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Brazil and Germany will continue to support each other’s applications for a permanent seat on the U.N. Security Council, German Chancellor Gerhard Schröder said after meeting with the newly elected Brazilian president, Luiz Inacio Lula da Silva, in Berlin on Monday.

Schröder made a similar declaration a year ago when he met with da Silva’s predecessor, Fernando Henrique Cardoso. Schröder said the German government had great respect for the speed with which da Silva - Brazil’s first left-wing president in more than 40 years - had begun to address his country's problems.

Da Silva took office on Jan. 1 on a platform of wide-reaching political and economic reform, and a promise to end hunger in Brazil.

www.voanews.com VOA News 28 Jan 2003, 13:41 UTC

Anti-globalization activists attending the World Social Forum in Brazil have held a final demonstration to close out the six-day event.

Thousands of activists from around the world rallied in Porto Alegre Monday to protest against a proposed hemispheric free trade zone stretching from Canada to Argentina. Demonstrators said it will strangle South American economies. Activists also protested against possible military action in Iraq.

Organizers say as many as 100,000 people attended the six-day forum, covering topics that included corporate corruption and the developing world's foreign debt.

The forum is designed to coincide with the World Economic Forum being held at the same time in Davos, Switzerland.

New Brazilian leftist President Luiz Inacio Lula da Silva and American actor Danny Glover were among those who attended the World Social Forum.

reuters.com Tue January 28, 2003 07:57 AM ET

SAO PAULO, Brazil (Reuters) - Brazilian supermodel Gisele Bundchen Monday threw her weight behind President Luiz Inacio Lula da Silva's plan to eradicate hunger in Latin America's largest country.

"I hope that everyone starts to help by giving what they can," Gisele said after handing over a check for $150,000 to Food Security Minister Jose Graziano, who is overseeing the president's new "Zero Hunger" program.

The 22-year-old model made the donation at the opening ceremonies of Sao Paulo Fashion Week, where she was set to parade down the catwalk sporting men's suits designed by Lula's personal tailor, fellow Brazilian Ricardo Almeida.

Gisele isn't the only celebrity backing Lula's goal. Brazilian soccer star Ronaldo has also agreed to participate in the government's war on hunger, though he has yet to open his wallet for the program.

Lula, viewed nervously by some investors who fear he may hurt the economy with populist policies, has made hunger a top priority of his center-left administration.

www.upi.com By Bradley Brooks UPI Business Correspondent From the Business & Economics Desk Published 1/28/2003 3:46 PM

RIO DE JANEIRO, Brazil, Jan. 28 (UPI) -- Bradesco, Brazil's biggest private bank, said Tuesday it is buying the Brazilian asset management arm of J.P. Morgan Chase & Co., which oversees some $1.94 billion in funds.

It is the latest aggressive move by Bradesco in buying out a foreign competitor in what analysts say is shaping up to be another dismal year for Latin America's financial services sector.

The transfer of funds from JP Morgan Fleming Asset Management to Bradesco will take place within 60 days and will bring the total amount managed by Bradesco Asset Management -- or BRAM -- to $16.6 billion.

Bradesco didn't say how much it paid for JP Morgan Fleming, nor did it indicate if it would unveil the numbers in the future. But local analysts have said the deal is likely worth about $70 million, or between 3.5 percent and 4 percent of total assets Bradesco will take over.

Government statistics indicate that BRAM is Brazil's second-largest asset manager, but the Rio de Janeiro-based investment bank Pactual reports this move puts Bradesco ahead of the state-owned Banco do Brasil as the country's leader in the business.

"This is another step in the consolidation process observed in the asset management industry, and BRAM has been the most active player so far," Pactual economist Gustavo Hungria wrote in a Tuesday report.

Despite the announcement, JP Morgan underscored that it is not planning an exit of Brazil, saying it remains confident in the country.

But Tuesday's action is the latest in a series of moves by foreign banks to reduce exposure in Latin America, especially, of late, in Brazil.

Although a disastrous economic year has been seen across the region, Ursula Wilhelm, director of Latin American bank credit ratings at Standard & Poor's in Mexico City, said in Brazil's case the recent moves aren't just based on fears the economy will tank further.

"A lot of the acquisitions have been related to improving scale," Wilhelm said. "The ones that have exited -- it is because they didn't have the scale to service that business profitably."

"It's not because they think Brazil is a good or bad opportunity, it is more related to what the business requires in terms of investments."

As an example, Wilhelm cited Spain's No. 2 bank BBVA, which two weeks ago retreated from Brazil by selling its subsidiary there to Bradesco.

"They only sold the institution they had in Brazil, they haven't announced any intentions to sell any of the other investments in Peru, Colombia, Venezuela, Mexico or Argentina," Wilhelm said.

"BBVA's bank (in Brazil) was in the middle -- it wasn't a large or small bank. To compete with large banks, they would have had to make a significant investment."

Which is where the real problem lies: foreign banks have zero appetite to dump any more cash into Latin America, and instead of stagnating in the middle of the sector they are opting to cut their losses and run.

BBVA, for instance, had invested some $10 billion in Latin America in the past decade before deciding it couldn't stomach any more of Brazil's volatility.

How much longer will it be, some analysts ask, before the bank decides to exit other countries in the region?

In the last decade foreign banks' market share in Latin America has grown from 10 percent to 50 percent. Yet as the economic woes of the past few years begin to drive them out of the region, domestic institutions have seemed willing to pick up their assets.

The latest Bradesco deal comes one year after it took over Deutsche Bank's asset management arm and its $600 million in funds.

Banks such as Bradesco -- with its 14.5 million clients -- and Banco Itau are far more widespread across Brazil than their foreign competitors, the latter of whom rarely penetrate beyond the country's most populated and richest areas.

The economic situation in Brazil -- while improving -- is unlikely to tempt any foreign banks to make the investments needed to catch up with domestic institutions, analysts say.

The local currency -- the real -- shed about 35 percent of its value in the past year as the election of the leftist Lula rattled markets. The main stock index lost some 18 percent in 2002.

Both have rebounded somewhat, but with the continuing political standoff in oil-rich Venezuela, and the threat of war in Iraq, nobody is ready to crown Brazil with emerging-market darling status just yet.

Wilhelm said that it is too early to tell how the banking sector will fare under Lula.

"I was just in Brazil last week and I heard everybody saying that 'he had a good beginning, but the big issues are yet to come,'" she said.

Brazil's banks, like many in Latin America, are extremely susceptible to shifts in governmental policy, largely because of significant holdings in sovereign securities.

This becomes a problem, analysts say, when banks have only one entity -- Brazil's government, for instance -- as a main debtor.

"This poses significant risks in terms of what's going to be the government's intention regarding domestic debt, whether they plan to reschedule it or change the terms and conditions," Wilhelm said.

Which is a main concern for those watching the progression of Brazil's new government -- whether it will stick to fiscal austerity and moderate policies unveiled in the first month of Lula's rule, or if some regression on economic reforms awaits investors.

As for what the Latin American banking sector can expect in 2003 following the brutal year it just came through, Wilhelm was decidedly pessimistic.

"In Venezuela -- the economy is completely paralyzed. You now have foreign exchange controls that are harming banks. If you look at Argentina there are still unresolved issues -- the banking system has completely lost creditability with the population," she said.

Everybody remains cautious on Brazil, Wilhelm said, while Mexico and Chile are the most stable -- though not particularly attractive -- destinations for foreign capital in the region.

"The scenario is not really bright," Wilhelm concluded.

www.upi.com By Bradley Brooks UPI Business Correspondent From the Business & Economics Desk Published 1/27/2003 6:00 PM

RIO DE JANEIRO, Brazil, Jan. 27 (UPI) -- It was an innocuous moment of protest, but in some regards it may foreshadow Brazil's battles in the coming years.

Jose Genoino, the president of the ruling Workers Party, was on the business end of a strawberry-and-whipped-cream pie hurled his way by three activists during a news conference this weekend at the World Social Forum in southern Brazil.

The event was mostly comedic -- the protesters claimed to be representing "Confectioners Without Borders" -- but if external shocks coupled with even a few governing gaffes occur, it may not be the last time Brazil's new government ends up with pie on its face.

Unquestionably, the mood in Brazil and for market watchers outside of the country is bullish.

But local economists who are better informed about looming internal struggles for Brazil's new President Luiz Inacio Lula da Silva are expressing caution that the country -- saddled with its $240 billion of debt -- may not be out of the woods just yet.

"Lula isn't representing the people at (the World Economic Forum in) Davos," yelled the young lady who tossed the pie toward Genoino.

A political statement as blasé as they come.

Yet it is a peep of domestic protest that could turn into a dull roar as Lula approaches an explosive battle on the home front, that of pension reform.

Streamlining the country's money-draining pension system is of utmost importance if Brazil is to remain solvent, especially if a war in Iraq and events in Venezuela continue to send strong external shocks toward the nation.

"You can break down the analysis of the debt path between short and long run," said Gustavo Reis, an economist with the Rio de Janeiro-based investment bank Pactual.

In the short run, Reis said, the government's promise unveiled this weekend at the World Economic Forum of a primary budget surplus -- excluding interest payments -- of 4 percent of gross domestic product may keep the total debt from rising, if the local currency stabilizes.

But there are two key external issues -- war in Iraq and the political uncertainty in oil-producing Venezuela -- that are playing havoc with Brazil's currency, the real, which fell 0.3 percent to 3.63 Monday, a fall of more than 35 percent in the past 13 months.

"Every 10 percent of foreign exchange devaluation means an additional 2 percentage points to the debt-to-GDP ratio," Reis said, noting that that was not taking into account any other factors that might inflate debt.

Economists expect the government to announce this week that debt now accounts for 56 percent of GDP.

"Over the short run, the government is able to trim down expenses a bit and control the debt if the exchange rate devalues at a reasonable pace," Reis said.

"The real problem seems to be with investors' uncertainty about the ... persistence of the current fiscal adjustment into the future."

That is why it is of utmost importance for Lula and the Workers Party to push through reforms to the country's pension system -- whose deficit was about 3 percent of GDP in 2002.

Brazil watchers are following developments on pension reform closely, as it has become a bellwether for whether Lula and his economic team will have the political backing -- or the resolve on austerity -- to push it through.

When it was in the opposition, the Workers Party repeatedly blocked former President Fernando Henrique Cardoso's attempts at pension reform.

Suddenly shifting 180 degrees on the issue, though, means Lula will have to battle against civil servants -- key constituents in his election -- and public unions.

This may very well fracture Brazil's left and further complicate Lula's job of building a coherent coalition government that will be able to push anything through a Congress made up of 18 political parties.

"I think in one year, all these people who voted for Lula will be trying to push him out," said a top economist with Brazil's central bank who requested anonymity.

"We are not out of the game yet, but we are losing."

The economist, who expressed deep pessimism about the paralyzing political standoffs that Brazil may see in the coming years, said he isn't convinced about the new government's real appetite for fiscal reforms and austerity.

"For 20 years, Lula is anti-United States and anti-free market, and suddenly in the last three months, he has changed? I don't know if I believe it," the official said.

That pessimism aside, Lula has come a long way during his first four weeks in office when it comes to winning over the international political and business communities.

"We're encouraged by the economic leadership that President Lula and his new economic team have already shown," said John Taylor, undersecretary for foreign affairs at the U.S. Treasury, while speaking to the Brazil-U.S. Business Council on Monday in Washington.

"There are many reasons to be hopeful about Brazil."

Taylor did note that Lula would have to build legislative coalitions to push through reform, but he sounded a touch more optimistic than local Brazilian economists on the topic.

"The atmosphere of cooperation that dominated President Lula's inauguration speech can provide comfort in this regard," Taylor said.

Which, clearly, is what the U.S government needs to be saying at this point -- unless it wants to see another default in Latin American, one that would dwarf Argentina's.

But for those closely tracking Brazil's fiscal health, there is no room for comfort on the debt question just yet.