BY MICHAEL MCKEE <a href=www.nwanews.com>BLOOMBERG NEWS Wednesday, May 14, 2003

WASHINGTON — The U.S. trade deficit widened in March to the second largest on record as imports of oil jumped after a petroleum strike in Venezuela and in anticipation of war in Iraq, a government report showed.

The United States imported $43.5 billion more in goods and services than it exported, following a revised $40.4 billion shortfall in February, the Commerce Department said Tuesday. The record deficit was a $44.9 billion gap last December.

Crude-oil imports reached a record in March amid concern that supplies would be disrupted by war. The United States was rebuilding stocks after the two month-Venezuela strike, in December and January.

And, even as a weaker U.S. dollar may boost exports, economists said they expect little narrowing of the trade gap. "Away from energy, we don’t expect much of an improvement in the trade balance over the next few months," said Kevin Logan, senior market economist at Dresdner Kleinwort Wasserstein in New York. "Other economies are still quite weak, with growth very sluggish, so we don’t expect the demand for exports to increase much."

The U.S. economy grew at a 1.6 percent annual rate in the first quarter, according to the government’s first estimate. Japan is expected to have grown just 0.4 percent, according to analysts surveyed by Bloomberg News. And the European Commission said the economy of the dozen nations that share the euro as their currency probably shrank in the first quarter.

The decline in the dollar may have contributed to the 2.9 percent increase in imports to $126.3 billion in March, the second highest on record behind September 2000. Goods ordered months ago and delivered in March cost more because the dollar has fallen 10 percent against the euro this year. Imports from western Europe surged in March to a record as the trade deficit with that region rose to $7.8 billion from $6.6 billion.

The drop in the dollar is expected, eventually, to help exports by making U.S.-made products less expensive internationally. The currency also has declined 11 percent this year against the Canadian dollar and 4.6 percent against a basket of currencies from the biggest U.S. trading partners. "Persistent weakness in the dollar and an expected rebound in overseas growth later this year should help to improve the U.S. trade picture down the road," said Joseph Abate, senior economist at Lehman Brothers Inc. in New York.

The value of crude oil imports surged to a record $9.1 billion in March, from $7.5 billion the previous month. The United States imported 300.7 million barrels of oil for the month, up from 247.1 million in February. The price of crude eased to $30.27 a barrel from $30.46 in February.

Imports of autos and auto parts rose 2.1 percent to $17.2 billion in March.

A record 3.53 million imported vehicles were sold in March, topping the previous record of 3.52 million set in October 2001, when automakers offered zero percent financing to lure buyers after the Sept. 11 terrorist attacks.

Exports rose 0.6 percent to $82.8 billion in March from $82.3 billion the previous month. Shipments abroad of semiconductors, pharmaceuticals and petroleum products all increased.

And exports of consumer goods rose 5.6 percent to $7.3 billion, after falling 7.5 percent in February.

Companies including 3M Co., United Technologies Corp., and Chiquita Brands International Inc. have benefited from the weaker dollar making their goods cheaper overseas and increasing the value of their international sales when they are converted into dollars.

Peter Morton <a href=www.nationalpost.com>Financial Post, with files from Reuters Wednesday, May 14, 2003

WASHINGTON - Soaring oil imports in March helped push the U.S. trade deficit to near record highs even as American exporters are beginning to see a turnaround in sales abroad.

The U.S. deficit hit US$43.5-billion, up from the US$40.4-billion shortfall in February, the U.S. Commerce Department said yesterday. The March deficit is just shy of the record US$44.9-billion deficit last December.

Economists said oil imports surged in March as U.S. refineries began to rebuild stocks after the oil workers strike in Venezuela and war worries pushed global oil prices higher.

"Away from energy, we don't expect much of an improvement in the trade balance over the next few months," said Kevin Logan, a senior market economist at Dresdner Kleinwort Wasserstein in New York. "Other economies are still quite weak, with growth very sluggish, so we don't expect the demand for exports to increase much."

The U.S. economy grew at a 1.6% annual rate during the first quarter while Japan is expected to see growth of just 0.4% during the same period. Most economists believe the economy of the European Union likely shrank during the first three months of the year.

U.S. exporters did see a 0.6% increase in foreign sales to US$82.8-billion in March from US$82.3-billion the previous month, mostly of semiconductors and consumer goods, thanks to a weaker U.S. dollar.

"It's kind of hopeful that we're seeing a modest increase in exports, which is better than the declines we had seen earlier," said Jade Zelnik, chief economist with RBS Greenwich Capital Markets, in Greenwich, Conn. "So perhaps the weaker dollar is beginning to support exports."

The administration of George W. Bush appears to be quietly changing a decade-old "strong dollar policy" with John Snow, the Treasury Secretary, repeating that a "sound currency" is key to a sound economy.

The U.S. dollar fell to a four-year low against the euro Monday after Mr. Snow said on the weekend a weaker dollar would help U.S. exports. The U.S dollar has fallen by 28% against the euro over the past 12 months and 17% over the past six months. It has also fallen by 12% against the Canadian dollar and by 5% against a basket of currencies from the U.S.'s biggest trading partners.

"Persistent weakness in the dollar and an expected rebound in overseas growth later this year should help to improve the U.S. trade picture down the road," said Joseph Abate, senior economist at Lehman Brothers Inc. in New York.

The weak dollar may have also contributed to a 2.9% increase in imports in March to US$126.3-billion -- the second highest on record after September, 2000. Imports from Western Europe also jumped in March to a new record as the trade deficit with the EC countries rose to US$7.8-billion from US$6.6-billion.

The value of crude oil imports surged to a record US$9.1-billion from US$7.5-billion the previous month while the U.S. imported 300.7 million barrels of oil in March, up from 247.1 million the previous month.

The U.S. trade deficit with Japan widened to US$5.8-billion from US$5.3-billion while its deficit with the Organization ofPetroleum Exporting Countries expanded to a record US$5-billion from US$3.4 billion.

Its deficit with Canada, its largest trading partner, hit US$5.2-billion from US$4.3-billion in February. The deficit with its other NAFTA partner, Mexico, remained steady at US$3.9-billion.

Meanwhile, John Manley, Canadian Finance Minister, said yesterday he will bring concerns about large U.S. current account and trade deficits to a finance ministers meeting of Group of Seven nations this week.

pmorton@nationalpost.com

By JEANNINE AVERSA Associated Press Writer

WASHINGTON (AP)--A big jump in imported oil helped catapult the U.S. trade deficit in March to $43.5 billion, the second-highest level on record.

The Commerce Department reported Tuesday that the trade gap grew by 7.6 percent in March from February's deficit of $40.4 billion.

Although exports went up in March for the third month in a row, imports rose nearly five times faster, leading to a bloated trade deficit that was second only to the record deficit of $44.9 billion produced in December.

``Boy, does this country like to buy things,'' said Joel Naroff, president of Naroff Economic Advisors.

To combat the trade deficit, the Bush administration says the United States should seek to boost American exports by attacking foreign trade barriers, rather than raising barriers to imports coming into the country.

Trade critics, including labor unions, say the deficit is evidence that President Bush's free-trade policies are not working and are contributing to hefty job losses in manufacturing.

``The gap between this president's policies and the American workers who need jobs is widening by the day,'' said Rep. Sherrod Brown, D-Ohio.

In March, imports of goods and services increased by 2.9 percent from the previous month, to $126.3 billion, the second-highest level of imports ever recorded for a month.

Imports of a wide variety of industrial supplies, including crude oil and plastics, rose to a record $28.3 billion in March.

America's bill for imported crude oil hit a record $9.1 billion in March. That reflected an increase in the amount of imported crude oil to 300.7 million barrels of oil in March, from 247.1 million in February. The price of crude oil dipped to $30.27 a barrel in March, from $30.46 in February, which marked a 20-year high.

Although the United States' economy is struggling to get back to full speed, its economic health remains better than many other countries' that have been mired in a worldwide economic slump.

Exports of goods and services grew by 0.6 percent in March from the previous month to $82.8 billion. Private economists say the weaker U.S. dollar, which has lost altitude over the past year, is helping exports at a time of lackluster global demand. Weak growth abroad, however, will continue to challenge U.S. exporters, economists say.

In March, exports of industrial supplies, including cotton and chemicals, rose to $14.3 billion, the highest level since February 2001.

A weaker dollar makes U.S.-made products more competitive on foreign markets and less expensive for overseas buyers.

The U.S. dollar fell to a new four-year low against the euro Monday. The decline came one day after Treasury Secretary John Snow said a weaker dollar would help U.S. exports, a view that private economists and U.S. manufacturers share.

However, traders viewed the remarks as signaling a retreat from the long-standing position of the Bush administration and the previous Clinton administration in support of a strong dollar.

Treasury Department spokesman Rob Nichols on Monday said Snow's remarks on Sunday were not meant to signal a shift away from a strong dollar policy.

Tuesday's trade report also showed that the U.S. deficit with Mexico reached a record $3.9 billion in March. The U.S. trade shortfall with Canada widened to $5.2 billion in March, the highest level since January 2001.

The U.S. deficit with oil-producing nations, including Saudi Arabia and Venezuela, grew to an all-time monthly high of $5 billion in March.

The United States' politically sensitive trade deficit with China grew to $7.7 billion in March, from $7.6 billion in February. In a bright spot, though, exports to China rose to a record $2.4 billion in March.

The United States' trade gap with Japan widened to $5.8 billion in March, from $5.3 billion in February.

On the Net: Trade report: www.commerce.gov AP-NY-05-13-03 1550EDT

The StreetBy TSC Staff 05/13/2003 10:49 AM EDT

The U.S. trade deficit reached $43.5 billion in March, jumping from February's $40.4 billion, the Commerce Department reported Tuesday.

The deficit was the second-highest ever, beating Wall Street expectations and trailing only the $44.9 billion reported in December. The swelling trade gap is one reason the Bush administration has recently indicated that a strong dollar might not be its first priority.

Some of the dollar's recent weakness might be showing up in the trade ledger, but not enough to offset rising imports. According to the report, exports grew for the third month in a row in March, but imports rose almost five times as fast, increasing by 2.9% from February to $126.3 billion. Notably, imports of industrial supplies, such as crude oil and plastics, rose to a record $28.3 billion.

Meanwhile, comments made Monday by Treasury Secretary John Snow led traders to believe that the administration was privately welcoming some depreciation of the dollar in order to try and boost exports. But publicly, the administration has supported a strong dollar policy.

The U.S. trade deficit with Mexico and Canada reached record levels of $3.9 billion and $5.2 billion, respectively, in March. With oil producing nations, including Saudi Arabia and Venezuela, the U.S. trade deficit reached an all-time high of $5 billion.

By Martin Hutchinson <a href=www.upi.com>UPI Business and Economics Editor From the Business & Economics Desk Published 5/13/2003 9:27 AM

WASHINGTON, May 12 (UPI) -- During the late 1980s and 1990s, there was general agreement on the policies that emerging markets should implement in order to achieve economic growth, so much so that a term "Washington Consensus" emerged for it. There is no longer such a consensus, and citizens of many countries will suffer for its disappearance.

The Washington Consensus, as originally propounded by international economist John Williamson in 1990, consists of a set of free-market but middle-of-the-road economic policies, that the IMF and World Bank use as a template when judging Third World economies. Its highlights include the following:

-- Fiscal discipline, but with no preference between achieving this through higher taxes or lower spending -- A redirection of public spending towards areas with a high economic and social return, such as public education, public health and infrastructure -- Broadening the tax base -- Liberalizing interest rates -- A competitive exchange rate, and free movement of trade and foreign direct investment -- Privatization and deregulation in areas where there are barriers to firms entering and exiting the business -- Secure property rights.

The consensus failed to live up to its advance billing, with gross domestic product growth rates in Latin America, where it was most intensively pursued during the 1990s, declining from 4.2 percent per annum in the first half of the 1990s to 2.0 percent in the second half, and to negative overall economic growth since 2000. Clearly it is at best in trouble.

Criticism of the consensus has come from two directions, the free-market right, generally in the United States, and the anti-free-market left, in emerging markets themselves but also, since 1999, from the anti-globalization protesters of the rich west.

From the right, there are three major criticisms of the consensus: -- It fails to discriminate between cutting public spending and raising taxes as methods of imposing fiscal discipline, thus over time inexorably expanding the public sector -- It fails to provide adequately for the interests of the domestic private sector in emerging markets, in particular the interests of private sector savers, generally middle class, who are often the victims of repeated expropriation of one sort or another by local governments. -- It rests on an assumption that government and the international financial institutions will direct policy, leaving inadequate policy space for the emerging markets private sector, the leaders of which aid bureaucrats tend to regard with deep suspicion. It is notable that in countries in which the IMF and World Bank have been prominent in recent decades, the private sector is of much less importance in policy formation than the government.

Indeed, even when comparing countries with equal degrees of poverty, a country such as Thailand in which the private sector is powerful is over the long run likely to be very much more successful than one such as Argentina, in which the local government and international policy bureaucrats call the tune.

There is thus a clear alternative to the consensus available, which has been in one form or another been proved successful in East Asia, and is now proving its mettle in India, a country of enormous social problems where the influence of Washington aid bureaucrats is limited.

In much of the world, however, Latin America in particular but also almost all of Africa and most of the Middle East, the critique of the consensus has come from the other direction. In the recession since 2001, it is this leftist criticism of the consensus that has achieved most political traction and made its way most prominently into emerging market public policy: -- Fiscal discipline, the balancing of the national and state budgets, is denounced as "Herbert Hoover economics" (Hoover himself, of course, far from being fiscally disciplined, increased public spending sharply during his 4-year tenure of the presidential office.) Instead of "Hooverism," primitive Keynesian remedies for recession, involving public sector handouts to all and sundry, are repeatedly tried in an effort to restart the economy. -- Education, health and infrastructure are neglected, particularly in Africa, and money is spent instead on social handouts and on propping up loss-making public sector monopolies. -- Tax policies are given a populist tinge, in an effort to squeeze the "rich" for electoral gain -- Interest rates are once more fixed and subsidized, and credit is directed by the government, to reduce the borrowing cost of the government and provide subsidies to favored companies at the expense of middle-class savers. -- Free trade is denounced as "neo-liberalism," and bilateral deals are arranged with neighboring countries which are in a state of equal economic decrepitude -- Exchange controls are reintroduced, not only on capital inflows, to prevent profits going to foreign "speculators" but more perniciously on capital outflows, in an attempt to trap domestic savings where they can be looted -- South Africa has recently strengthened these, as I mentioned last week. -- Foreign direct investment is discouraged, particularly in industries that can be labeled "strategic" and existing foreign direct investors are harassed by national and local bureaucracy, in the hope of increasing the state sector's cash returns from them -- the Chilean Luksic group's unhappy experience in Peru is a good (or rather, bad) example of this. -- Privatization is halted, and privatized companies which have been sold to foreign investors are harassed, in the hope that they can be returned to state control. -- Property rights become once more a political plaything, with environmental dictats now being used to add to their restrictions, and outright expropriation in countries such as Venezuela.

The reversal of consensus policies is extremely widespread. In Latin America, there is now no country except to a limited extent Colombia, in which the hated "neoliberal" policies are still pursued -- Luiz Ignacio Lula da Silva's Brazil talks the talk, but is showing no sign of walking the walk. In Africa, "consensus" policies were never very extensively tried in the first place, and are now limited to at most Botswana and Uganda. In the Middle East, the existence of oil revenues appeared to obviate the need for fiscal and economic discipline, and only a few small polities such as Qatar remain the exception.

In Asia, the new Roh Moo-hyun government has turned away from Korea's version of the consensus, that had been implemented by the previous Kim Dae-jung administration, and appears to be flirting with nationalism, protectionism and anti-business activism, all of which are likely to cause trouble. Indonesia has effectively ceased privatization, and is pursuing increasingly nationalist economic policies, modified only by the need to get further money out of the IMF and World Bank, which are themselves only too eager to lend it.

More optimistically, there are at the other extreme a number of countries which have worked out their own variant on consensus policies, and are pursuing them with some success. Malaysia broke publicly with the international institutions in 2001, and has achieved continued economic growth in difficult conditions with a policy that can best be described as free market autarky. Thailand under prime minister Thaksin Shinawatra has taken its balance of payments for granted and pursued a policy of development oriented towards domestic small business, again with some measure of success. Both countries have paid much more attention to the needs of domestic middle class savers, and less attention to the needs of international capital, than the consensus would have recommended. India, too, has achieved a steadily improving rate of growth on the back of a high domestic savings rate and good returns for savers, without ever solving its fiscal problems as the consensus would have dictated.

The Washington Consensus is thus being applied in a small and decreasing number of countries currently, and as a policy mix is unlikely to be revived. (A new book "After the Washington Consensus" by John Williamson and Pedro-Pablo Kuczynski, suggesting a revised post-consensus economic development strategy for Latin America, was launched Monday at the Institute of International Economics; I will review its policy recommendations in due course.)

Clearly, if the useful recommendations in the consensus were kept, the errors discarded and the omissions rectified, this would be a good thing. However, in too much of the world this is not happening. Instead, country after country is reverting to a poisonous mix of nationalism, socialism and protectionism that promises to be economically highly counterproductive.

To see what the result of such a policy mix might be, one need only look at Venezuela, whose per capita GNP declined by 20 percent between 1950 and 2000, at a time when even in Latin America the average per capita GDP was more than doubling. Throughout that period, Venezuela has benefited from oil revenues, which were of course greatly increased by the oil crises of 1973 and 1979. However, by bad policy of democratically elected governments since 1958, Venezuela has squandered its oil wealth and impoverished its people.

Benjamin Disraeli, in "Sybil" (1845), wrote of "Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets. The rich and the poor."

As the current recession grinds on, the world may increasingly be divided into two worlds, differing as completely as did Disraeli's two nations. The poorer world, of the vast majority of Latin America, Africa and the Middle East, together with scattered countries elsewhere, will be separated from the richer to the same degree as Disraeli's two nations. But the separation will be due, not to differing resources, or to rich country oppression, or even to differing prior levels of wealth, but to differing policy mixes: the improved consensus vs. the rejected consensus.

By then, even to those who see its defects all too clearly, the Washington Consensus, and the slow growth and modest progress in emerging markets that it produced, will be seen as a lost Nirvana.

-0- (The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)