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 1. INTERNATIONAL   2. INDUSTRY
 3. FINANCE  4. POLICY
 5. TRADE  6. GULF

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INTERNATIONAL


June 17 - 23, 2002

KOIZUMI GIVES IN ON TAX CUTS

Japan is to get early tax cuts in the hope of revitalising demand in its battered economy.

But it is not yet clear where the money will come from to pay for them.

The change of tack is the result of pressure from senior figures within the ruling Liberal Democratic Party.

They have demanded that cuts kick in as early as January, rather than waiting for the beginning of the financial year in April.

Tax cuts are a thorny issue for prime minister Junichiro Koizumi, who has been wrestling with slumping popularity all year.

Most parts of the government are agreed on the need to reform the tax system, in the hope of boosting demand and corporate investment.

But the problem is finding the money.

Mr Koizumi has vowed not to issue more than 30 trillion yen in government bonds this year, to minimise growth in Japan's already swollen public debt.

Accelerating the tax cuts could put that at risk although finance minister Masajuro Shiokawa promised the cap would remain intact and no supplementary budget was planned.

In the meantime, though, the talks between ministers and senior figures in the traditionally faction-ridden LDP have forced the government's hand.

The situation exemplifies Mr Koizumi's current problems.

Despite healthy growth of 1.4% in the first three months of this year, Japan's economy is far from secure on the path to recovery from a decade of downturn, and observers are united in the view that radical reform is needed.

BANK WARNS OF HIGHER INTEREST RATES

The Bank of England has given its clearest indication yet that interest rates are likely to rise from their historic low of 4%.

The Bank's governor, Sir Edward George, told the Treasury Select Committee that the bank would have "no option" but to raise rates if the economy did not slow down.

"If it doesn't happen that domestic demand slows, and the external situation picks up, that's when it would generate inflationary pressures.

"At some point we will have to moderate the rate of growth of domestic demand," he said.

Official figures show that the UK economy was not growing at all during the first three months of the year, but the governor expressed scepticism about these figures and suggested that they would soon be revised upwards.

"We thought we would have seen positive growth... they are subject to revision, and we expect this would be in a positive direction," he commented.

There was an extraordinary clash with MPs when the deputy governor of the Bank, Mervyn King, was accused of moderating his position on inflation in order to become the next governor when Sir Edward's term expires next year.

Liberal Democrat MP David Laws asked if Mr King had changed his vote, and also accused Mr King of misrepresenting the committee's views at the press conference following the publication of the Bank's May inflation report.

Sir Edward George interrupted: "This is an extraordinarily cheap remark."

Mr King said: "I give you a total assurance. The cynicism of politicians is not necessarily something you should attribute to others and I look forward one day to an apology."

BRAZIL AIMS TO EASE MARKET FEARS

Brazil has announced a series of measures as it bids to ease fears of an impending debt crisis and reassure financial markets.

Finance minister Pedro Malan said the government would borrow $10bn from an International Monetary Fund (IMF) to boost the reserves of its central bank.

The value of the Brazilian real against major currencies has slumped in recent days, along with the country's stock market.

Brazil's rating on The JP Morgan index, which measures how risky it is to invest in a given country, rose to levels last seen just before neighboring Argentina collapsed late last year.

The government said it also planned to ask the IMF to allow it to spend more of $28bn in foreign currency reserves to support the real.

The central bank will also spend $3bn to buy back some of the country's international debt that is due next year and in 2004.

JAPAN ON THE MEND, CENTRAL BANK SAYS

Japan's central bank has given its clearest sign yet that it believes the country is on the way back from a decade of downturn and a 20-month recession.

In its latest analysts of the state of the economy, the Bank of Japan upgraded its forecasts for the fourth straight month.

"Japan's economy shows signs of stabilising with a distinct increase in exports and a pickup in production," it said.

But the bank warned that, despite government statements that the worst was definitively over, weak domestic demand meant the recovery was still at risk.

The bank also pointed to the slowing of the economic turnaround in European and US trading partners.

AFRICA LOOTED FOR $140BN, LEADER SAYS

Africa has lost $140bn through corruption in the decades since independence, Nigeria's president, Olusegun Obasanjo has said.

The huge sum largely spirited away by leaders and their associates was one of the main reasons why Africa's poverty was so severe.

Now, Mr Obasanjo told a meeting of civil society organisations in Ethiopia's Addis Ababa, it was time to write rules to help bring some of the money home.

"We are working to get an international convention by which money stolen by corrupt African leaders and stashed abroad is repatriated," Mr Obasanjo said.

NEW MONEY FOR ARGENTINA 'UNLIKELY'

Argentina has admitted it is unlikely to worm any new money out of the International Monetary Fund (IMF) as a result of talks going on in Buenos Aires.

The beleaguered country is desperate for fresh aid of perhaps $9bn (6.2bn) to stabilise its economy.

But currently the best that can be hoped for is probably that the payments due this year will be rescheduled, a senior ruling party figure said.

Argentina is meant to pay the IMF $5.5bn this year, with a further $8.6bn due to international lenders next year.

FRANCE MAY CUT DOWN DEFENCE CONTRACTS

A contract with India for the sale of six submarines that was shortly to be announced had to be put on hold as long as India did not find a solution to its conflict with Pakistan in Kashmir , said an official of France's Direction des Constructions Navales (DCN), 11 of whose employees were killed in the May 8 terrorist attack in Karachi.

US, UK TO CONTINUE ARMS SALES TO INDIA

Britain and the United States have not suspended arms sales to India amid its current stand-off with Pakistan, Defence Secretary Yogendra Narain said on Sunday.

Narain negated reports that Washington and London had slapped an embargo on the supply of military equipment to India and insisted that the US was going to go ahead with an advanced radar sale.

"The US has offered to supply automatic radars and other defence items to India as and when needed," he said.

In April this year, an agreement was signed between India and the US for eight US-made Firefinder counter-battery artillery radars worth $146 million.

The US is also expected to give the green light to General Electric to sell engines to India for its Light Combat Aircraft.

TESCO SALES COMFORTABLY HIGHER

Supermarket chain Tesco has said its sales rose by 11% in the three months to mid-May, with strong growth in the UK and abroad.

The supermarket chain, Britain's biggest grocer, saw its profits shoot up by 14% to over 1bn in its last financial year.

CASH BOOST FOR STRUGGLING

Consignia is to be renamed Royal Mail Group plc Consignia, the loss-making UK postal group, has received a 1.9bn cash boost from the government on the day it detailed plans to turn itself around.

LUCENT WARNING HITS TECH STOCKS

Technology stocks suffered another sharp fall in the US on Thursday as Lucent, the world's largest telecoms equipment maker, issued a new revenue warning.

Lucent Technologies said it expects its third-quarter revenues to drop by 10% to 15% from the previous quarter, despite analysts predictions they would match the previous three-month period.

The news pushed Lucent shares down 15 cents to $2.80, and helped force the technology-laden Nasdaq index down 22.23 points to an eight-month low of 1,496.89.

Lucent recently revealed a loss of $535m (369m) for the first three months of the year.

SURPRISE FALL IN US RETAIL SALES

Further signs of the weakness of the recovery in the US economy came with a sharper than expected fall in retail sales for May.

Official figures released on Thursday showed sales down 0.9%, the biggest decline since November. Analysts had forecast a 0.3% fall.

BUYOUT STOKES HONG KONG MEDIA FEARS

The second biggest television network in Hong Kong is to be taken over by a company with close interests to Beijing.

The deal puts Asia Television (ATV) under the control of Liu Changle, a former senior propaganda official in China's People's Liberation Army.

Mr Lui's close links with the Chinese authorities have created concern in Hong Kong where many people already believe China is building increasing influence over local media.

WIND FARM PLANS TAKE SHAPE

Plans have been unveiled to build one of the world's biggest offshore windfarms off the north coast of Scotland.

The Canadian firm, Talisman Energy, hopes to install up to 120 wind turbines beside its Beatrice oilfield 75 miles north-west of Aberdeen.

The scheme would be able to generate 500 megawatts, providing five per cent of the UK's renewable energy needs.

Talisman says the 90m high turbines would be "barely visible" from onshore.

TANZANIAN GROWTH OUTSTRIPS NEIGHBOURS'

Tanzania has showed strong economic growth, while Uganda and Kenya recorded more disappointing figures.

The three countries release their budgets on Thursday as part of the requirements of the East African Community.

Tanzania's economy grew by 5.9% last year, and Finance Minister Basil Mramba predicted 6.3% growth this fiscal year.

Kenya's economy grew by 1.2% last year, below the predicted 2%.

DAIRY CREST ANNOUNCES 41M EXPANSION

Dairy foods group Dairy Crest is to pump 41m into expanding and upgrading its cheddar-making plant in Cornwall.

The move aims at increasing sales of its Cathedral City brand, it was announced on Thursday.

Dairy Crest said it was making the investment following "continued strong growth" in consumer demand for its Cathedral City and Davidstow brands.

It said sales of Cathedral City rose 18% over the last year against a declining market for mature cheddar, which saw sales volumes fall 2%.

YELL CUTS FLOTATION PRICE

UK telephone directory company Yell has set a lower than expected flotation price for its shares.

The company said on Friday that it planned to offer its shares at 270-345 pence each at flotation next month, valuing the company at 1.8-2.3bn.

Analysts had estimated the firm's value at 2.3-2.8bn.

BUDGET AIRLINES BOOST UK TRAVEL FIGURES

Strong growth in the no-frills airline sector has boosted overall UK air traveller numbers.

The UK airport operator BAA said on Thursday that a total of 10.7 million passengers flew from its airports last month, 0.8% more than in May 2001.

A sharp increase in European and domestic flights accounted for the bulk of the increase, with bookings on lucrative transatlantic routes falling by 4.6% compared with one year ago.