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

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INTERNATIONAL


July 08 - 14, 2002

EUROPEAN BANK CHIEF CRITICISES FRANCE

The European Central Bank President, Wim Duisenberg, has delivered an unprecedented criticism of the French Government.

Speaking in Luxembourg Mr Duisenberg accused France of unilaterally reinterpreting euro zone rules on budget deficits.

At the EU summit in Seville last month France said it would only meet an EU target for balancing its public finances if its economic growth reached three per cent next year.

It is highly unusual for Mr Duisenberg to single out an individual Euro member country.

In veiled bankers' language he implied that France's declaration making budget discipline conditional on economic growth was a potential threat to the stability of the euro.

Mr Duisenberg accused France of making a unilateral declaration and called on all governments to stick unconditionally to the rules.

Since elections last month, the new French Government has said it will not eliminate its budget deficit by 2004, an agreed EU deadline if growth falls below its target.

Mr Duisenberg made clear he believes that target, 3% growth in each of the next two years, is optimistic.

The French action has also strained relations with Berlin German officials believe a costly election pledge to cut taxes is undermining Paris' commitment to financial discipline.

France has admitted that its deficit this year will be near 2.5% of economic output that is much higher than forecast and close to the 3% euro zone limit.

Germany faces a similar overshoot but has insisted it will make every effort to stay within the rules.

OECD MEMBERS' FDI FLOWS PLUNGE

Foreign direct investment flows into and from the world's richest countries dropped by more than half last year after hitting an all-time high in 2000 and look set fall further this year, the OECD said.

The drop the largest in recent decades came after big mergers and acquisitions raised cross-border investment activity in 2000, the Paris-based Organisation for Economic Cooperation and Development said in a report on its Website on Thursday.

The developments of 2001, rather than a seminal decline in international investment flows, appear to have marked a correction toward more sustainable levels, following what could arguably have been an 'investment bubble' in 1999 and 2000, it said.

Foreign direct investment in the OECD's 30 member countries is linked closely to mergers and acquisitions, the organisation said. With such activity limited this year amid turbulence on equity markets, investment flows were likely to fall again.

Inflows of investment into OECD countries from mergers and acquisitions amounted to just under $200 billion between January and early June this year compared to $636 billion in the whole of 2001, the organisation said.

Outflows in the first five months of the year were $185 billion, which the OECD said indicated a decline of around 20 per cent for the whole year.

If borne out by the facts, this will reduce the 2002 FDI (foreign direct investment) flows into and out of OECD countries to their lowest level since 1997, the organisation said.

An expected pickup in economic activity in most OECD countries could boost FDI flows in and out of the rich countries in the second half of this year. But further weakness on equity markets could have a negative impact, the organization said.

FINANCE CHIEFS TARGET TERRORIST FINANCING

Finance officials from 15 European and 10 Asian countries gather in Copenhagen on Friday and Saturday where they will try to find new ways of halting the flood of money to terrorist groups.

The ministers are joined by leading international finance officials from the International Monetary Fund, the European Central Bank, the Asian Development Bank and the European Union.

The high-level attempt to build a strong alliance against terrorist financing is expected to seek improvements to the way information is shared between countries.

Italy is set to call for improved transparency in financial markets, an Italian economics ministry official said.

Ahead of the meeting, the US criticised Indonesia and the Philippines for failing to cooperate with the international community's attempts to starve terrorists of cash.

UK INTEREST RATES LEFT UNCHANGED

The Bank of England has kept interest rates unchanged at 4% for the eighth successive month.

The decision had been expected by most financial experts and was welcomed by industry officials, despite calls from some observers for higher rates to cool the housing market.

"This is the right decision, it is clear that there is little generalised inflationary pressure in the economy," Ian McCafferty, the Confederation of British Industry's chief economic adviser, said.

Stephen Radley, chief economist at the Engineering Employers Federation, said: "We applaud the [Bank] for taking in the wider picture and not being swayed by the current panic over the housing market."

The cut leaves interest rates at their lowest level for about 40 years, but analysts still expect the Bank to start raising rates later in the year.

DOLLAR WORRIES LEAD TO EURO RATE FREEZE

Interest rates in Europe have been kept at 3.25%, amid concerns that the region's economic recovery was too fragile to risk a tighter regime.

The European Central Bank made the decision after its regular monthly meeting, in Luxembourg rather than its usual base in Frankfurt.

While the bank did not detail the reasons behind its decision to keep rates on hold for an ninth successive month, observers believe the recent surge in the value of the euro was partly responsible.

The currency's rise means import prices are falling, helping to keep a lid on inflation, as ECB president Wim Duisenberg told the European Parliament earlier this week. The currency's aappreciation, he said, "will contribute to the easing of inflationary pressures".

The jitters sweeping through global stock markets after a stream of corporate scandals in the US may also have weighed on the bank's thinking, sparking concerns about the solidity of economic recovery.

FRANCE TO GET TAX CUTS AND PRIVATISATION

France's new centre-right government will cut income tax by 5% this year, Prime Minister Jean-Pierre Raffarin has said.

He also said the government would prepare the way for part-privatisation of two key utility companies.

The legal status of Electricite de France and Gaz de France will be changed to allow a progressive opening-up of ownership, Mr Raffarin told parliament.

The power and gas giants have been in the state's hands since being nationalised in 1946.

In recent years, the two have been strongly criticised for taking advantage of liberalised European markets to buy up rivals abroad while remaining protected from competition in their home markets.

SRI LANKAN ECONOMY

The Sri Lankan Prime Minister, Ranil Wickremesinghe, has said he hopes economic growth will reach 3.7% by the end of the year, after the country experienced negative growth for the first time in its history in 2001.

CHINA PREMIER SLAMS RICH TAX DODGERS

China's premier Zhu Rongji has slammed wealthy entrepreneurs who avoid paying their taxes, underscoring the government's determination to increase tax revenues.

"Why is it that the super rich pay the least taxes?" Chinese state media quoted Mr Rongji as saying.

"This is not normal. If they all don't pay, the government won't have any money and how can it do anything?"

Mr Rongji's remarks came in response to a government inquiry which found that few of China's wealthiest citizens were paying their tax bills in full, state media reported.

The Chinese leader's remarks follow a steady tightening of the country's tax collection regime in recent months.

Last month, the government signalled that it planned to end preferential tax treatment for foreign firms, many of which pay less than half the rate levied on local businesses.

STOCK MARKETS REGAIN SOME GROUND

London's leading FTSE 100 index ended the day 1.8% higher than it started it while major European markets also clawed back some of the week's losses.

About 37bn had been wiped from the value of UK shares on Wednesday when a slide on Wall Street reverberated through Europe.

London's FTSE 100 dropped 154 points to close at its lowest level for five years.

In Paris the Cac-40 was at its lowest level for three-and-a-half years.

US DELAYS STEEL WAR EXEMPTIONS

The US has put off a final decision on who will escape the tariffs of up to 30% on steel imports it announced in March.

The Commerce Department is handling requests from more than 1,200 US companies asking that their overseas suppliers should be exempt.

About one third of applications have now been processed, according to the US Trade Representative's Office, which bears responsibility for the tariffs.

The decision to delay the announcements is likely to annoy the European Union, which was waiting for the US to unveil its list before deciding whether to go ahead with its own retaliation against $300m worth of US goods.

WORLDCOM TO FACE TRIAL IN MARCH

WorldCom will face trial for securities fraud in March next year, a federal court has ruled, appointing an overseer to make sure the company does not try to destroy evidence.

The case has been brought by the Securities and Exchange Commission, which has accused the firm of covering up a $1.22bn loss by pretending that $3.8bn of expenses was really capital investment.

BBC WINS DIGITAL TV LICENCES

The BBC and Crown Castle have been conditionally awarded the digital television licences left by the collapse of ITV Digital.

The BBC offer included 24 free-to air channels, including some channels from satellite broadcaster BSkyB.

The bid beat off a rival offer from ITV and Channel 4 which also included a pay-TV operator called Freeview Plus.

Another bid came from Digital Television Broadcasting (DTB) Ltd which was backed by the venture capital firm Apax Partners.

TRANS-CHINA PIPELINE DEAL SIGNED

Petrochina, China's top oil company, has signed a deal with a consortium led by Anglo-Dutch energy group Shell to build a gas pipeline crossing China from West to East.

The project would constitute one of the biggest engineering feats in China's history, stretching all the way from the deserts in the northwestern provinces to the coastal city of Shanghai in the east.

Only the massive Three Gorges Dam, which is costing the government about $25bn, constitutes a larger task.

The companies want to finish building the 4,000km pipeline by 2004, at which time 12 billion cubic metres of gas a year should flow from Xinjiang to Shanghai.

BUSH IN SHARES EMBARRASSMENT

The White House has acknowledged that President Bush failed to follow the US law and disclose details of shares he sold when he was a company director.

A spokesman blamed it on a clerical mistake by company lawyers.

The US President's business dealings have sparked renewed interest since the accounting irregularities at WorldCom were revealed last week.

UK RETAIL SALES GROWTH SLOWS

Britain's High Street spending spree may be coming to end, figures have suggested.

Retail sales in June grew at the slowest rate for 18 months, a survey by the Confederation of British Industry (CBI) said.

The figures back up the last set of retail sales data from the government, which showed sales slipping 0.6% in May.

ECUADOR MOVES TO FULFIL IMF LOAN CRITERIA

Ecuador is planning a massive sell off of state-owned assets to help get its budget under control and so increase its chances of a new International Monetary Fund loan.

The country is seeking a $240m loan, but has been refused the money in the past when the IMF ruled that planned economic reforms were insufficient.

The government now plans to sell $100m of assets before the end of President Gustavo Noboa's term in January 2003.

THAILAND'S ECONOMY SURGES

Thailand's economy is expected to grow by upto 5% this year, much more than earlier forecast by the country's finance ministry.

The news comes five years to the day after Thailand allowed the devaluation of its currency, the bhat, which triggered the Asian economic crisis.

The new data is a sharp upward revision of a forecast two months ago, which predicted just 3.7% of growth.

BRITAIN GRANTS TANZANIA 45M IN AID

Britain has granted Tanzania 45m for poverty reduction. The decision followed talks between Britain's International Development Minister Clare Short and Tanzania's President Benjamin Mkapa in the administrative capital of Dodoma.

"We want to establish a long-term partnership with Tanzania to support these efforts and see real improvements for the people of Tanzania," Ms Short was reported as saying.

NICARAGUA COFFEE

The virtually unknown Nicaraguan coffees, San Isidro and El Regreso, fetched $11.75 a pound more than 20 times the current market price.

SOMERFIELD

The UK's fifth largest supermarket chain Somerfield has posted a profit for the first time in three years. The company recorded a pre-tax profit of 22.2m for the year to 27 April, compared with a loss of 13.1m last year.

NZ RAISES INTEREST RATES AGAIN

New Zealand's central bank has raised interest rates yet again by 25 basis points to 5.75%.

It was the fourth rate rise of the year as the bank defied government pressure over lifting rates "too often".