news.ft.com By Raymond Colitt in São Paulo Published: January 22 2003 19:36 | Last Updated: January 22 2003 21:30

Brazil's central bank surprised financial markets on Wednesday with an increase of its prime lending rate by 0.5 per cent to 25.5 per cent in a move to showcase tough inflation control.

It was the central bank's first interest rate decision since Luiz Inácio Lula da Silva (PT) took office as president on January 1. Most financial market analysts welcomed the move as a sign the central bank was willing to take unpopular measures to secure inflation.

The announcement did little to stem the currency on Wednesday, which fell more than 1 per cent to R$3.53 against the dollar,  due in part to ongoing fears in global markets over the threat of war in Iraq.

It is the fourth consecutive interest rate increase since October totaling 7.5 per cent and is certain to rekindle criticism by businesses fearing a further slowdown in economic activity.

Despite signs of slowing inflation, the central bank said on Wednesday, higher interest rates were required to bring price increases in line with official targets.

The rate increase came even though the central bank on Tuesday relaxed its inflation target from a maximum of 6.5 per cent to 8.5 per cent this year. In 2004 it aims for inflation to reach 5.5 per cent, compared to a target of 3.75 per cent with a margin of plus or minus 2.5 per cent.

The central bank had argued that tighter monetary policy this year would have a disproportionately negative impact on economic growth. An inflation target of 6.5 per cent, for instance, would imply a contraction of gross domestic product by 1.6 per cent.

The new inflation target, by contrast, would permit GDP growth of up to 2.8 per cent assuming equal conditions in both scenarios.

www.fox29.com

PORTO ALEGRE, Brazil (AP) _ Globalization foes were flocking to Brazil for the World Social Forum, the annual protest against the World Economic Forum held simultaneously at a Swiss ski resort.

The six-day event begins Thursday in the far southern city of Porto Alegre. As many as 100,000 activists are expected to attend from countries as diverse as Egypt, India and the United States.

The third annual social forum was featuring Brazil's new president, Luiz Inacio Lula da Silva _ the country's first elected leftist leader who on Friday will become the first government leader ever to personally address the forum. Government officials previously had been excluded.

Silva will then fly to Davos, Switzerland, to participate in the economic forum, which is expected to attract 2,000 business and government leaders.

The landslide election of Silva, a former radical union leader, in October was seen as a rejection of the free-market policies of his predecessor Fernando Henrique Cardoso.

Social forum participants say their opposition to unfettered American-style capitalism should strike a responsive chord this year. The summit follows a year of unprecedented business scandals involving multinational corporations, many of them with headquarters in the United States.

"Washington always preaches to the developing world about eliminating corruption and the rule of law," said Mark Weisbrot, an economist who co-directs the Center for Economic and Policy Research in Washington, D.C. "Here you see the United States has experienced corruption that is worse than anything in developing countries."

Participants will crowd into a soccer stadium and Porto Alegre's Catholic University for hundreds of panel discussions, debates and seminars on themes ranging from corporate misdeeds to the Third World's foreign debt.

They can also dance at a concert by Brazilian pop superstar Jorge Ben Jor, attend Japanese Noh theater presentations or even see a drag queen show.

Prominent activists attending the forum include actor Danny Glover, anarchist and linguistics professor Noam Chomsky and Aleida Guevara, the daughter of legendary guerrilla leader Ernesto "Che" Guevara.

French anti-globalization activist Jose Bove said Wednesday he had no plans to create disruption as he did at the first forum in 2001 _ when he led the invasion and occupation of a farm owned by U.S. agribusiness giant Monsanto. Brazil made him leave the country.

Bove, a farmer who became famous in 1999 when he and nine others used farm equipment to dismantle a French McDonald's under construction, said there's no need now that Silva is in power.

"Things have changed in Brazil," he said.

Activists also are using the forum as a way to draw media attention to their opposition to a possible U.S.-led war against Iraq.

People at the economic forum in Davos should take notice because the world economy will suffer if President Bush decides to attack, said Rainer Rilling, a German social sciences professor with the Berlin-based Rosa Luxembourg Foundation. "We hope a war can still be avoided."

www.falkland-malvinas.com Mercosur Wednesday, 22 January

Brazilian President Luiz Inacio Lula da Silva clearly identified with the anti globalization ideas of the Porto Alegre Social Forum, this week end will be the guest star at the Davos World Economic Forum, where he will try to convince leading businessmen and industry captains to trust Brazil and keep investing in the country.

Prte. Lula da Silva His own Workers Party was instrumental in the creation of the Social Forum that emerged precisely to counter attack the globalization ideas of Davos in Switzerland.

Just a few months ago, then candidate Lula was preaching “while Davos discusses how to accumulate more wealth, we at the Social Forum discuss how to distribute more fairly; they well know (Davos) that the reigning violence in the world originates in the insensibility of the men who command the world economy”.

But now as head of an administration needy of investments and the trust of the men who command the world economy, President Lula accepted the invitation to participate in the annual Davos meeting.

And in an attempt not to contradict and irritate many of his supporters in the Workers Party and the Porto Alegre Social Forum, Mr. Lula’s ministers have assured that the president will be taking to Davos the Social Forum critical message. President Lula also promised he will be present at the World Social Forum in Porto Alegre that convenes almost simultaneously with Davos, in the south of Brazil.

However the Brazilian president already has been exposed to severe criticism from distinguished followers such as sociologist Emir Sader who in an open letter said that “Lula must not be present at the banquet of those responsible for the world’s misery; Lula must not expose his prestige in a party of bankers who are responsible for famine in Africa, Asia and here in Brazil”, said Mr. Sader.

Anyhow, besides the critical message about inhuman capitalism Mr. Lula in Davos will have to ratify his administration’s respect for Brazil’s commitments. Instead of scaring capitalists Mr. Lula will assure investors that he plans no surprises and request trust in Brazil and his administration.

President Lula’s compromising agenda has him travelling this Friday to the Porto Alegre Social Forum and Saturday and Sunday to Davos where he will be interviewed live by the men who command the world economy with former Costa Rica president José María Figueres acting as anchorman.

And to scare any possible doubts, the Brazilian president will be travelling to Davos with four Ministers, Finance, Labour, Health and Culture, plus the head of the Development Office, Luis Fernando Furlán who as previous CEO of Sadia one of the world’s largest food companies was a regular participant of the Economic Forum.

Not even former president Fernando Cardoso, who only attended Davos, ever travelled with such an impressive delegation.

“We’re not in the job of opposing the Porto Alegre and Davos forums, rather establishing a constructive dialogue”, said Labour Minister Jacques Wagner.

“If we manage a good rapport with Davos, a good credit condition, Brazil’s country risk will decrease and restrictions to investments will minimize”, indicated Mr. Furlán.

www.forbes.com Reuters, 01.22.03, 10:19 AM ET

SAO PAULO, Brazil, Jan 21 (Reuters) - Brazil's financial markets sagged on Wednesday as investors braced for the possibility of a U.S.-led war in Iraq and a resulting drop in interest in emerging markets.

On the home front, the market waited for the Central Bank to announce its first interest rate decision of the year. Most have been betting the 25 percent Selic benchmark rate would be held, but some said the odds had changed after the Central Bank relaxed 2003 inflation target on Tuesday.

"What will decide direction (of stocks) today is the exchange rate," said Gustavo Alcantara, a fund manager at Banco Prosper. "Furthermore, there is no longer a consensus on the maintaining the Selic rate at 25 percent."

The real weakened to 3.515 per dollar from Tuesday's close of 3.485 per dollar, almost reversing gains posted in the first two weeks of the year. The Sao Paulo Stock Exchange's Bovespa index <.BVSP> fell 1.2 percent to 11,299, close to where it began the year after a five-day losing streak.

Most of the Bovespa was in the red. However, Portugal Telecom <PTCO.IN> mobile phone company's Telesp Celular Par. <TSPP4.SA> (nyse: TCP - news - people) gained.

Last week Brasilcel, a 50-50 Brazilian mobile phone venture owned by Spain's Telefonica Moviles <TEM.MC> and Portugal Telecom, said they would buy Brazilian rival Tele Centro Oeste (TCO) <TCOC4.SA> via Telesp Cel for $1 billion.

"The first impression was that it would raise Telesp's debt to $2 billion, but now people are thinking the buy is not so bad after all and for the medium-loner term it gives them a bigger area of operation," said John Carioba, director of Indusval brokerage. Telesp stock rose 1.8 percent to 4.04 reais.

But traders said the mood was poor as the United States looked ever closer to attacking Iraq while neighboring Venezuela's social unrest continued. Both crisis have raised oil prices which risks fueling an acceleration in inflation in Brazil by elevating transport prices.

Inflation spiked to a seven-year high of 12.5 percent in 2002 as a 35 percent depreciation in the real last year lifted fuel and other prices.

On Tuesday the Central bank easing its inflation targets to 8.5 percent for 2003 and 5.5 percent for 2004.

www.sfgate.com Tuesday, January 21, 2003

(01-21) 12:22 PST BRASILIA, Brazil (AP) --

Inflation in Brazil for 2003 should drop to 8.5 percent from 12.5 percent in 2002, the country's central bank president said Tuesday.

The 2003 inflation target unveiled by Henrique Meirelles was within analysts' expectations, but is more than double the previous government estimate of 4 percent.

The target for 2004 inflation is 5.5 percent, up from the previous 3.8 percent government estimate, Meirelles said.

Consumer prices soared more than expected last year in large part because of a 35 percent drop in the value of the Brazilian currency, the real.

Investors sent the real plunging and cut off credit lines to Brazilian companies over concerns that Brazil's new leftist president would put in place policies that could lead to a default on the country's massive foreign debt. Brazil was also hit hard by rising oil prices.

Meirelles blamed last year's inflationary pressures on "a crisis of confidence in the Brazilian economy."

The real strengthened somewhat after President Luiz Inacio Lula da Silva appointed Meirelles and other fiscal moderates to key economic posts, and pledged to honor Brazil's obligations.

Meirelles said that Brazil's 2003 yearly inflation rate would remain high through the fall, but should drop rapidly in the fourth quarter and meet the year-end target.

But he warned that the inflation targets for 2003 and 2004 could change if outside factors affect Brazilian consumer prices. One possibility cited by analysts is a U.S.-led war with Iraq.

An inflation target of 8.5 percent is compatible with 2003 economic growth in Brazil of 2.5 percent, Meirelles said.

Brazil's economy could contract 7.3 percent if the monetary authority tried to bring inflation down to 4 percent by the end of the year, the central bank said.