UPDATE 1-Oil rises as diplomatic battles rage on Iraq www.forbes.com Reuters, 03.10.03, 7:50 AM ET (updates thoughout, PVS SINGAPORE) By Sujata Rao LONDON, March 10 (Reuters) - War jitters boosted oil prices on Monday as the United States seemed confident of gaining U.N. support for a resolution allowing it to disarm Iraq by force. London benchmark Brent for April rose 24 cents to $34.34 a barrel while U.S. light crude rose 26 cents to $38.04, about $3 under highs hit in the buildup to the 1990 Gulf War. In Vienna, OPEC oil ministers were assembling to discuss output policy ahead of a possible attack on cartel-member Iraq. Iran said on Monday it would oppose any proposal to suspend output limits should war break out in Iraq as this could imply support for a U.S.-led war. Saudi Arabia and Kuwait have signalled they could allay supply fears by allowing cartel members to pump oil freely. But Saudi faces stern opposition from Iran for a plan that Tehran says implies support for a U.S. attack by controlling oil prices. "Iran will not back politically motivated decisions," Iranian Oil Minister Bijan Zanganeh told the official IRNA news agency. OPEC should refrain from taking decisions which would imply support for a "U.S. military assault against one of OPEC's member states," Zanganeh said. "It looks like it could be a very strong week for crude and products as war fears mount," said GNI Man Research analyst Lawrence Eagles. "It's difficult to see oil going lower with the potential of conflict so close. There's really nothing to push prices down very quickly, the risks are all skewed to the upside," said David Thurtell, strategist at Commonwealth Bank in Sydney. Price hurtled higher on Friday after a new draft resolution proposed by the United States and Britain set a deadline of March 17 for Iraq to destroy all weapons of mass destruction, or face war. Iraq denies having such weapons. The showdown vote could come as soon as Tuesday. The resolution has sparked a wave of intense lobbying in the 15-member U.N. Security Council and U.S. Secretary of State Colin Powell said there was a "strong chance" of getting up to 10 votes in favour of the document. The issue of Iraq's compliance with U.N. demands has created a bitter divide in the U.N. Security Council. The United States, Britain, Spain and Bulgaria seek support for military action from Pakistan, Chile, Mexico, Angola, Cameroon and Guinea, while veto powers France, Russia and China say U.N. arms inspections should continue. But analysts say war will go ahead even if the resolution is defeated, as Washington intends to lead a "coalition of the willing" against Iraq even without U.N. approval. "The U.S. position is no longer about avoiding a veto but of demonstrating that if a veto is used, that a majority of the Security Council members support such action," Eagles said.

OPEC QUOTAS OPEC, which supplies over a third of the world's crude oil, wants to prevent any oil price shocks that could dampen future global economic recovery, but it is expected to stick to its current 24.5 million barrels per day (bpd) output limit for now. "There may be no formal suspension of quotas but the two or three who can do so will be given freedom to pump at will to cover any losses," predicted one delegate. But although OPEC has pledged to fill any supply gap should war halt Iraqi exports of two million bpd, many in the group are already pumping close to full capacity. Only Saudi Arabia has any appreciable room to turn up the taps and analysts estimate OPEC has little over 1.7 million bpd of untapped capacity -- the equivalent of daily Iraqi exports. But the war threat, hot on the heels of a strike which crippled Venezuela's oil industry is coming at a time when stocks in the United States, the biggest oil consumer, are at low levels unseen since the Arab oil embargo of the mid-1970s. Heating oil stocks are especially worrying as cold weather is expected to persist over the U.S. Northeast in coming days.

www.msnbc.com By Joseph Contreras NEWSWEEK INTERNATIONAL

Foreign takeovers have sparked a backlash—but for poor governments, there’s no turning back

March 17 issue — When Luiz Inacio Lula Da Silva was sworn in as Brazil’s president in January, he vowed to uphold all existing contractual agreements that he inherited from his predecessor. That was a big promise: Fernando Henrique Cardoso had sold off scores of state companies to the global private sector, raising $103 billion from the auctions. But some of those firms are now putting Lula’s pledge to the test.         THE U.S. CONGLOMERATE AES, for example, missed a deadline last month for paying $329 million on the billion-dollar debt it acquired with the purchase of the state-owned utility Eletropaulo. Officials of a government development bank refused to extend the deadline, suggesting they may be ready to begin foreclosure proceedings against AES, a move that would in effect restore public-sector control over the electric-power company. “Both parties are still talking,” said an energy-industry insider close to the negotiations.         Could the Eletropaulo case trigger a rollback of other unprofitable, or controversial, privatization deals? Worried foreign investors hope not. Many Latin Americans will remember the 1990s as the Great Fire Sale Decade: from shipyards to steelworks, hundreds of billions of dollars in assets changed hands, remaking the skylines from Tijuana to Tierra del Fuego. Out went the lumbering, money-losing dinosaurs of the state-led economy with their alphabet soup of acronyms—YPFB, Entel, Telebras. In came Telefonica, Vivendi, BBVA and other standard-bearers of a new, globalized world. The sell-off brought consumers many benefits—a new phone line could be installed within a few days instead of months, for example—but a price also had to be paid. The rates charged by Eletropaulo and all other newly privatized electric-power and phone companies have soared, creating a consumer backlash that has swept across the hemisphere. “We want to get our companies and natural resources back,” thundered Bolivian opposition leader Evo Morales last year. “We can’t allow them to be concentrated in the hands of a few transnational corporations.” That message helped Morales finish a surprising second in the 2002 Bolivian presidential elections.         Other politicians in the region have adopted a similar stance. In Argentina, where long-suffering consumers once welcomed the sale of inefficient state enterprises, Peronist presidential candidate Nestor Kirchner has called for a revision of all government contracts with the private firms that operate the country’s passenger railroads. Kirchner is responding to growing public dissatisfaction at the poor service offered by some of the private railroad operators. In Peru, former president Alan Garcia has restored some of his political clout by pointedly attacking the long-distance phone rates charged by the Spanish telecommunications giant Telefonica, which acquired the state phone company in 1994. A 1990 opinion survey by the Belo Horizonte polling firm Vox Populi found that about 75 percent of all Brazilians favored privatization policies; a decade later that figure had fallen to 25 percent.         What happened? When prices rise, especially for basic services, foreign owners make an easy target for angry customers. For example, in the fall of 1999, a consortium led by the California engineering corporation Bechtel won a 40-year concession to provide water to the Bolivian city of Cochabamba. Within weeks of its arrival, the company announced hefty rate increases that, in some cases, doubled or even tripled water bills. The price hikes triggered a general strike and violent clashes between police and irate demonstrators in February 2000 that left one dead and hundreds injured. The unrest was so severe that Bechtel managers fled the country. The water contract was abruptly canceled. A spokesman for Bechtel argues that the government raised the rates, by an average of 35 percent, to pay back debt accumulated by the public utility that had previously operated the system.         Experts say the street protests and campaign rhetoric do not presage a wholesale state takeover of companies that went private in the 1990s. Latin American governments simply don’t have the money to buy back and run the companies, let alone invest in their infrastructure. Privatization may be a dirty word at the grass-roots level of many societies, but that view hasn’t necessarily taken hold among the majority of government leaders. Analysts note that, in some cases, rate increases are inevitable when utilities switch from public to private ownership. Public utilities often subsidized their rates, and lost money. Private firms want to make money in exchange for their investments. In a recent survey of Brazilian businessmen, judges, military officers and other members of the country’s elite, political scientists Amaury de Souza and Bolivar Lamounier found that 70 percent still favor opening up the economy to foreign investors. “For a country that is struggling to pay its debts and keep the public deficit under control, re-nationalizing privatized companies is out of the question,” says Roberto Teixeira da Costa, a So Paulo banker who heads the Brazilian Center on Foreign Relations.         Tighter government oversight of privatized companies is a more realistic option. In one of his strongest public pronouncements as president of Brazil, Lula lashed out at the country’s autonomous regulatory agencies responsible for the telecommunications and electricity sectors. He accused them of setting steep rate hikes that are fueling inflation. The problem is more complex. Utility —rates are tightly pegged to a wholesale-price index that is rising by more than 22 percent annually. Lula’s complaint prompted speculation that his government might try to take a more direct hand in determining future rate increases. But executives fear that such market meddling would set a bad precedent—and besides, experts argue that the real problem is that the privatization of Bra-zil’s energy sector hasn’t gone far enough. While private companies distribute three quarters of Brazil’s power, the government still controls 80 percent of electricity generation. Trying to set prices in such a system is a nightmare. “There’s no way to promote competition in a government-controlled market,” says Peter Greiner, who served as Brazil’s Energy secretary in the late 1990s. Newsweek International March 17th Issue •  International Editions Front •  Cover Story: Saddam's War •  World View: Is This the New World Order? •  Letter From America: Let's Make Love, Not War •  International Periscope & Perspectives •  International Mail Call •  The Last Word: Jose Maria Aznar         For all the problems in the energy industry, privatization has mostly worked in Brazil and other countries. Brazil’s steel, banking and telecommunications industries are now booming under private ownership. In the 12 years since Brazil auctioned off its various state-owned Telebras phone companies, the number of fixed telephone lines in the country has nearly doubled. Cellular phones, once a luxury, are now as common as football jerseys. El Salvador has embraced privatization with such gusto that even road maintenance in that country is handled by outside contractors. “We have to separate reality from the noise sometimes,” says Miguel Lacayo, the Economy minister of El Salvador. “The perception can often be that privatization hasn’t been very effective, but the truth of the matter is that things have improved.”         As Lula ponders what to do about an ailing foreign company, he might do well to consider the approach of another Latin politician who didn’t always follow “the model.” Outgoing Ecuadoran President Gustavo Noboa defied an International Monetary Fund edict last year when he scaled back cooking-gas prices that had sparked an uprising among some of the country’s indigenous communities. Noboa felt compelled to make that move, but he still backs privatization as a sound policy tool for promoting economic growth. “Privatization isn’t bad,” he told NEWSWEEK. “Our countries don’t have the money to manage all the companies, and we need serious foreign investors to extract the [natural] resources that we cannot extract on our own.” With improved regulatory oversight, and a fair, long-term focus by corporate owners, there is no reason privatization shouldn’t work.         With Mac Margolis, Peter Hudson and Jimmy Langman in South America, and Dan Moreau in New York

www.forbes.com Reuters, 03.07.03, 1:29 PM ET By Susan Schneider NEW YORK, March 7 (Reuters) - Brazilian sovereign bonds held steady on Friday after this week's weighty 3 percent jump, as investors remained sanguine about the new government's economic policies, but hesitated to take big positions ahead of the weekend. Brazil's portion of J.P. Morgan's Emerging Market Bond Index Plus gained 0.26 percent in terms of daily returns as the benchmark C bond <BRAZILC=RR> lost 0.125 points to 77.125 bid. With Brazil comprising a weighty one-fifth share of the EMBI- Plus, its scant movement kept the broader market little changed on the day. The horizontal day for market bellwether Brazil came as investors digested a grim U.S. employment report and took a breather from a debt rally fueled by hopes Brazilian President Luiz Inacio Lula da Silva can stitch together support to overhaul the nation's pension and tax regimes. "We saw a little bit of reaction today from the economic number out of the U.S. There was a little bit of selling. But in general, the tone is still strong, everyone believes the whole Brazil story," said an emerging debt trader. The U.S. Labor Department said on Friday that the economy suffered its worst jobs drop since the aftermath of the Sept. 11 attacks, with a 308,000 non-farm payrolls drop in February. The plunge came as worries about a possible U.S.-led attack on Iraq prompted caution in hiring. Yet Brazil has largely shrugged off global jitters about the economic fallout of a conflict in Iraq as investors take heart from Lula's reform efforts, which analysts say are needed to shore up the nation's financial health. The country's bonds have surged nearly 17 percent so far this year. Friday's performance extended the trend as the market made little movement after U.S. President George W. Bush said he was ready to go to war even if the United Nations Security Council failed to authorize the use of force against Iraq. Emerging debt also looked past the Friday address of chief U.N. weapons inspectors Hans Blix and Mohamed ElBaradei, said traders. Blix criticized the rate at which Iraq has provided documents on banned weapons, but said there had been some acceleration in Iraq's efforts to disarm since January. "The main thing driving Brazil now is that the opposition jumped on the side of reform. That's what (former president Fernando Henrique) Cardoso tried to do for years, so if they get the politics to agree that something needs to be done on social security and tax reform, I think we'll continue to grind higher," the traded added. While Brazil's share of the EMBI-Plus was largely neutral on the day, traders said the country's bonds saw a touch of profit taking as investors locked in recent gains. "The market is looking heavy. I think there are some people trying to take advantage of this rally to lighten some positions," said another emerging debt trader. Brazil's Par bond <BRAPAR=RR>, for example, shed 0.75 points to 71 bid in midday trading and its DCB bond <BRADCB=RR> shed 0.25 points to 63.75 bid. Turkey's bonds, meanwhile, traded a tad higher as investors continued to hope parliament will reconsider last week's rejection of a U.S. request to use Turkish territory as a base for an Iraqi invasion. Turkey's share of the EMBI-Plus notched 0.28 percent higher on the day, aided by a 0.25 point increase in the benchmark dollar bond <TRGLB30=RR> to 103.5 percent of face value. The nation's bonds veered sharply lower on Monday after the parliament move, which raised concerns the nation's fragile economy would be pummeled by a war without the promise of billions of dollars in U.S. aid. But the tone has improved in recent days as investors eye clues the government may make a second attempt to pass a resolution allowing the stationing of U.S. troops. Sources in Washington said late on Thursday that Turkey could get direct U.S. loans rather than loan guarantees if it grants U.S. troops access to its bases.

www.arabnews.com

“The impact of increased oil revenues of the Gulf states will be partly offset by the weak dollar, because oil is traded in US dollars in the international markets and most of the Gulf currencies are pegged to it.”

Mushtak Parker

LONDON, 10 March 2003 — Uncertainties over the Iraq crisis and political strife in Venezuela may have given the oil market a shot in the arm, with Brent blend prices touching $36 per barrel in early March 2003 compared to $20 per barrel in February 2002. The news of increased revenues for oil-producing states, especially in the Gulf Cooperation Council (GCC) countries, should be music to the ears of Treasury officials.

But beware such gifts lest they are considered in the context of the huge economic structural challenges in the Gulf, and the damage they may wreak on the global economy. Fears of an imminent war against Iraq have already sent the dollar to new lows against the euro and sterling, and forecasts about any rebound post-Saddam Hussein are mere speculation.

The price of gold has also risen, and bonds too are up, but equities continue to take a beating. The impact of increased oil revenues of the Gulf states will be partly offset by the weak dollar, because oil is traded in US dollars in the international markets and most of the Gulf currencies are pegged to it. However, according to the International Monetary Fund (IMF), a sustained $5 per barrel increase in the price of crude oil would decrease global GDP growth by as much as 0.3 percent. Lost GDP growth year-on-year February 2002 is estimated at $1.1 billion per day. The impact of such a development would be even worse on the US and European economies.

The basic scenario is that if the Iraq crisis is resolved this side of 2003, then the US economy, supported by an accommodating Bush administration, would rebound in the second half of 2003 with real GDP growth forecast at 2.6 percent. The upswing in the UK is projected at an encouraging 2.4 percent, but the Euro zone will experience a more sluggish recovery at 1.3 percent and Japan stagnate at a negative real GDP of 0.2 percent.

The emerging markets too will improve, although there remain concerns over whether Turkey, Brazil, Argentina, and Venezuela will be in a position to service their foreign debt. Most analysts agree that any contagion is likely to be regional and modest.

For the Arab world, however, the exceptional oil revenues will mean that growth will be liquidity-driven (both in 2002 and 2003), a scenario which economists such as Brad Bourland, the chief economist of Saudi American Bank (SAMBA), warn could mask the inherent structural weaknesses of Arab economies.

Last November’s IMF Consultation IV report on Saudi Arabia, for instance, commended the Kingdom for its reform program, but stressed that the pace of reform is too slow and urged greater fiscal discipline and transparency. This lack is not confined to the Kingdom but pervades almost all the Arab economies.

In 2001, Saudi Arabia had the largest GDP in the Arab World at $188 billion, followed by Egypt at $98 billion; the UAE at $55 billion; and Kuwait at $35 billion. This compared to the major economies such as the US at $10,200 billion; Japan at $4,200 billion; Germany at $1,900 billion; the UK at $1,400 billion; Mexico at $574.5 billion; and Switzerland at $240.3 billion.

SAMBA projects Saudi GDP growth in 2003 to be just under 4 percent (compared with an estimate of 0.7 percent in 2002). Only Algeria, Bahrain, Qatar, the UAE and Tunisia are projected to reach real GDP growth above 4 percent in 2003. But according to Bourland, key weaknesses remain in the Arab economies — they are still growing more slowly than their populations and labor forces; and governments rarely exercise strong fiscal discipline.

Saudi Arabia’s real GDP growth in 2002 of 0.7 percent pales against the annual growth of 4.9 percent in its local labor force. In neighboring Qatar the gap is even bigger: 1.5 percent GDP growth against a 6.6 percent rise in the labor force. This means that the real GDP growth relative to sustainable growth potential is negative in all Arab economies.

Unemployment hangs over the Arab economies, with some of the politically most volatile and dysfunctional countries having the highest estimates. Algeria has an unemployment rate of 26.4 percent; Tunisia at 15.6 percent; Oman at 17.2 percent; Libya at 11.2 percent; Jordan at 14.4 percent; Morocco at 14.5 percent; and Egypt at 8.7 percent, with a propensity toward disguised unemployment everywhere.

Despite rising oil prices, most Arab countries are still plagued by budget deficits in 2002, although the short-term effect if oil prices are sustained at current levels may reduce deficits in 2003. However, this will depend on whether governments can curb public expenditure. And if the Arab economies lack strong fiscal discipline and transparency, as the IMF stresses, the persistency of the deficits are likely to continue unless structural reforms are institutionalized.

On the question of reform, while analysts welcomed the opening up of more sectors to foreign investment, especially Internet services, printing, data exchange, insurance, advertising and PR, they rue the fact that other activities including fixed-line and mobile phone services and oil exploration are still barred. A number of the reforms and new laws are drawn-out and are not retrospective, and some of them will only take effect in two years time.

sg.biz.yahoo.com Friday March 7, 6:29 AM

MEXICO CITY (Dow Jones)--Mexican Finance Minister Francisco Gil said Thursday that Mexico expects to earn 44.6 billion pesos ($1=MXN11.18) in additional oil revenue this year.

Crude oil prices, pushed up by expectations of war in Iraq and the recent strike in Venezuela, are giving the government additional breathing room in its austere budget for 2003.

Gil said that, based on an estimate of $30.50 a barrel for benchmark West Texas Intermediate, Mexico's export crude basket could be expected to average $23/bbl or $24/bbl during 2003, well above the $18.35 forecast used in this year's budget.

Mexico's crude averaged $27.88/bbl in January, and according to preliminary data, about $28.50/bbl in February. The budget is also based on a projected average export volume of 1.86 million barrels a day.

The Mexican government obtains about a third of its revenue from oil and oil-related fees and taxes.

Gil said at a meeting with tax authorities that petroleum-related income rose 70% in real terms during February from the same month last year.

Mexico reported a budget surplus of MXN9.7 billion in January, backed by an 18% increase in oil income.

Oil income will also be higher in peso terms as the Mexican currency weakens against the dollar.

The peso has mirrored dollar weakness against the euro, and has depreciated more than 18% in the past 12 months, due largely to Mexico's extensive trade and investment links with the U.S.

The recent rise in domestic interest rates, however, should increase the government's debt financing costs, Gil said.

Ministry Web site www.shcp.gob.mx

-By Santiago Perez, Dow Jones Newswires; (5255) 5080-3451; santiago.perez@dowjones.com