June 02 - 08 , 2003 










The Bush administration reportedly buried a report commissioned by the US Treasury which predicted a budget deficit of over $44,000bn and called for tax rises.

In a front-page story Britain's Financial Times said the report, which advocated tax rises, was left out of February's budget report as the White House lobbied for $350bn in tax cuts.




Those cuts, the opposite of what was reportedly recommended in the Treasury study, were signed into law by President George W Bush last week.

The newspaper said the study was "the most comprehensive assessment of how the US government is at risk of being overwhelmed by the 'baby boom' generation's future healthcare and retirement costs".

"It estimates that closing the gap would require the equivalent of an immediate and permanent 66% across-the-board income tax increase," the FT said.

The Bush administration has been heavily criticised for the tax cuts which came on top of a 10-year $1,650bn in tax cuts in 2001 as the US economy stagnates and unemployment rises.

The FT reported that former Treasury Secretary Paul O'Neill, who was sacked from the administration in December, commissioned the paper.

Two leading US Treasury economists headed the study Kent Smetters, former Treasury deputy assistant secretary for economic policy, and Jagdessh Gokhale, a Treasury consultant at the time.

In transcripts of interviews with them published by the FT, they disagree over whether the report was meant to be included in the budget report.


Japan's central bank has eased its monetary policy in an attempt to help its economy cope with the damaging effects of the SARS virus.

The Bank of Japan (BOJ) has raised its target for extra cash in the financial system by 3 trillion yen ($26bn), allowing extra money to flood the money markets.

The move reassured stock markets which have been fearful of a funding crunch since the government's recent decision to pump public funds into the nation's fifth largest bank to avert a financial crisis.

"The BOJ tried to show its determination to take decisive action to avert a crisis in the money market," said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC.

"But this will not have any impact on the real economy," he cautioned.

The Japanese economy struggled to make headway in the first three months of the year and economists are predicting more gloom ahead.

The central bank also warned about the impact of the SARS virus that is likely to further damage the region's economic growth.

The world's second largest economy reported flat Gross Domestic Product (GDP) to March 2003 and has been teetering towards reverse since then.

Exports, which account for 11% of Japan's GDP, took the biggest hit in the first three months of the year.

And analysts warn that SARS is likely to hit exports again in the current three month period to June.




Japan's currency, the yen, is continuing to advance despite efforts by the authorities in Tokyo to take the edge off its recent gains.

The yen rose 5% in the two months to mid-May, and although it has slipped back slightly in recent weeks, to a little more than 118 yen to the dollar last week, currency dealers say the pressure is still on.

The rise is hardly good news for Japanese exporters, on whom given stubbornly falling prices and weak domestic demand Japan is relying to avoid economic meltdown.

Unemployment is sky-high by Japanese standards, as new figures revealed. A near-record 5.4% of the workforce is without a job, with the worst-hit being the young, crippling the chances of a rise in consumer spending.


US Trade Representative Robert Zoellick has ended a two-day visit to Brazil in which he heaped praise on the economic policies of the new left-wing government.

But Mr Zoellick failed to win progress on the issue of free trade, the purpose of his visit.

He hoped to push forward the agenda for creating a Free Trade Area of the Americas (FTAA) by 2005.

Brazil's new left-wing leader, President Luiz Inacio Lula da Silva, has inherited an agreement between 34 North and South American nations to form a free trade area by 2005.

But while the project is a priority in Washington, there is far less enthusiasm in Brasilia.

During his visit, US trade representative Robert Zoellick insisted that everything would be on the negotiating table.

But the present US proposals do not envisage ending subsidies to US farmers.


The record rise of the euro against the dollar and sterling has sparked fears that it could push eurozone countries into deflation.

Economists are now urging the European Central Bank (ECB) to cut interest rates when it meets on 5 June.

The euro hit its highest ever level against the dollar last week, reaching $1.193 surpassing its previous peak, reached shortly after the single currency's launch in January 1999.

In the same week, it had fallen back to $1.176 but economists warned that unless the ECB cuts rates, the euro's rise will continue.

A strong euro will make European exports more expensive, and will favour the sale of cheaper US goods abroad.


The German government has been accused of pressuring the Organisation for Economic Cooperation and Development (OECD) to soften a critical report on the country's economy.

The OECD, a club of 30 industrialised nations including the US and the UK, is quoted by German business daily Handelsblatt as confirming that changes were made to the report.

Handelsblatt published excerpts of what it claims was the first draft of the report, and said the final version shows a softening of language criticising the economic convergence between former East and West Germany.

It quoted OECD economist Patrick Lenain as saying the assessment released in December was "the most critical country report in a long time".


The Russian economy expanded 6.6 per cent from January to April compared with the same period last year, the government reported last week, citing upwardly revised figures.

The Economic Development Ministry, which had foreseen annual growth of 4.5pc this year, is now predicting momentum of 4.6 per cent.




US President George W Bush leaves for a week-long trip that will take him to Europe, Russia and the Middle East.

It will be his first trip to Europe since the Iraq war and the bitter trans-Atlantic debate that preceded it.

On the eve of his departure he said he wanted to set aside US "frustration and disappointment" over French opposition to the Iraq war during his Europe trip.

The president will make his first stop in Poland where he will deliver a key speech on the future of transatlantic relations.


Computer giant Microsoft has agreed to pay $750m (454m) to settle a lawsuit claiming it used its dominance to crush competition.

The case involved Netscape Communications which now belongs to the AOL group.

As part of the agreement, Microsoft will give a new royalty-free, seven-year licence of its browsing technology to AOL.


Strong consumer spending helped the US economy to grow at a faster rate than first thought at the beginning of this year.

Latest official figures showed that the country's gross domestic product its economic output grew at an annual rate of 1.9%.

That is slightly faster than the original 1.6% figure estimated a month ago.

The US Commerce Department said the economy was lifted by consumer spending which grew by 2% during the three month period rather than the 1.4% first estimated.


Hopes of better times ahead for the US economy pushed share prices sharply higher last week.

The market jumped higher following the release of data which showed consumer confidence continuing to rise, and strong growth in home sales.

At the close of trade, the Dow Jones share index was up 179.97 points, or 2.1%, at 8,781.35 while the tech-heavy Nasdaq index rose 3.1% to 1,556.69.


South Africa's economy is growing more slowly than expected, making early cuts in the country's punishingly high interest rates more likely.

Figures released last week showed that the economy grew at an annual rate of just 1.5% in the January to March period, well down on the 2.4% registered in the October-December quarter, and far short of the predicted 1.8% expansion.



Combined with suggestions last week that inflation estimates are to be revised downards, the weak growth figures make an interest rate cut more likely when the Reserve Bank of South Africa holds its next rate-setting meeting.


Canada has claimed victory over the US after an interim ruling by the World Trade Organisation on the countries' timber trade dispute.

Canada said the WTO had ruled that the comparatively low timber logging fees charged by its provincial governments did not amount to subsidies.

"Yet again, it appears that the US is being told that its attempts to prove that our softwood industry is subsidised are flawed," said International Trade Minister Pierre Pettigrew.

US trade officials disputed the Canadian interpretation, saying the WTO panel had decided that the Canadian system amounted to a financial contribution and was, therefore, subject to duties.


The West African island state of Sao Tome and Principe has been setting out how it plans to use new oil revenues to tackle poor health and education.

The government's priority is "to have these resources go to sectors that deal with the conditions of our people health, education, fighting disease like malaria," Natural Resources Minister Rafael Branco told the BBC.

Sao Tome and Nigeria began auctioning drilling licences for nine offshore blocks in April. Mr Branco said they hoped to sign the first contract by the end of 2003.


Brazil's President Luis Inacio Lula da Silva has made a pact with one of the largest opposition parties to allow the government to pass key economic reforms.

Economists say the key to Lula's success and to reducing the long-term burden of Brazil's debt lays in restructuring the economy.




South Korea's Samsung General Chemicals has signed a $1.55bn joint venture with TotalFinaElf, the world's fifth largest oil company.

The agreement will form a new group, to be called 'Samsung-Atofina', and marks one of the biggest foreign investment deals for South Korea in recent times.

Under the deal, Samsung General a unit of the conglomerate Samsung Group will transfer its petrochemicals business over to the project.

TotalFinaElf's chemicals division, Atofina, will invest $775m into the new entity which will produce a range of petrochemicals and polyolefins.


Rabobank, the Netherlands' biggest cooperative bank, has launched a savings account that pays interest in coffee rather than cash.

The new accounts are designed to help develop cooperative projects in Africa.

Rene de Jong, managing director of Rabobank's Leiden office, told BBC News Online the move would "offer member clients direct involvement with the life improvement of communities on the other side of the world".

The minimum investment is 950 euros ($1,115; 683), which would generate an annual return of 12 bags of coffee weighing 250g each.


Seven European countries have finally signed a contract to buy 180 military transport planes from Airbus, after years of haggling and delays.

The contract, worth 20bn euros (14.5bn; $23.75bn), was signed by Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey.


Sri Lanka's first petrol station owned by an Indian company has opened in Colombo.

Under a recent deal, Indian Oil Corp bought 100 petrol stations from Sri Lanka's state-run Ceylon Petroleum Corp in what has been described as a landmark in economic co-operation between the two states.

Indian Oil is planning to buy a further 150 petrol stations in Sri Lanka and will reportedly invest $100m in the project over the next few years.




The World Bank has said it will increase financial assistance to Bangladesh in recognition of the government's progress in reforming the economy.

The Bank's country director in Bangladesh, Frederick Temple, told reporters in Dhaka that an aid package of more than $500m is expected to be approved at the Bank's board meeting next month.