INTERNATIONAL

 

Sep 30 - Oct 06, 2002

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF

 

BRUSSELS CRITICISES FRENCH BUDGET

France's latest tax and spending plans have been criticised by the European Commission for threatening agreed budgetary limits.
On Wednesday the French government proposed a budget bill including a 1% cut in income tax and increased spending on the police and military.

 

But the Economic and Monetary Affairs Commissioner Pedro Solbes said that France's planned budgetary deficit of 2.6% of economic output for 2003 was "dangerously close" to the 3% limit set for euro members.

He added that the Commission was "worried" by the French targets, saying it was concerned that the government may not be able to balance its budget by the new deadline of 2006.

Earlier this week the Commission relaxed the previous budget balancing deadline of 2004 for France, Italy, Germany and Portugal.

When the euro was launched, participating countries agreed to balance their public finances in the medium term.

But the economic slowdown has made it harder for countries to match spending and income, as tax receipts fall.

The Commission's extension of the budget-balancing deadline was granted on the condition that countries tackled their structural budget deficit which strips out the effects of changes to tax receipts and welfare spending through the economic cycle.

But Mr Solbes said he was concerned that the French plans would fail to do this.

"At first sight we are worried by the budgetary targets announced by the French government," Mr Solbes said.

"The first source of concern is the lack of clear improvement in the cyclically-adjusted budget deficit position that shows clearly that the French government is postponing its fiscal consolidation process."

JAPAN PM'S TO RESHAPE CABINET

Prime Minister Junichiro Koizumi has confirmed he plans to reshuffle his cabinet on Monday and speculation is rife that he will clear out opponents of a bank rescue plan.

Japan's finance minister has revealed he will set out plans to pump public money in the country's ailing banking system to wipe away bad debt when he meets fellow G7 finance ministers in Washington over the weekend.

Prime Minister Koizumi's new cabinet will be focused on its leaders plans to stimulate the economy, probably with huge tax cuts, which he will draft by November.

Unemployment and inflation figures issued on Friday underscored the depth of Japan's economic woes.

About 50,000 Japanese lost their jobs in August, taking unemployment to 5.4%, official figures showed.

Unemployment stood above 5% for the fourteenth month in a row and was hovering just below the 50-year record of 5.5% set in December 2001.

Job insecurity has dampened Japanese shoppers' willingness to spend money, despite repeated government urging to stimulate the economy and near-zero interest rates.

Prices in the shops have now been falling for three years.

August inflation figures showed consumer prices dropped 0.9% compared with August 2001, the thirty sixth month of declines and a steeper fall than 0.8% in July.

Finance Minister Masajuro Shiokawa said he will tell other G7 finance ministers that the Japanese government "should inject new public funds into the banks if necessary".

But the banks would not receive a blank cheque to go on shoring up ailing firms who refuse to restructure.

WORLD ECONOMY STUMBLES, SAYS IMF

A scant six months ago, the International Monetary Fund (IMF) was scrambling to revise upward its estimates for worldwide economic growth.

That followed an unexpected robust quarter of growth in the US first pegged at about 6% for the first three months of the year which led many to believe economic recession had abated.

In its most recent assessment of the world's economies, however, the IMF has ratcheted down many of its estimates for this year and most of its projections for 2003.

Despite the myriad revisions, the IMF's World Economic Outlook (WEO) still calls for the global economy to expand by 2.8% in 2002.

The international-finance organisation, however, has lowered its estimate for 2003, calling for worldwide growth of 3.7%, three-tenths less than what it called for last spring.

The United States, the world's largest economy, is forecast by the IMF to grow by 2.2% this year and 2.6% the next.

JAPAN UNDER PRESSURE ON BANK LOANS

A senior White House adviser has said the Japanese government should be taking the lead in attempting to solve the bad debt problem in Japan's banking sector.

Last week the Bank of Japan surprised analysts when it said it would step in to assist the country's troubled banks by buying some of their shares.

The banking sector is estimated to be carrying a bad loan burden of about 52 trillion yen ($428bn; 272bn).

But Glenn Hubbard, chairman of the White House Council of Economic Advisers, said the Japanese government needed to get involved.

EUROPE BACKS DOWN IN STEEL WAR

The European Commission has decided to back down from a plan to impose sanctions on the United States as a punishment for high tariffs on steel imports.

The US imposed extra duties of up to 30% on foreign steel imports in March, saying they were unfairly subsidised.

The move sparked a global trade dispute as the EU, Japan and other countries filed complaints at the World Trade Organisation (WTO).

The EU's executive body has now decided against going ahead with a list of potential sanctions worth more than $300m "at this stage", and will recommend a delay to the meeting of EU foreign ministers on Monday.

CHINA SIGNS INDONESIAN GAS DEAL

A 25-year agreement was signed on Thursday for the supply of Indonesian liquefied natural gas (LNG) to China's Fujian province.

The deal between a BP-Pertamina consortium and China's CNOOC oil firm is a boost to Indonesia's efforts to shore up its ailing economy.

The agreement covers the supply of 2.6 million tonnes of LNG per year to Fujian from the Tangguh field in Papua province.

The BBC's Richard Galpin in Jakarta said the gas was likely to come on stream from 2007.

He told the BBC's World Business Report that the deal was regarded as a major breakthrough.

"This particular gas field down in the province of Papua is believed to be huge."

SHARES RALLY ON US DATA

Cheer in the US filtered through to Europe Stock markets on both sides of the Atlantic have received a welcome boost from better-than-expected US economic figures.

In New York the Dow Jones index closed up 155.3 points at 7,997.12, a rise of nearly 2%.

In London the FTSE 100 index made its biggest closing gain since 15 August, closing up 154 points, or 4.2%, at 3,850.

In Frankfurt the Dax index rose by nearly 2%, while in Paris the Cac 40 jumped 6.3%.

IMF CALLS FOR 'BETTER GLOBALISATION'

The International Monetary Fund (IMF) has acknowledged that some of its lending programmes are faulty and in need of reform.

"The IMF is in the process of change," managing director Horst Koehler told a press briefing ahead of the Fund and World Bank annual meetings this weekend.

The Fund has come under increased scrutiny in recent weeks, owing to current economic crises in Latin America not least Argentina.

Once viewed as a poster child for economic-assistance programmes, the South American nation has become defiant of late, threatening to not repay existing loans.

AIB CLINCHES ALLFIRST MERGER

Allfirst was at the centre of a $700m trading fraud Allied Irish Banks (AIB) has merged its Allfirst subsidary, engulfed earlier this year by a currency trading scandal, with another US bank.

AIB said on Thursday it had agreed to combine Allfirst with regional US bank M&T Corporation in a deal worth a total of $3.1bn (2.1bn).

COCOA PRICE HITS 16-YEAR HIGH

The price of cocoa has soared to its highest level for 16 years because of fears that a military uprising in Ivory Coast will cut off supplies.

The price of cocoa for delivery in December jumped $37 (23) in New York to $2,157 per tonne on Wednesday, a rise of nearly 2% and the highest closing price since September 1986.

SRI LANKA BUDGET BACKS PEACE BID

Sri Lanka will present ambitious budget plans next year fuelled by lower defence costs and a big jump in overall spending.

The plan to boost expenditure by 60% comes amid the peace bid to end the island's two-decade war with the Tamil Tiger rebels.

With peace talks that started last week expected to last for several years and a ceasefire in place, defence spending was forecast to fall.

The government has been struggling to right an economy hit hard by the separatist war and a drought last year.

The halt in fighting will allow capital spending for the military that has averaged more than 5% of gross domestic product in recent years.

INVESTORS 'LOSE CONFIDENCE IN INDIA'

India has become a significantly less attractive place for foreign companies to invest in, a new global survey has said.

In its latest survey of business leaders' attitudes towards foreign direct investment (FDI), the management consultancy AT Kearney places India fifteenth down eight places from a year ago.

Several other large emerging markets, including Mexico and Poland, saw their position weaken compared to the last survey in February 2001.

PARIS MOTOR SHOW KICKS OFF

No less than 29 world premiers will be launched when Europe's largest motor show opens its doors for press-previews on Thursday ahead of Saturday's opening for the public.

The global premiers, along with dozens of cars never seen before in Europe, make the Paris Motor Show a key barometer of the market for cars.

The show is also a stage for car maker's executives who will be on location to tell the world where they are heading.

DEVELOPING STATES 'HOOKED ON AID'

An evaluation of lending programmes has concluded that many countries have become stubbornly reliant on aid from international lending bodies.

The report, produced by the Independent Evaluation Office (IEO) of the International Monetary Fund (IMF), also found that prolonged use of IMF initiatives has expanded considerably over the past two decades.

CHINA TELECOM UNVEILS US FLOTATION

Telephone giant China Telecom's massive flotation looks set to start next month, and could raise as much as $4bn for the company.

The firm's application for a listing in the US with the Securities and Exchange Commission, filed on Tuesday, allots 159.6 million American Depositary Shares (ADSs) each worth 10 shares in the company itself to the US market.

POVERTY HITS

The US economic slowdown has led to an increase in the number of poor people in the world's richest country for the first time in eight years.

New figures from the US Census Bureau show that the poverty rate increased to 11.7% in 2001, compared with 11.3% in 2000. The number of people in poverty rose by 1.3 million to 32.9 million.

TANZANIA GEARS UP FOR TOURISM PUSH

Tanzania is hoping the trend towards ecotourism, adventure and cultural experience holidays will help it become a leading tourist destination.

The home of Kilimanjaro, the Serengeti plans and the beaches of Zanzibar believes its natural resources can help it build up its share of the massive tourism market.

REVIVING KENYA'S COTTON INDUSTRY

The American government has offered assistance to Kenya's once-thriving cotton industry.

The United States Trade and Development Agency said it would provide aid worth more than $300m, as well as advice from American cotton industry experts.

US INTEREST RATES KEPT ON HOLD

The Federal Reserve has kept US interest rates on hold, warning of the risk of "heightened geopolitical risks" on economic recovery.

The Fed, the US central bank, left interest rates at a 40-year low of 1.75%, despite an attempt by two of its chiefs to win a cut.

While saying it was confident that current economic policies would foster recovery, the Fed's open market committee (FOMC) warned that amid a period of growing tensions, the timing of the recovery was uncertain.