Posted on Wed, Jun. 18, 2003 By Kevin G. Hall Knight Ridder Newspapers

RIO DE JANEIRO, Brazil - Brazil's central bank slightly lowered its overnight basic lending rate Wednesday for the first time in 11 months and the first time since leftist President Luiz Inacio Lula da Silva took office Jan. 1.

In a sign that the Brazilian government is regaining investors' confidence, the bank's monetary policy committee reduced the interest rate, called the Selic, by half a percentage point, to 26 percent. Brazil's overnight lending rate remains the third highest in the world, trailing only Turkey and Venezuela.

Brazil had raised interest rates five times since October, the month da Silva was elected, the final time in February under his presidency. The higher rates were aimed at inducing foreign investors to keep their money in Brazil despite fears that da Silva, a critic of U.S.-backed economic policies, would abandon the free-market reforms his predecessor had adopted.

Wednesday's action is unlikely to quiet what has become the first major controversy of da Silva's government. An avowed leftist, da Silva spooked financial markets after his victory. Since taking office, he has been ultra-orthodox in managing the economy.

Economic analysts in Brazil think interest rates should fall further, given that the currency has been stable for months against the dollar.

"It is very clear there was enough space to cut up to 2 points on interest rates," said Daniel Tha, an analyst with economic consultant Global Invest in Curitiba.

High interest rates are slowing South America's largest economy, which isn't expected to grow by more than 2 percent this year.

Da Silva took office promising a "confidence shock." But Tha and other analysts complain that the high interest rates stifle consumer spending and hurt the stock market, because investors won't gamble on stocks if they can earn 26 percent on government bonds and other debt instruments.

"They are forgetting to look at the real economy, where people are hurting," Tha said.

Former President Fernando Henrique Cardoso criticized da Silva on Monday for an "exaggerated dosage" of financial austerity. Even Jose Alencar, da Silva's vice president and a textiles tycoon, called the high interest rates "absurd."

In a speech Tuesday, da Silva asked Brazilians to be patient about the economy and his promise of new jobs.

"We have spent six months fixing the house, conquering the confidence (of investors) that was needed," da Silva said.

Inflation in May was at a 17.2 percent annual rate, the highest since 1996. The central bank predicts 7.76 percent inflation over the next 12 months.

Earlier this month, Brazil sold international investors $1.25 billion in 10-year bonds. The government said it was a clear sign that Wall Street saw healthy long-term prospects for Brazil.

18 Jun 2003 Source: <a href=www.just-auto.com>just-auto.com editorial team   Article Summary: The head of Ford's Latin American business on Tuesday said the car maker may have to close its Venezuelan operations for a week every month to offset the impact of foreign exchange controls on production, Reuters said.

Posted on Wed, Jun. 18, 2003 By KEVIN G. HALL AND DUNE LAWRENCE The Miami Herald-Knight Ridder News Service

BRASILIA - Brazilian President Luiz Inácio Lula da Silva will visit the White House on Friday for the second time in seven months, a sign of the growing importance of South America's largest economy and the international stature of its leftist leader.

Da Silva, a former machinist, labor leader and union organizer, initially frightened Wall Street and the White House with fiery populist campaign rhetoric. But since taking office Jan. 1, da Silva -- known affectionately to Brazilians as Lula -- has pursued his social agenda without challenging the free-market policies that brought Brazil billions in foreign investment in the 1990s.

By holding the line, Brazil has remained one of the most attractive markets for international investors, and da Silva arrives in Washington with a strong hand, even as much of Latin America is in an economic crisis. He also has a reputation for charm.

''Lula has a record of being quite effective in these personal appearances, and he still has an aura about him,'' said Thomas Skidmore, a longtime Brazil expert at Brown University's Watson Institute of International Affairs in Providence, R.I. ``It's pretty sensational that a former metal worker is flying around the world to negotiate with the strongest country in the universe.''

U.S. and Brazilian diplomats expect the two leaders to disagree sharply on some issues but will seek to highlight areas of agreement. As Celso Amorim, Brazil's foreign minister, said last week in Washington, ``A mature relation means that you explore to the maximum the points of convergence, you try to limit the points of difference and you respect the diversity.''

Bush and da Silva differ on Cuba and on U.S. military involvement in fighting drug-funded Marxist guerrillas in neighboring Colombia. They also differ on the U.S.-led invasion of Iraq, which Brazil opposed.

More important, da Silva wants Bush to drop tariffs on Brazilian steel, citrus and other agricultural exports as a condition for Brazil's assent to a hemispheric free-trade zone by 2005. Brazil has been reluctant to endorse the so-called Free Trade Area of the Americas, which would reduce tariffs and barriers to trade after the year 2005.

Brazil insisted on several modifications to the official agenda for the Washington visit, a top Brazilian foreign service officer told Knight Ridder.

One stipulation was adding an item called ''fighting protectionism'' to protest what Brazil complains is a U.S. trade policy that unfairly keeps out its exports.

The United States maintains that is not so, citing two-way trade that grew from $15.6 billion in 1994 to almost $26 billion last year.

The Brazilian official said the two countries' representatives expect to address ''hot spots,'' including ways to resolve Venezuela's political crisis, how to best promote democracy in Cuba and how to help Argentina out of its deep economic crisis.

Reuters, 06.17.03, 1:29 PM ET RIO DE JANEIRO, Brazil, June 17 (Reuters) - Brazil's crude output fell 2.4 percent to 1.538 million barrels per day in May from the previous month due to maintenance work on a a rig on the important Marlim field, state oil giant Petrobras said on Tuesday. Petroleo Brasileiro, or Petrobras <PETR4.SA> (nyse: PBR - news - people), the only oil producer in Latin America's biggest country, said in a statement its natural gas output at home totaled 37.1 million cubic meters per day (mcmd), down from 38.4 mcmd in April. Combined domestic output of crude and natural gas in oil equivalent fell 2.5 percent to 1.77 million bpd. But the company's foreign oil output jumped to 159,316 bpd from April's 39,943 bpd, and natural gas production soared to 14.5 mcmd from 5.2 mcmd, after the purchase of a controlling stake in Argentina's Perez Companc was approved by regulators, allowing Petrobras to count Perez' output as its own. Petrobras produces oil or gas in Angola, Argentina, Bolivia, Colombia and the United States. Apart from Argentina and Brazil, Perez Companc also has operations in Bolivia, Peru, Ecuador and Venezuela. Petrobras' overall output of oil and gas at home and abroad totaled 2.015 million bpd last month, which compares to the average first quarter output of 2.043 million bpd, already taking into account the Perez Companc acquisition. Royal Dutch Shell <RD.AS> <SHEL.L> should become Brazil's first foreign oil producer next month or in August, and a range of other companies are in the exploration phase.

The Mercury New-Knight Ridder Newspaperss Posted on Mon, Jun. 16, 2003 By KEVIN G. HALL and DUNE LAWRENCE

BRASILIA, Brazil - Brazilian President Luiz Inacio Lula da Silva will visit the White House on Friday for the second time in seven months, a sign of the growing importance of South America's largest economy and the growing international stature of its leftist leader.

Da Silva, a former machinist, labor leader and union organizer, initially frightened Wall Street and the White House with fiery populist campaign rhetoric. But since taking office Jan. 1, da Silva - known affectionately to Brazilians as Lula - has pursued his social agenda without challenging the free-market policies that brought Brazil billions in foreign investment in the 1990s.

By holding the line, Brazil has remained one of the most attractive markets for international investors, and da Silva arrives in Washington with a strong hand, even as much of Latin America is in an economic crisis. He also has a reputation for charm.

"Lula has a record of being quite effective in these personal appearances, and he still has an aura about him," said Thomas Skidmore, a longtime Brazil expert at Brown University's Watson Institute of International Affairs in Providence, R.I.

"It's pretty sensational that a former metal worker is flying around the world to negotiate with the strongest country in the universe."

U.S. and Brazilian diplomats expect the two leaders to disagree sharply on some issues but seek to highlight areas of agreement. As Celso Amorim, Brazil's foreign minister, said in Washington last Friday, "A mature relation means that you explore to the maximum the points of convergence, you try to limit the points of difference and you respect the diversity."

Bush and da Silva differ on Cuba and on U.S. military involvement in fighting drug-funded Marxist guerrillas in neighboring Colombia. They also differ on the U.S.-led invasion of Iraq, which Brazil opposed.

More important, da Silva wants Bush to drop tariffs on Brazilian steel, citrus and other agricultural exports as a condition for Brazil's assent to a hemispheric free trade zone by 2005. Brazil has been reluctant to endorse the so-called Free Trade Area of the Americas, which would reduce tariffs and barriers to trade, but Brazil and the United States are co-chairs of a final round of talks aimed at sealing the deal by 2005.

"Brazil and the U.S. are jointly assuming responsibility for leading the hemisphere toward free trade and integration," said Donna Hrinak, the U.S. ambassador to Brazil. "We're essential partners in the hemisphere."

Brazil insisted on several modifications to the official agenda for the Washington visit, a top Brazilian diplomat in Brasilia, the capital, told Knight Ridder on the condition of anonymity. One stipulation was adding an item called "fighting protectionism" to protest what Brazil complains is a U.S. trade policy that unfairly keeps out its exports.

The United States maintains that's not so, citing two-way trade that's grown from $15.6 billion in 1994 to almost $26 billion last year.

Brazil also insisted that a session on the "war on terror" be changed to "combating terror," and that the sessions include a discussion of the United Nations in resolving future conflicts. The changes were intended to voice da Silva's displeasure that the war in Iraq went ahead without a second U.N. resolution authorizing force.

Brazil also contends that it, or possibly India, should get a seat on the U.N. Security Council to represent large, important and democratic developing nations.

In a sign of Brazil's growing importance, not only are the presidents talking but top Cabinet officials also are set to meet.

"From what I understand, the United States has this kind of meeting with a very reduced number of countries. So we are interested. We think it's a very good opportunity," Amorim said. "It's also a very good opportunity for the two heads of government to speak freely and frankly and to increase their personal relationship."

The Brazilian official said the two countries' representatives expect to address

"hot spots," including ways to resolve Venezuela's political crisis, how to best promote democracy in Cuba and how to help Argentina out of its deep economic crisis.

The bulk of the meeting is likely to be devoted to free trade. All countries in the hemisphere except Cuba have been negotiating such an agreement since 1994, but Brazil lately has suggested that free trade with its closest neighbors might take priority.

Brazil may be disappointed again on efforts to remove U.S. trade barriers that keep out its farm exports and key commodities.

"The big question for the Brazilians is how can they make any progress on these urgent items like orange juice and steel," Skidmore said.

Brazil also is weighing a trade deal with the European Union, where it faces barriers similar to those in the United States. Global negotiations by the World Trade Organization seek to reduce trade barriers to farm products but appear stalled. Brazil is using the hemispheric trade pact as leverage in the global talks, and playing the United States and European Union off each other.

Trying to match Washington tit-for-tat, Brazil and its neighbors in the Southern Cone Common Market, or Mercosur, expect to sign a free-trade deal with Peru in August. The United States signed a free-trade deal with Chile on June 6 in Miami.

U.S. lawmakers from South Florida are pushing for the hemisphere-wide trade deal in hopes of capturing for Miami the secretariat that would administer any regional agreement.