www.rediff.com February 19, 2003 17:03 IST

Institute of Economic Growth warned on Wednesday that the rise in oil prices due to fears of war in Iraq might "hamper" the government's plan for acquiring and maintaining strategic oil reserves for 45 days and the import bill was bound to go up by 20 per cent this year.

The economic thin-tank also said the exports growth rate would decline due to rising domestic prices, brought about by increased inflation.

"The rise in (international) oil prices will lead to rise in the domestic fuel prices and also this will hamper the government's plan for acquiring and maintaining strategic oil reserves for 45 days," IEG said in its latest report.

However, the signs of "weakening" strike in Venezuela, an important oil producer, and "ebbing" winter demand for oil would put downward pressure on world prices, the Delhi-based institution said.

If there were a prolonged war in Iraq, the inflation based on both Wholesale Price Index and Consumer Price Index for Industrial Workers might go up, IEG warned.

The decline in farm production and expected rise in domestic oil prices would push the inflation rates upward in the coming months from the supply side, even as predicted decline in money supply would to some extent, dampen the high growth in inflation, it said.

On the industrial performance, though the upturn was expected to continue for the rest of the financial year 2002-03, the decline in agricultural growth would be a dampener since the agriculture had strong linkage with the industrial sector.

It said though exports registered a buoyant 34 per cent growth till December, "such a level of growth might not be sustainable."

"It is expected that growth rate of exports will decline to settle around 18.5 per cent on account of increase in domestic prices," IEG said.

Referring to imports, it said the increase in world oil prices would put upward pressure on the import bill, which was expected to go up by 20 per cent in 2002-03.

IEG said the exchange rate might not appreciate further due to expected increase in trade deficit (due to rise in world oil prices) and decline in foreign institutional investments.

It said the foreign exchange reserves, which reached $73.6 billion by January 2003, might not rise further due to the government's decision to pay back $2.8 billion high cost debts in this financial year.

"Moreover, increasing world oil prices, declining real interest rates and lackluster financial markets might also put downward pressure on foreign currency reserves," it said, adding that the repayment of Resurgent India Bond, due in middle of 2003, would also restrain further growth.

On the interest rates, it said the excess liquidity in the economy and the external factors might contain any hike in the interest rates in the coming months.

www.channelnewsasia.com First created : 19 February 2003 1344 hrs (SST) 0544 hrs (GMT) Last modified : 19 February 2003 1900 hrs (SST) 1100 hrs (GMT)

Calpers, the largest US pension fund, has decided to continue to avoid stock investments in Malaysia and Thailand while remaining in the Philippines, despite a consultant's recommendation to do otherwise.

The board of California Public Employees' Retirement System, deciding on recommendations made by Wilshire Consulting, voted against investment in 12 developing countries, including China, India, Indonesia and Russia.Advertisement Also banned for investment were Morocco, Sri Lanka, Egypt, Pakistan, Colombia and Venezuela.

The decision was based on an assessment of the stability and transparency of those countries, including such criteria as accounting standards and labour law.

Calpers, which has some US$133 billion in assets, had been expected to put Thailand and Malaysia back on its list of approved markets, but voted for tighter standards than the consultant had recommended.

The board cleared 14 emerging markets for investment, including South Korea, Poland and Israel.

The others are the Czech Republic, Hungary, Taiwan, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

The fund, which has about US$1.8 billion in emerging markets, also said it would keep the Philippines on its target investment list.

This was after Philippine officials presented information that shows the country's equity market remains an eligible investment area.

The fund said it would consider adding countries to a "watchlist" before it sold off from those markets, allowing governments to respond to perceived problems and saving transaction costs.

Wilshire Consulting had helped Calpers overhaul its standards for investing in emerging markets last year.

It recommended in February last year that Calpers pull out of Thailand, Malaysia, the Philippines and Indonesia.

In May, however, Calpers returned to the Philippines after the market was discovered to have failed the investment criteria only because of an error in scoring settlement proficiency.

Calpers to forgo China, India markets

asia.cnn.com Wednesday, February 19, 2003 Posted: 10:37 AM HKT (0237 GMT)

SACRAMENTO (Reuters) -- U.S. pension fund Calpers has ruled out investing in some of the world's largest countries, including China, India, Indonesia and Russia.

It also dealt a blow to stock markets in Malaysia and Thailand, keeping them off a list of approved markets.

In a move that set the stage for an overhaul of its emerging markets investment policies, the board of the California Public Employees' Retirement System, or Calpers, voted against stock investment in 12 developing countries.

The decision, which came in response to a proposal by California state treasurer Phil Angelides, was based on an assessment of the stability and transparency of those countries, including such criteria as accounting standards and labor law.

Also banned for investment were Morocco, Sri Lanka, Egypt, Pakistan, Colombia and Venezuela.

Tighter standards

Calpers, which has some $133 billion in assets, had been expected to put Thailand and Malaysia back on its list of approved markets, but voted for tighter standards than an outside consultant had recommended.

Under the revised standards, investment was cleared for 14 emerging markets, including South Korea and Taiwan.. The others are the Czech Republic, Hungary, Israel, Poland, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

The fund, which has about $1.8 billion in emerging markets and can set the tone for other institutional investors, also said it would keep the Philippines on its target investment list after officials from that nation appealed a recommendation that it be dropped.

Calpers officials also said the fund would consider a proposal that would allow for more flexibility in implementing its emerging markets guidelines.

Specifically, the fund said it would consider adding countries to a "watchlist" before it sold off from those markets, allowing governments to respond to perceived problems and saving transaction costs.

Market losses

Market data showed the 14 markets Calpers cleared for investment have lost an average of 8 percent in dollar terms since end-2001 compared with an average gain of more than 13 percent from the countries shunned by the fund.

The excluded list also featured markets that have seen out-sized gains, such as Pakistan, where the stock index more than doubled, and Russia, which posted a 42 percent return. The Thai market was up also up nearly 29 percent.

Of the countries cleared for investment, the Czech Republic has been the best performing since end-2001 with a gain of 46 percent, while Brazil, Argentina, Chile, Turkey and Israel have all posted double-digit losses.

In its report to the fund this year, Wilshire argued that Calpers' policy had limited the benefits of diversification and concentrated the fund's "exposure to the more risky economic sectors" of the markets in which it did have a stake.

While Wilshire had argued for allowing investment in a total of 20 emerging markets, the Calpers board opted to continue its tougher standard under which just 14 qualified.

"I don't see any compelling reason right now to change the policy," Angelides said, arguing that the guidelines should be maintained over a longer term before their success can be judged.

reuters.com Tue February 18, 2003 08:27 PM ET (Recasts first paragraph, adds details, background)

By Michael Kahn

SACRAMENTO, Calif., Feb 18 (Reuters) - Calpers, the nation's largest pension fund, on Tuesday ruled out investing in some of the world's largest countries, including China, India, Indonesia and Russia and dealt a blow to stock markets in Malaysia and Thailand.

In a move that set the stage for an overhaul of its emerging markets investment policies, the board of the California Public Employees' Retirement System, or Calpers, voted against stock investment in 12 developing countries.

The decision, which came in response to a proposal by California state treasurer Phil Angelides, was based on an assessment of the stability and transparency of those countries, including such criteria as accounting standards and labor law.

Also banned for investment were Morocco, Sri Lanka, Egypt, Pakistan, Colombia and Venezuela.

Calpers, which has some $133 billion in assets, had been expected to put Thailand and Malaysia back on its list of approved markets, but voted for tighter standards than an outside consultant had recommended.

Under the revised standards, investment was cleared for 14 emerging markets, including South Korea, Poland and Israel. The others are the Czech Republic, Hungary, Taiwan, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

The fund, which has about $1.8 billion in emerging markets and can set the tone for other institutional investors, also said it would keep the Philippines on its target investment list after officials from that nation appealed a recommendation that it be dropped.

Calpers officials also said the fund would consider a proposal that would allow for more flexibility in implementing its emerging markets guidelines.

'WATCHLIST' PLAN

Specifically, the fund said it would consider adding countries to a "watchlist" before it sold off from those markets, allowing governments to respond to perceived problems and saving transaction costs.

Calpers last year began to consider civil liberties, press freedom and political risk in making investment decisions after board members argued that investing in more stable countries with liberal practices would yield better long-term returns.

There is no sign yet that policy is working.

An investment in the markets that made the grade according to a composite score prepared by Santa Monica, California-based Wilshire Consulting lagged a broader measure of emerging markets since the policy took effect in April last year.

Market data showed the 14 markets Calpers cleared for investment have lost an average of 8 percent in dollar terms since end-2001 compared with an average gain of more than 13 percent from the countries shunned by the fund.

The excluded list also featured markets that have seen out-sized gains, such as Pakistan, where the stock index more than doubled, and Russia, which posted a 42 percent return. The Thai market was up also up nearly 29 percent.

Of the countries cleared for investment, the Czech Republic has been the best performing since end-2001 with a gain of 46 percent, while Brazil, Argentina, Chile, Turkey and Israel have all posted double-digit losses.

ARGUMENT REJECTED

In its report to the fund this year, Wilshire argued that Calpers' policy had limited the benefits of diversification and concentrated the fund's "exposure to the more risky economic sectors" of the markets in which it did have a stake.

While Wilshire had argued for allowing investment in a total of 20 emerging markets, the Calpers board opted to continue its tougher standard under which just 14 qualified.

"I don't see any compelling reason right now to change the policy," Angelides said, arguing that the guidelines should be maintained over a longer term before their success can be judged.

The Calpers board listened with interest to a presentation from Philippines Finance Secretary Jose Camacho in which he argued that the country deserved better marks in areas such as investor protection, political stability and judicial reform.

Calpers had initially ruled out investment in the Philippines last year, only to reverse course after admitting that decision had been made on the basis of mistaken information about market settlement practices there.

Calpers' investment committee will reconsider how to treat lagging countries on its list and the status of the Philippines when it meets again in 60 days.

The debate over how to deal with the Philippines dominated much of the discussion, with some Calpers board members accusing Wilshire of making a prejudiced ruling against the Southeast Asian nation.

Wilshire representative Roz Hewsenian said she "strongly disagreed" with the allegation any bias was involved. The Philippines was ahead of only Russia, Venezuela and Indonesia in the Wilshire rankings.

www.forbes.com Reuters, 02.18.03, 5:12 PM ET

NEW YORK (Reuters) - Gold closed sharply lower on Tuesday, erasing all of its gains for 2003 as the dollar rallied and many investors bet that the timetable for any U.S.-led attack on Iraq would be pushed back. But oil markets held their focus on war fears with crude oil prices setting 29-month highs late after the United States said it would propose a new United Nations resolution on Iraq but was prepared to move against Baghdad without one. In other commodity trading, grains closed quietly mixed in Chicago. But coffee, cocoa and sugar trading in New York never got started as snowstorms prevented many traders from reaching the New York Board of Trade. At the COMEX, gold futures fell to a seven-week low, playing catch-up with overseas markets after U.S. financial markets were closed on Monday for Presidents Day. Gold for April delivery closed $7.90 lower from Friday at $344.30 an ounce after trading as low as $343.00, the lowest since December 31. Estimated volume was 40,000 contracts. "Investors are going to the exits and booking their profits right now," said the head of one bullion trading firm. "If we break $340, then $300 will be the target." Spot gold bullion closed at $343.45/344.45, down from $350.50/351.50 at Friday's New York close. Tuesday afternoon's London spot gold reference price was fixed at $344.10. Conditions were extra thin on Tuesday with many COMEX traders prevented from returning to work as New York dug out from a blizzard that dumped up to 2 feet of snow on the city. The storm earlier prompted the New York Board of Trade to call off trading on Tuesday in its five agricultural products: cocoa, coffee, sugar, cotton and orange juice. Aside from the lower gold trend overseas on Monday, other factors worked against gold demand on Tuesday. The dollar has edged up from four-year lows against the euro, eroding the bullion buying power of European investors. At the same time the Dow Jones industrial average was up 132 points at 8,041, diverting money from gold. Gold futures had surged 12 percent this year, reaching a 6-1/2-year high this month at $390.80 as geopolitical jitters, the weak dollar and spiking oil prices kept investors interested in the precious metal as war insurance. "Just the hint of a possible delay of a war with Iraq was enough to turn investor psychology negative and to create an absolute avalanche of selling pressure," Leonard Kaplan, president of Prospector Asset Management, wrote on Tuesday. At an emergency summit of European Union diplomats in Brussels on Monday, a relatively positive assessment of Iraqi cooperation by U.N. weapons inspectors last Friday and support for France, which wants more time for inspections, blunted a U.S.-British drive for a new U.N. resolution authorizing war. April platinum at the New York Mercantile Exchange also saw a wave of profit taking, tumbling $26.20 to close at $653.20 an ounce. Platinum's recent advance to 23-year highs on hopes for new fuel cell technologies made it ripe for profit taking given gold's decline and the thinned-out ranks of traders. NYMEX crude oil, however, ended just below new 29-month highs after the United States said it would push for a new U.N. resolution on disarming Iraq and was prepared to move ahead against Baghdad even without one. "We don't need a second resolution. It's clear this guy could even care less about the first resolution. He's in total defiance with (Resolution) 1441. But we're working with our friends and allies to see if we can get a second resolution," President George W. Bush told reporters on Tuesday. NYMEX crude oil for March delivery on Tuesday peaked at $37.05, the highest level since September 2000, and barely four dollars below the highs of the 1990-1991 Gulf War. March crude closed 16 cents higher at $36.96 a barrel. In London, Brent North Sea crude rose 63 cents to $32.55 a barrel. News that the Pentagon had ordered a further 28,000 troops to the Middle East Gulf region as the United States builds a military force of more than 200,000 for a possible war with Iraq helped fuel a flurry of buying in crude near the close. Traders fear military conflict in Iraq could disrupt oil flows from the Middle East Gulf, which pumps nearly a third of the world's daily crude exports. An 11-week strike in Venezuela has already depleted U.S. oil supplies. NYMEX March heating oil closed higher, buoyed by demand from the blizzard in the Northeast. March rose 0.47 cent a gallon at 106.54 cents, while other contracts closed lower on profit taking. March gasoline fell 2.78 cents at 99.45 cents. At the Chicago Board of Trade, grain prices closed narrowly mixed. Soybean prices edged higher on talk of inquiry from China while nearby wheat prices firmed on tight supply. Corn prices eased as winter storms improved moisture for planting. March soybeans closed one cent higher at $5.74 a bushel and March wheat rose 1-1/4 cents at $3.35-1/2. But March corn closed 2 cents lower at $2.38-1/4.