert at the Center for International and Strategic Studies in Washington, said he was not surprised the poll found that few Americans were aware of the trading relationship with Canada.

"The economies are so similar that it is hard to think of things that are Canadian-made," he said. "Some countries have signature products like Japan. Perhaps Americans would think of Canada when they bought hockey sticks."

The partnership has been trying to raise the profile of Canada both in Washington and elsewhere by running television commercials on CNN and advertisements in The New York Times and USA Today to put pressure on Congress to end the long-running softwood lumber dispute.

Canadian and U.S. negotiators are meeting in Washington this weekend in a bid to close the remaining gaps that would see an end to a 27% import duty imposed last March on Canadian lumber shipped into the U.S. market. So far, the U.S. administration has collected about US$1-billion in duties from Canadian exporters.

Although the two sides are much closer to a deal, they are far apart on an interim agreement that would see Ottawa impose a temporary export tax while the four major timber producing provinces -- British Columbia, Quebec, Ontario and Alberta -- reform their management practices to bring them closer in line to a U.S.-styled market system.

Sources close to the talks said yesterday the U.S. lumber industry is still demanding an export tax as high as 25%, depending on lumber prices, while the Canadian side is not willing to go higher than 18%.

pmorton@nationalpost.com

www.chron.com Feb. 21, 2003, 2:40PM Associated Press

WHY IRAQ MATTERS IN LATIN AMERICA · Exporters fear that consumers, particularly those in the United States, will buy less if there is a war. · High oil prices have pushed up inflation. · War worries have driven down stocks and slowed foreign investment. · It could slow the growth of economies worldwide.

How they are doing:

CHILE: The economy grew 1.9 percent last year, with a 3 percent spurt in the last three months, according to the country's central bank.

Its inflation rate of 2.8 percent was less than a quarter of the region's average of 12 percent, according to United Nations estimates.

BRAZIL: The central bank this week raised interest rates for the fifth time since October as it tries to slow inflation at a five-year high.

Seeking to rein in inflation, which hit 14.5 percent in January, the central bank raised its overnight lending rate Wednesday by 1 percentage point to 26.5 percent.

The prospect of war in Iraq has caused the currency to weaken further this year.

VENEZUELA: The country's economy is slowly coming back from a paralyzing strike. While most sectors are back to work, oil exports, the government's main source of income, are still about half what they were.

Interest rates have risen sharply because of fears of a default, which would reduce investment in an economy that contracted 17 percent in the fourth quarter.

ARGENTINA: The Argentine peso dropped further Thursday while central bank authorities pondered whether to continue trying to prop it up. The currency has slumped 70 percent against the dollar since devaluation in January 2002, leading to fears its lost buying power will lead to hyperinflation.

MEXICO: Stocks and currency have been off because of fears its export-oriented economy will sink with that of its biggest customer, the United States.

-- Bloomberg News

SÃO PAULO, Brazil -- In a small factory in a blue-collar neighborhood of this vast industrial city, dozens of workers churn out parts for pressure cookers, essential items in most Latin American kitchens.

But the management of Acessorios para Panela de Pressao is worried about an economic threat half a world away that could lead to reduced sales and layoffs: a U.S.-led war against Iraq.

Higher oil prices linked to fear of war have already boosted inflation from Brazil to Chile. And a much-anticipated regional economic recovery is on hold, with concerns that the situation could get worse before it gets better.

Brazilian sales of Acessorios' parts for pressure cookers -- widely used to make feijoada, Brazil's national dish of black beans, rice and pork -- are down 50 percent since January because of double-digit inflation and consumer uncertainty over the economy's direction.

The firm has maintained production and its 85-employee work force only because of a spurt in exports to countries such as Colombia and Ecuador.

But demand could plummet beyond Brazil's borders if war breaks out and consumers across the region limit spending and decide to use their old pressure cookers longer, company manager Luciana Pereira Lopes said.

"Usually, sales pick up after carnival," which takes place in early March this year, she said. "But the uncertain thing is how the war could affect the Brazilian economy and the external market."

The war fears have already hurt Latin American stock markets, curtailed foreign investment and prompted investors to push down the value of currencies in Mexico, Chile and Brazil.

While their devalued currencies have helped Latin America boost exports to the United States and Europe, experts warn that a war could reduce global demand for goods ranging from Brazil's manufactured and agricultural products to Chilean wine.

"Right now, talk of war has stalled everything," said Ricardo Amorim, head of Latin American research at the New York-based IDEAGlobal. "If war breaks out and the world economy performs worse, the impact on the Latin American economy will be deeper."

A short war with Iraq could cost the world 1 percent of its economic output over the next few years and more than $1 trillion by 2010, researchers said in a report Thursday. A long war could more than triple the costs, they said.

The compounding effects of rising oil prices, extra budget spending and economic uncertainty could cut $173 billion from the world economy in 2003 alone, said the researchers, Reserve Bank of Australia board member Warwick McKibbin and Centre for International Economics executive director Andrew Stoeckel.

The economies of Brazil and Argentina were hit particularly hard last year. Mexico suffered because its economy is so tightly linked to the United States, and the country could face tough times in war if the U.S. economy stumbles more.

Experts say Argentina wouldn't suffer as much as Mexico or Brazil if war breaks out because the country has already virtually struck rock economic bottom, pummeled by a 5-year-old recession that has put one in two Argentines in poverty and left 18 percent unemployed.

Brazil's economy, South America's largest, turned sour last year amid investor concerns that its new leftist president might implement policies that could lead to a default on the country's massive foreign debt.

Since taking office Jan. 1, President Luiz Inacio Lula da Silva has pleased markets by filling key economic posts with moderates who say Brazil won't adopt unorthodox fiscal changes.

Silva's aides have pledged to fight inflation, and Brazil's central bank continued that course Wednesday by raising the benchmark interest rate to 26.5 percent from 25.5 percent.

But the Brazilian economy still struggles because of the war fears, with experts warning its condition will deteriorate if fighting begins.

The war talk is already hurting some Brazilian companies. Shares of Embraer, the world's fourth-largest commercial aircraft maker, slumped last week after Houston-based Continental Airlines' ExpressJet regional carrier delayed deliveries of new planes.

And Brazilian moving company Granero Transportes was forced to cut costs because Brazilian businesses and families are nervous about moving, marketing director Julio Pires said.

Besides higher gas costs for its fleet of 1,000 trucks, the price of cardboard boxes Granero uses rose about 45 percent in recent months. The company cut 30 jobs from its 1,000-employee work force, parked some trucks, and reduced spending on advertising and maintenance.

"We're in the cascade effect right now," Pires said. "When gas goes up, everything goes up. If it wasn't for the threat of war, the economy would be improving, not getting worse."

www.upi.com By Bradley Brooks UPI Business Correspondent From the Business & Economics Desk Published 2/20/2003 8:01 AM

RIO DE JANEIRO, Brazil, Feb. 20 (UPI) -- Latin American stocks were mixed in light trade this week, as the potential war in Iraq weighed on investors and domestic news did little to prompt action.

Brazil's central bank on Wednesday hiked its Selic interest rate to 26.5 percent from 25.5 percent, a move widely forecast by analysts.

It was the fifth hike since October as officials try to dampen inflation sparked by a currency that shed 35 percent of its value last year.

"The interest-rate move from the central bank was expected. What was a surprise was the increase in the reserve requirements from 45 (percent) to 60 percent," said Carlos Firetti, director of BBV Corretora in Sao Paulo.

That extra move to halt inflation and shore up the local currency -- the forcing of banks to deposit more cash into the central bank -- is seen by local economists as a positive, extra step and one that further indicates the government's appetite for austerity.

But Brazilian banking stocks dived after the announcement, with investors fretting that profits may sink 5 percent or more this year as banks have less money to invest.

Bradesco -- Brazil's largest private bank -- shed 4.3 percent, while the Itau bank finished 3.47 percent off.

But Firetti and other analysts agree that the effect of the rate hike and reserve requirements on Latin America's biggest economy will be short-lived, with the potential for conflict in the Middle East continuing to drive markets.

"It is all Iraq. The main catalyst for the (Brazilian) market will continue to be the international markets," Firetti said. "Most days now the Bovespa is trading close to the Dow and Nasdaq. That is going to continue."

And it will do so in the rest of Latin America as well, with the possible exception of Venezuela, where internal troubles are hefty enough to keep investors looking inward.

Meanwhile in Mexico -- Latin America's market most closely aligned with Wall Street -- a rash of earnings reports is receiving attention, though Iraq is dominant.

On Wednesday, Bear Stearns raised Mexican equities to "market weight" from "underweight."

The investment bank said in a report that the local market had lost enough in the past two months that bargain hunters should be moving in to buy cheap stocks.

But Bear Stearns said it didn't necessarily see any "catalyst for relative strength" apart from a turnaround in the United States.

As for the markets, Brazil's Bovespa stock index finished last Thursday down 3.8 percent at 10,107 as worries about a potential war in Iraq gave investors fright. Airplane manufacturer Embraer sunk 12.3 percent after it said its delivery projections for this year and 2004 would be substantially lower. Oil giant Petrobras lost 1.7 percent as investors fretted over its future should war break out in Iraq.

On Friday, the Bovespa ticked down 0.3 percent to 10,080 as investors were sidelined on Mideast worries. Embraer lost an additional 5.6 percent. Varig airlines gained more than 7 percent after word that talks for a merger with another domestic airline were going well.

Monday saw the Bovespa gain 1 percent to 10,188 as investors cheered the government's decision to increase utility rates. Eletrobras added 2.4 percent. Fixed-line phone company Telemar gained 1.4 percent.

The Bovespa gained 2.6 percent Tuesday to 10,450 as traders tracked Wall Street. Investors were also cheered by the thought that the central bank will hike interest rates the next day. Telemar gained more than 4 percent.

On Wednesday the Bovespa shed 1.89 percent to end at 10,252. Banking issues took a beating on the new reserve requirement. Elsewhere, long-distance carrier Embratel lost 3.8 percent, while Telemar shed 2.9 percent.

In Mexico, the IPC stock index ended last Thursday up 0.5 percent at 5,791. America Movil, Latin America's largest cellular company, gained 0.6 percent in heavy trade. Broadcaster TV Azteca rose 3.3 percent. On Friday the index lost 0.3 percent to 5,774 in quiet trade. TV Azteca lost 1.8 percent after its previous gain.

On Monday the IPC gained 1 percent to 5,830. America Movil added 1.7 percent, while TV Azteca rose 2.5 percent. Tuesday saw a gain of 0.9 percent to 5,880 for the index. America Movil added 1.8 percent.

Wednesday brought a loss of 0.38 percent to 5,857 for the IPC. America Movil gained 1.24 percent in heavy trade, BBVA bank lost 1.2 percent, and Wal-Mart de Mexico shed 1.09 percent.

Argentina's Merval index closed flat at 582.5 Thursday. Banco Frances lost 2.7 percent on profit taking after several sessions of gains. But energy company Perez Companc gained 1.8 percent. On Friday the Merval lost 1.9 percent to end at 580.5. Telecom Argentina shed 9.7 percent as worries about its debt burden mounted.

Monday brought a flat close at 580. Natural gas company TGS was one of the few movers, gaining 2.3 percent. The index gained 0.8 percent to 585 Tuesday. Telecom Argentina rose 3.7 percent as bargain hunters moved in.

Wednesday saw the index lose 0.76 percent to 580.5 in sluggish trade.

In Chile the IPSA index ended 0.5 percent down at 1,013 on Thursday. Friday brought a loss to 1,011. Telecom CTC Chile shed nearly 1 percent.

The IPSA ticked up to 1,012 Monday. On Tuesday, the index fell 0.2 percent to 1,010. Utility Enersis lost 3.3 percent. Wednesday saw the index lose to 1,004 in uneventful trade.

Venezuela's IBC index gained 1.1 percent to 8,022 Thursday. CANTV, the national telephone company which comprises 40 percent of the index, lost 2.6 percent. Friday saw a small gain to 8,080 for the index.

On Monday the index gained 1.4 percent to 8,195. Tuesday saw a close at 8,212. The IBC lost 0.89 percent to 8,140 Wednesday.