www.alertnet.org 13 Jan 2003 13:17

By Karen Iley

BASEL, Switzerland, Jan 13 (Reuters) - Central banks need to watch the situation in Iraq closely and be prepared to act to stop any war torpedoing a modest world economic pickup in 2003, Bank of England Governor Sir Edward George said on Monday.

The central bankers still see the United States leading the global recovery, with Europe and Japan growing at a slower pace, he told reporters after chairing a bimonthly meeting of his colleagues at the Bank for International Settlements here.

"The general sense of the discussion was that we are seeing a relatively slow but relatively steady growth in the world economy through this year, likely to pick up as we move through the year and this is the central expectation," he said.

"It was true of the United States, certainly it is true of the eurozone, (which is) picking up gradually and heading back to trend in the latter part of the year, the trend being somewhat lower than the States," he said.

He said Japan would grow "pretty modestly" in 2003.

But with the world braced for war in the Middle East should Washington lead an attack on Iraq, which it accuses of hiding weapons of mass destruction, George said central bankers could not let down their guard and let growth falter.

"I think the message is that we will need to be extremely vigilant and be prepared to respond if the risks begin to crystallise," he said.

Central bankers did not discuss growth forecasts in detail, but broadly stuck to their September view that U.S. growth could approach three pecent and the eurozone could expand around two percent by the end of this year.

George said they also did not look at currencies or the oil market in detail at the meeting, which included officials from the U.S. Federal Reserve, the European Central Bank and the Bank of Japan.

Last week European Central Bank (ECB) President Wim Duisenberg said the risks to growth had increased in the last month, raising the chances of more interest rate cuts from the current rate of 2.75 percent.

ECB Vice President Lucas Papademos told a Greek paper at the weekend that the ECB stood ready to help the euro zone recovery if the current economic weakness dragged on despite last month's growth-bolstering half point interest rate cut.

In the United States, where the benchmark federal funds rate is at a four-decade low of 1.25 percent, President George Bush last week unveiled a $670 billion 10-year tax cut plan in the hope of boosting spending and investment.

But hopes that the U.S. economy would resume its role as the world's business locomotive suffered a setback on Friday with surprise news the economy had shed 101,000 jobs in December.

The news helped drive the dollar to three-year lows against the euro and a four-year nadir against the Swiss franc.

Oil prices also remain a concern to both growth and inflation, having soared 25 percent in the last two months to touch two-year highs because of the export halt in strikebound Venezuela and fears of further shortages in an Iraq war.

Oil prices eased after OPEC agreed at the weekend to lift output by 1.5 million barrels per day, a move dealers called too little, too late to bolster U.S. fuel inventories soon.

A protracted war in Iraq that undermines business and consumer confidence and pushes up oil prices, dampening spending, also poses a serious risk to the general economic outlook.

www.upi.com From the Business & Economics Desk Published 1/13/2003 8:46 AM View printer-friendly version

Here is a look at Monday's top business stories: -0- Profits decline at Levi Strauss

SAN FRANCISCO, Jan. 13 (UPI) -- Levi Strauss & Co., one of the world's largest apparel makers, said it posted sharply lower quarterly profits despite slightly higher sales.

The privately held company reported a fiscal fourth-quarter net profit for the period ended Nov. 24 of $45 million compared with a profit of $63 million during the same period a year ago.

Gross profit was $502 million, or 39.9 percent of sales, versus $506 million, or 41.0 percent of sales, a year earlier.

Revenue at Levi Strauss, which reports earnings because of its outstanding corporate debt, rose 1 percent to $1.26 billion on a constant-currency basis and up 2 percent on a reported basis.

In a separate statement, Levi Strauss said it had agreed to sell $50 million of 12 1/4-percent senior notes to AIG Global Investment Corp. or an affiliate. The company said it lowered its debt by $111 million in 2002.

Phil Marineau, chief executive officer, said, "We ended 2002 right where we planned. We stabilized sales in the second half of the year, with revenue growth in the third and fourth quarters. Our business turnaround strategies are succeeding worldwide. Market-leading product innovation, strong retail and marketing programs, and improved execution are driving better performance. We are ready to grow again in 2003.

"Throughout the year, we expect to continue expanding our reach to a broad range of consumers, including the fast growing women's market, by offering relevant products at a wide range of price points," he said.

"Our big news as we enter spring 2003 is the global rollout of Levi's Type 1 jeans, a modern interpretation of the quintessential Levi's jeans. They'll be featured in this month's Super Bowl ad. And, in mid-summer, we launch our new Levi Strauss Signature brand in Wal-Mart stores in the United States," Marineau added.

-0-

German industrial output rises

BERLIN, Jan. 13 (UPI) -- German industrial output rose in November, boosted by strong capital goods output and higher production within the construction sector.

Industrial production rose a seasonally adjusted 2.5 percent during the month, the economics ministry said in its preliminary report. That follows a 1.3-percent decline in October. The data was much stronger than analysts' expectations of a 0.50-percent rise for the month.

The ministry attributed the rise in November output to a 3.8-percent monthly rise in the construction sector, adding to a 1.5-percent rise the month before, and a 2.6-percent increase in the manufacturing sector, up from a 1.7-percent decline during the previous month.

The rise in the manufacturing sector was led by a 4.1-percent increase in capital goods and a 1.8-percent rise in producer goods, the ministry said.

In western Germany, industrial output rose 2.7 percent during the month, while in eastern Germany it increased 0.4 percent during November.

-0-

Stocks rise in Asia

HONG KONG, Jan. 13 (UPI) -- Stock prices ended higher in moderate trading Monday on the Hong Kong Stock Exchange, lifted by strength in China-related issues.

Markets in Japan were closed for a public holiday. Trading will resume on Tuesday with the Nikkei Stock Average hovering around 8,470.45 after losing 27.48 points Friday.

Hong Kong's blue-chip Hang Seng Index, which rose 46.09 points during the previous session, jumped 112.58 points, or 1.2 percent, to 9,834.08. Analysts said Hong Kong stocks were lifted as investors acquired an appetite for China-linked issues amid the uncertain global outlook.

Worries about rising tensions in North Korea after it pulled out of a global nuclear arms treaty seemed to be abating and some traders said the likelihood of a U.S.-led war on Iraq was also already priced into the market.

In trading, Legend Holdings jumped 5.3 percent as China's largest personal computer maker is expected to benefit from rising domestic consumer demand and growing affluence.

China's largest refiner, Sinopec Corp., jumped 4.2 percent after brokers at JP Morgan upgraded the stock.

China's largest offshore oil producer CNOOC Ltd. rose 1 percent, China's largest oil and gas producer PetroChina rose 0.6 percent and Chinese piped gas distributor Xinao Gas Holdings surged 5.8 percent.

Elsewhere, stocks ended higher on the South Korean Stock Exchange, lifted by strength in oil stocks. The Korea Composite Stock Price Index, or Kospi, which fell 2.04 points during the previous session, gained 19.52 points, or 3.1 percent, to 648.06. Analysts said the market was supported by strength in oil-related stocks after OPEC agreed to raise output over the weekend.

OPEC agreed to increase crude production by 1.5 million barrels a day in a bid to lower prices and offset shortages resulting from a strike in Venezuela.

The market also drew support from developments over the weekend to ease the crisis in North Korea. Former U.S. Ambassador to the United Nations Bill Richardson said Sunday that North Korea was ready to negotiate directly with the United States about its nuclear weapons programs. Speaking on ABC's "This Week," Richardson -- who just completed three days of talks with North Korean diplomats -- said he thinks the (Bush) administration needs to "just pick up the phone" and get preliminary talks at the U.N. started at a low level to set up broader talks to address the issues.

In trading, stocks of companies that benefit from cheaper fuel costs rose. Korea Electric Power climbed 1.4 percent and Korea Gas jumped 9.3 percent. POSCO, the world's second-largest steel maker, jumped 6.4 percent ahead of its fourth quarter earnings this week and Korean Air, Korea's flagship carrier, surged 7.1 percent on hopes the OPEC decision will ease its fuel costs.

Prices on the Taiwan Stock Exchange rose to their highest level in more than five months. The key Weighted Index, which rose 37.07 points during the previous session, jumped 140.41 points, or 2.9 percent, to 4,991.26 on hopes for renewed technology spending in the United States.

In trading, Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker, surged the daily 7-percent trading limit.

Singapore stocks ended higher for the fourth consecutive session in moderate trading. The key Straits Times Index, which rose 12.08 points during the previous session, rose 38.88 points, or 2.9 percent, to 1,386.05.

In trading, the world's third-largest contract chip maker, Chartered Semiconductor jumped 8 percent.

Prices ended slightly higher in light trading on the Australian Stock Exchange. The blue-chip All Ordinaries Index, which slipped 0.60 points during the previous session, rose 7.40 points, or 0.2 percent, to 3,042.50.

Market heavyweight News Corp. rose 1.8 percent, Australia's dominant telecommunications carrier Telstra Corp. rose 1 percent while Rio Tinto eased 1 percent.

www.edinburghnews.com Mon 13 Jan 2003 Peter Clarke

NOBODY knows what is going to become of Safeway. Today Sainsbury joined the bidding. Wal-Mart (Asda) can afford to pick up the supermarkets out of its petty cash. Allan Leighton, the former leader at Asda and now supremo at the Post Office, is also thinking of a bid.

This is all an exciting start to 2003 but unless you are an owner of Safeway shares the storm may seem remote. Yet it will touch as all.

Wherever the dice fall it seems our supermarkets will be given a creative shoogle to our wider pleasure with ever better bargains.

An unhappy strand to the story is the mysterious and capricious presence of The Competition Commission. Instead of trying to impede the market they should get out of the way.

If there are real barriers to competition it is through local councillors conspiring to stop new stores opening. The Commission simply refuses to look at the brutal cost impositions of the Common Agricultural Policy. It is too delicate to consider such matters.

Sir Ken Morrison, who started this rumpus by his cheeky bid for Safeway, must be chuckling. He no longer looks like a winner but what fun he’s had.

Prayer answered

THE markets are offering a collective prayer of thanks to Saudi Arabia for cajoling its OPEC cartel members to enhance the flow of oil. The problem is not Iraq, though that is adding jitters. The problem is the general strike in Venezuela. It is a weakness in the United States that it remains dependent on imported fuel when it has dozens of oilfields it has not opened to production.

It is possible the assault on Iraq will create some unexpected side-effects. One must be the application of new techniques to extract oil or enhance wind and water power sources. Oil will remain the dominant source of energy but it does look odd that the US regulates its own oil corporations so tightly it cannot extract its reserves.

The caricature is of a Texan President in the pocket of the oil giants. The reality is far more baffling and a little comical. Hugo Chavez in Caracas is almost as dotty a Saddam Hussein in Baghdad. Why is the world subject to such deranged people?

Stand in line

IN our hearts we think the railways’ days have gone. Yet the fans of metal tracks continue to beguile us. You would need a frozen soul not to be charmed by the scheme to link Edinburgh to Galashiels and then Carlisle by re-opening the old Waverley route. The arithmetic may be questionable but the idea is a delight.

Rather more arresting is to notion of reconstituting the Central Railway up from St Pancras through Leicester and up to Leeds and Manchester. The Central line was the last main route to be built in Britain and atrophied after World War One.

The idea is to rebuild it as a major freight artery that really will minimise lorry traffic. For the moment the project remains unadorned by detailed prices but instead of being an amusing steam line for a few railway buffs it could become a primary artery making a connection through the Channel Tunnel.

Most big projects wither under the sloth of planning procedures. The advantage of the Central line is that it needs no permissions. The Treasury need not spend any of our money. The markets are hungry for adventures.

www.iht.com NYT NYT Monday, January 13, 2003   Presidents Vicente Fox and George W. Bush both took office two years ago promising to forge a new partnership bridging the Rio Grande, a partnership marked by a once unimaginable level of cooperation on a number of fronts. It hasn't happened, and as a result Mexico's enlightened foreign minister, Jorge Castañeda, has resigned.

The centerpiece of the new relationship was to have been a new accord on immigration. That encountered early resistance on Capitol Hill, and the terrorist attacks of Sept. 11, 2001, rearranged the White House's priorities. Washington has since failed to recognize that an immigration deal that serves American economic needs and diminishes the population living illegally in the United States can be compatible with heightened security.

The White House's neglect has proved to be politically damaging to Fox's administration. The Mexican government had to overcome widespread public skepticism, and concerns about surrendering national sovereignty, to sell the idea of a new understanding with the neighboring superpower. Castañeda was the most outspoken advocate of closer ties with the United States. His frustration over the stalemate in the relationship contributed to his decision to resign.

Castañeda worked tirelessly to promote an immigration deal and closer cooperation in fighting drug trafficking. He ended Mexico's tradition of warm ties with Cuba in order to back American denunciations of Fidel Castro's human rights record.

Beyond its failure to deliver on immigration, the Bush administration largely missed an opportunity to collaborate with Latin American democracies in dealing with a number of thorny Western Hemisphere matters, most notably the crisis in Venezuela. Angry calls by Mexican farmers in recent weeks for their government to renegotiate the North American Free Trade Agreement in response to the ill-advised agricultural subsidies passed by Congress last summer serve no one's interest, as Castañeda has pointed out. But they are indicative of a broader disenchantment with the United States that cuts across Mexican society. The Bush administration should take note of Castañeda's frustration and seek to improve ties with Mexico.

www.csmonitor.com By Lawrence E. Harrison

MEDFORD, MASS – Brazil's President Luiz Inácio da Silva - "Lula," as he is widely known - has made Brazil's gaping gulf between its few rich and many poor a focus of his new administration.

The United States should do the same. While not as vast as Brazil's, the gap between the rich and the poor in the US is too wide - the widest among all the rich democracies.

According to World Bank data, the poorest 10 percent of Brazil's population receives just 1 percent of the country's total income, while the richest 10 percent receives almost half. In the US, the poorest 10 percent receives 1.8 percent of total income, while the richest 10 percent gets almost a third.

In no other rich democracy does the poorest 10 percent receive less than 2 percent of the total. (The average for rich countries is 2.9 percent.)

Don't leap to the conclusion that this extreme inequity in US income distribution reflects the policies of the Bush administration. The data are for a Clinton boom year - 1997.

In fact, Census Bureau data show a steady erosion of income inequity since the 1970s.

The Census Bureau estimates that in 2001, about 33 million Americans - 11.7 percent of the population and disproportionately African-American and Hispanic - lived below the poverty line. For a family of four, that meant an income of less than $18,000 per year, or $4,500 per capita.

At this level of affluence, the persistence of poverty for tens of millions of Americans is a national disgrace.

A national consensus is needed aimed at ending poverty, consistent with the vision of the late Harvard political philosopher John Rawls. For Rawls, the good society was the society in which a principal goal was the well-being of those worst off.

Progress toward the goal of eliminating poverty can be achieved through, for example, steady increases in the minimum wage (Lula has proposed increases that would double the Brazilian minimum wage in four years), progressive tax reform, and more extensive and effective unionism for low-wage workers.

Some will argue that a high minimum wage, a true living wage, would reduce the competitiveness of American products.

The Harvard Business School's Michael Porter has the right answer in his book "The Competitive Advantage of Nations": "The primary economic goal of a nation is to produce a high and rising standard of living for its citizens ... cheap labor [is not a] meaningful definition of competitiveness ... the ability to compete despite paying higher wages would ... represent a far more desirable national target."

The US also needs an immigration policy that reduces the flow - legal and illegal - of the more than 1 million people who come to the US annually, as the Commission on Immigration Reform urged in 1995. That report has since been ignored by both Democratic and Republican administrations.

The stream of mostly uneducated and unskilled immigrants increasingly feeds the reservoir of the poor, drives down wages and benefits at the low end, and competes for public services with poor citizens, adding severe pressure on beleaguered state and local budgets.

The Democrats are looking for a message, a vision. The goal of ending poverty and the measures necessary to achieve it fit well with Democratic Party ideology. At the same time, the Republicans are committed to a compassionate conservatism that should also embrace the goal.

Here's an opportunity for a national consensus to end a national disgrace.

• Lawrence Harrison teaches at the Fletcher School of Law and Diplomacy at Tufts University. He is coeditor with Samuel Huntington of 'Culture Matters.'