Feb-11 - 17, 2002

US sets aside $5.2bn for war on terrorism

In the heavily military-oriented budget proposals sent to the US Congress for the fiscal year 2003, the Bush administration proposes to spend 24,300 million dollars on foreign affairs — a 1,000 million dollars increase over the current year's budget.

But this allocation too has its military component, with 5.2 billion dollars set aside for programmes related to the "war on terrorism". Among provisions made in the foreign affairs section of the budget proposals are efforts designed to enlist new support from Pakistan and other countries in the region for the US campaign in Afghanistan and to assist the Pakistan government through diplomatic and economic assistance.

In the summary on foreign affairs released here, there is no mention of new aid to Israel, which is always the largest recipient of US assistance. Current aid levels to the country are pegged at 2.04 billion dollars in military and 720 million dollars in economic aid.

The proposed budget would include a four per cent increase in spending for the State Department to 9,234 million dollars. It would allocate 2,740 million dollars for international development assistance programmes administered by the US Agency for International Development (USAID). In all, 13,886 million dollars would be spent on international assistance programmes.

However, for the first time, support for international financial institutions is to be linked to performance. The budget proposes 178 million dollars to help meet US international commitments under a plan to clear all arrears.

US stimulus package fails

A US economic-stimulus package is all but dead after two votes in the Senate that failed to pass either version of plans crafted by Democrats and Republicans.

The votes followed a warning from the White House on Wednesday morning that a failure to approve the measures would lead to job losses.

"One way to read the consequence is about 300,000 jobs," said Glenn Hubbard, who heads the White House Council of Economic Advisors.

The Democrat's bill, as introduced by Senate Majority Leader Tom Daschle, would have provided an economic boost to the tune of $69bn (£48.9bn), considerably less than a comparable Republican bill, which proposed to spend nearly $90bn.

Japan to raise bad loans issue at G7 meeting

Japan said on Tuesday it would do its best to allay fears of a financial crisis at a meeting of the Group of Seven (G7) industrialized countries by discussing the condition of its debt-laden banking sector.

"The biggest issue for Japan at the meeting will be the disposal of banks' bad loans," Finance Minister Masajuro Shiokawa told a news conference.

"Prime Minister (Junichiro) Koizumi has reiterated Japan will take all possible measures to avoid being the origin of a financial crisis," he said.

G7 finance ministers will meet in Ottowa from Friday.

Japanese banks are under pressure to reduce a mountain of bad loans to safe levels within the next three years as part of a drastic government reform plan to lift the economy from its third recession in a decade.

Aggressive bad debt write-offs, coupled with the pressure of more loans turning sour amid an economic slump and spiralling deflation has raised serious concerns over the sustainability of Japanese banks without public funds. "The government cannot force a capital injection on the banks unless they collapse," Shiokawa said.

"The government might have to deal with aggressive disposals of bad loans by banks but the judgment must be made by the banks' management. I think at this stage banks don't need a capital injection," he said.

On Monday, chairman of the Japan Federation of Economic Organizations called for an early injection of funds to offset a crisis.

"Banks should shift more attention to launching new businesses to increase profitability and expand financial activity instead of focusing on enhancing the capital-adequacy ratio and bad-loan disposals," reasoned Shiokawa.

The finance minister said he was surprised by a sharp drop in Koizumi's once sky-high public approval rating after the premier sacked his outspoken but hugely popular foreign minister Makiko Tanaka.

Blair mulls Africa's economy

British Prime Minister Tony Blair is in West Africa in order to discuss ways of driving economic growth.

Sub-Saharan Africa is one of the poorest region's of the world, and produces only 1% of the world's gross domestic product despite being home to 10% of its population.

Trade, aid and debt will be given priority in the discussions taking place in Nigeria, Ghana, Sierra Leone and Senegal.

Mr Blair's tour prepares for Friday's meeting of the New Partnership for African Development (Nepad) — an initiative of 15 African countries to tackle issues of poverty, corruption and the introduction of good economic governance.

Nepad is modelled on the US Marshall Plan which rebuilt Europe after World War II — and targets annual investment of $64bn.

Euro-zone business confidence improves

Business confidence in the euro zone improved in January owing to better outlook for production, the European Commission said on Tuesday.

The commission's euro-zone business confidence index rose 0.19 points to -1.03 points from -1.21 taking into account the effect of rounding, the commission said. The index had been worsening ever since June 2000, when it reached a peak of 1.78 points.

It fell into negative territory in June 2001, when -0.01 points were registered. However, in December the index had stabilized in comparison with November.

On Monday, the European statistics institute Eurostat said its economic sentiment indicator for January had shown an increase of 0.1 per cent in the 12-nation euro zone.

Eurostat said that even though the rise was modest, it signalled a reversal of the negative trend seen since the third quarter of 2000.

The economic sentiment indicator takes into account the opinion of big and small companies, the construction sector and consumers. Meanwhile, the European Central Bank meets on Thursday to reassess its monetary policy stance amid growing expectations it will not cut interest rates immediately.

A large majority in a Reuters poll expect the ECB to hold its key interest rate steady at 3.25 per cent at the meeting, to be held in the Dutch city of Maastricht to mark the 10th anniversary of the treaty that laid the foundation of Europe's single currency.

Preliminary data show euro zone inflation rose to 2.5 per cent in January from 2.1 per cent in December, meaning it was visibly higher than the ECB's two per cent ceiling.

Single EU finance market edges closer

Proposed reforms to the way pan-European financial legislation is drafted have won the backing of the European Parliament, boosting plans to create a single European market for financial services.

Euro-deputies voted in favour of the reforms on Tuesday, ending 11 months of bickering between the parliament and the other European Union institutions.

Under the proposals, which have yet to come into force, responsibility for working out the details of pan-European securities market legislation would pass to two new panels of regulators and finance experts.

The two specialist committees are expected to accelerate the process of drafting laws needed to integrate the EU's 15 national financial regulatory systems, paving the way for the introduction of a single European market for financial services by 2005.

Russia regains leading place on world energy map

The global energy equilibrium is changing. Russia, over the last few years has regained its position as a potent force on the global energy map.

It is now only second to Saudi Arabia, the world's largest oil exporter. The change in the equilibrium is going to have profound impact on the world oil market, many here in Dhahran, the virtual global energy capital believes.

Despite the recent agreement between the Organization of Petroleum Exporting Countries (Opec) and Russia over the issue of cut in production, to stem the downward trend in oil market prices, analysts fear that compromise could only be a short lull in a long confrontation.

Many believe "compromise" that has resulted from this trial of strength between Opec and Russia is far from a solution to the fundamental problem that divides the two sides over production levels and the market shares.

Argentina to resume IMF talks

In a bid to convince the International Monetary Fund (IMF) to resume economic assistance to Argentina, economy minister, Jorge Remes Lenicov will on Tuesday visit Washington to present his package of economic measures.

"He is coming for two days to present his plans and start a discussion," said the Fund's deputy managing director, Eduardo Aninat.

Crisis meeting over $750m bank fraud

Heads at Allied Irish Banks have, after a crisis meeting, given no fresh clues of how the bank's US division suffered a suspected $750m fraud.

Bank representatives had, before the meeting, said the session would help unravel "the complexity of what is involved and why the systems did not work and whether some people didn't do their job".

But emerging from the session, chief executive Michael Buckley merely restated his regret at the failure of security controls, and pledged to discover the truth behind the loss. And bank chairman Lochlann Quinn, pressed on who was to blame, said: "I want all the facts, not some of them."

Bank keeps UK rates on hold

The Bank of England has kept interest rates on hold following its latest rate-setting meeting.

The move was expected by most observers, and many analysts now believe the current cycle of interest rate cuts has come to an end.

Last year the Bank cut interest rates seven times to its current level of 4% as it tried to prevent the UK economy from falling into recession.

The Bank has had to try and balance the demands of different parts of the economy with consumer demand still strong but industry struggling.

Nepal wins $2.5bn foreign aid pledge

International donors have pledged $2.5bn to Nepal to help bail out the Himalayan kingdom's cash-strapped economy.

The decision came at the end of a four-day meeting of multilateral aid agencies and donor countries in the Nepalese capital Kathmandu.

The Nepalese Finance Minister, Ram Sharan Mahat, said donor countries understood Nepal's needs.

Eurozone interest rates unchanged

The European Central Bank (ECB) has left its key interest rate unchanged at 3.25%.

The decision had been widely predicted by financial market professionals.

The outgoing ECB president, Wim Duisenberg, who earlier on Thursday said he will stand down this year, predicted that the eurozone economies is set for a gradual recovery this year.

Manufacturing gloom continues

Output in the UK's manufacturing sector has recorded its largest annual decline for more than 10 years.

New figures from the Office for National Statistics showed a 0.5% fall in December, slightly better than November's drop of 0.6%.

Compared to December 2000, output was 6.4% lower — the largest fall since August 1991.

The figures were worse than expected and may dash hopes than the sector was beginning to recover.

The wider measure of industrial output also shrank by 0.3% in December, implying a 4.6% drop since the same month the previous year.

Manufacturers have called for more cuts in interest rates to help the beleaguered sector.

But on Thursday the Bank of England left the UK base rate unchanged at 4%.

Japanese go for gold

Fears are growing again about the health of the Japanese financial system.

On 1 April the government begins to phase out its guarantee to reimburse all deposits in the event of bank failures — a decision which is adding to an already nervous mood.

Stocks and property have proved disastrous investments over the last decade, and the continuing recession leaves little prospect of an upturn.

That is why private investors are seeking out other options — such as gold bars.

Mexico is in recession

Mexico is officially in recession after its economy shrank during the last six months of 2001, the country's finance ministry said.

The fall-out from the US recession meant that the Mexican economy shrank 0.2% for the year as a whole.

The full year figure was pulled lower by sharp declines in economic growth during the last two three-month periods of the year.

During the last three months of the year, Mexico's economy shrank by 1.2%

Gold prices hit two-year high

Gold prices have risen sharply on the financial markets, rising above $300 an ounce for the first time in two years earlier this week.

It may be a sign that investors have lost confidence in the real value of shares as a result of the scandal over accounting practices at the bankrupt energy group Enron.

There has also been a surge in demand in Japan, where investing in the metal is seen as a potentially safer option than putting money in the country's ailing banks.

German jobless

German unemployment has risen above the critical four million mark in January.

On a seasonally unadjusted basis, there were 4.29 million people out of work, taking the jobless rate up to 10.4% from 9.6% in December.

Argentina halts currency trading

The Argentine Government has extended the closure of banks and foreign exchange centres until 11 February, giving the market more time to prepare for a full flotation of the peso.

Foreign exchange trading has been suspended since Sunday, when the government announced plans to scrap all remaining exchange rate controls as part of a wider package of reforms aimed at restoring economic stability after months of crisis.

The government ordered the closure of retail banks at the same time in order to prevent a run on bank deposits by savers.

Blow to Irish confidence

For a normally quiet market, the first week of February has proved to be extraordinarily eventful for the Irish Stock Exchange.

The Iseq index typically takes its lead from other markets, but this week two of its largest companies have dictated share movements not just in Ireland but also elsewhere.

Elan Pharmaceuticals has fallen from its position as the biggest Irish company by market capitalisation following news that investors have filed lawsuits, alleging misleading accounting practices.

Allied Irish Bank — the next biggest company — fell from grace on Wednesday morning as it told investors of a suspected $750m fraud.

Results

Shell: Falling oil and gas prices have led to a profit drop at Anglo-Dutch oil giant Royal Dutch/Shell.

Adjusted net profit for the last three months of the year was almost halved at $1.9bn (£1.4bn), down from $3.6bn a year ago and compared with analysts' expectations of $1.9bn-$2.3bn.

Philips: Philips Electronics, lost 2.6bn euro last year, a sharp turn-around from its 9.6bn euro profits in 2000.

Cisco: The company said on Wednesday that profits before one-off expenses for the three months to late January came in at $644m, down from $1.3bn the year before, but nearly double what analysts had expected.

DaimlerChrysler: The poor performance has pushed it into a net loss of 662m euros (£406m; $589m) for 2001, down from a 7.9bn euro profit the year before.

Hyundai Motor: High Sonata sales helped profits accelerate Hyundai Motor, South Korea's leading automaker, has reported record results with a surge 75% in net profits for 2001.

Profit for the year hit 1.17 trillion won (£627m; $895.3m) while sales over the same period rose 23.4% to 22.5 trillion won.

Software house goes for broke

Software company InterX has seen its shares slump by three quarters after it told its investors that it only has enough money for another six months.

By the close in London, InterX shares were down 73% or 49.5p at 18p. The company — which makes information-sharing products for corporations said its full year figures would be "substantially below market expectations" as the market weakened.

Russia grows amid high inflation

Russia's economy continued to expand last year, at the same time as economies around the world slipped into recession.

Gross domestic product (GDP) was up a sturdy 5% in 2001, according to the preliminary results, published by the State Statistics Committee.

The growth was fuelled mainly by increased oil and gas export prices, as well as by a surge in domestic demand and output.

The result was in line with the government expectations, but the inflation rate exceeded state predictions.

Monthly consumer price inflation in January leapt to a three-year high of 3.1%, well the forecast 2.7%.

This makes the state's 14% annual goal look at least problematic.

Wim Duisenberg, the Dutch president of the European Central Bank, is to resign next year. The date chosen — 9 July — is Mr Duisenberg's 68th birthday. Though in an afternoon speech he said he would stay on longer if it would help his, as yet, unchosen successor.