In this issue:

Sheikh Yamani Warns Iraq War Could Send Oil Price to $100/Barrel

Global Stock Markets Suffer Longest Decline in 60 Years

IMF Warns of 'Serious Risk to World Economy'

EC Delays Budget Balancing by Two Years

How Long Will Brazil Let Itself Be Bled Dry?

Banks and Sharks Are Profiteering of the Devaluation

Uruguay Seeks a Debt Moratorium


From the Vol.1 No.30 issue of Electronic Intelligence Weekly, Published September 30, 2002

WORLD ECONOMIC NEWS

Sheikh Yamani Warns Iraq War Could Send Oil Price to $100/Barrel

In an interview with the German magazine DM Euro, former Saudi Oil Minister and OPEC chief Sheikh Yamani, who is "still close to the ruling family," according to the Daily Telegraph online Sept. 25, said that if Saddam Hussein is attacked, he might fire chemical weapons at his neighbors. Then, if the Saudi and Kuwaiti oil flow were affected by the U.S. war against Iraq, "you can expect a triple-digit oil price. It could rise to $100 [per barrel] if the flow of oil from Kuwait and Saudi Arabia is turned off," Yamani said. The benchmark price of a barrel of crude rose 12 cents Sept. 24, to $29.25, still well below the $40 a barrel it reached during the Gulf War.

Global Stock Markets Suffer Longest Decline in 60 Years

With the week ending Friday, Sept. 26, the Nasdaq index fell below the 1,200-point mark for the first time since September 1996. Since its peak at about 5,000, in 2000, the Nasdaq has lost three quarters of its market value. While the Dow Jones index, designed in a special way to cover up the market crash, has, so far, "only" dropped from 12,000 to 7,700 points in the last 2.5 years, or about 35%, the broader S&P-500 index of U.S. stocks lost 45% of its value in the same time period. If the Nasdaq continues slide for one more week, its losses would surpass the 48.2% crash suffered during 1973-74, and the present meltdown would be the biggest since 1937-38.

Unless a miracle happens before Christmas, the S&P-500 will finish 2002 with its third annual loss in a row, which last occurred at the start of World War II, between 1939 and 1941.

In Japan, stocks this week sank back to the 19-year low, already reached in early September. Most of the European stock indices are at their lowest levels in six years. The German DAX on Sept. 25 in early trading fell to 2,800 points, a level not seen since late 1996, compared to 8,000 points in March 2000.

But the most stunning market meltdown has been the German Nemax-50 of the "New Economy" firms: The Nemax hit a new all-time low on almost every single trading day in September, with 97% of its value vaporized since its peak in March 2000, and will shut down by early 2003. Deutsche Boerse, Germany's stock exchange operator, said it will close the Neuer Market, transferring companies listed there to two new groupings with different reporting rules.

IMF Warns of 'Serious Risk to World Economy'

The IMF, in its September "World Economic Outlook," rebuts lunatics Alan Greenspan and Paul O'Neill, on the sustainability of the current account deficit and the overvalued dollar: "Global imbalances," it warns, pose a "serious risk to the world economy." "The question is not whether the U.S. deficit will be sustained at present levels forever— it will not— but more when and how the eventual adjustment takes place."

"The overvaluation of the dollar has not yet been corrected," the IMF warns, "and an abrupt and disruptive adjustment remains a significant risk." Such an event, would have an "adverse impact on the international financial system."

EC Delays Budget Balancing by Two Years

The European Commission, hit by economic reality, again pushed back its balanced-budget deadline by two years, to 2006, as Germany, France, and Portugal face deficits that surpass the "stability pact" limit of 3% of gross domestic product in 2002. French Prime Minister Jean-Pierre Raffarin hailed the EC's "sense of reality" in acknowledging that budget-balancing commitments "depend on growth." Italian Finance Minister Giulio Tremonti said he "fully agrees" with the EC's approach.

How Long Will Brazil Let Itself Be Bled Dry?

Brazil's currency, the real, lost 12% of its value in the week of Sept. 23-27, alone, closing on Friday, Sept. 27 at yet another record low: 3.8725 to the dollar. Brazil's benchmark bond also suffered huge losses this week, and is now selling at under 50 cents on the dollar (48.38 cents), its lowest level since 1995. Money is also pulling out of the stock market. The Central Bank reported it sold $150 million in reserves to banks on Sept. 27 alone, to bolster the currency, yet despite that, the real lost 2.69% that day.

Bloomberg put out a wire Sept. 27 which effectively signals the sharks to go into a feeding frenzy. The wire quoted Jeremy Brewin, a money manager from London's Morley Asset Management, putting out the line that "the market's beginning to take over the game." Investors think the Central Bank is losing control, and may not be willing to spend the reserves required, or may not have the reserves to spend, to defend the currency. "We now have to see them prove that they still have reserves left. There are beginning to be signs of bluff."

Such ravings follow the Sept. 24 statement by a Templeton Asset Management manager, Mark Mobius, also broadcast by Bloomberg: "There is going to be a default. The only question now is: Can it be done in a controlled manner?" Mobius said there is a "90%" chance Brazil will default.

Exactly how much Brazil's debt is increased by this week's devaluation is not known, but it does guarantee that Brazil will not meet one of the conditionalities of its IMF program. Brazil's total public debt was supposed to be no greater than R$810 billion on Sept. 30, but the real would have to be at 3.18 to the dollar for that to be the case, according to the Central Bank. It's already at over 3.8, and now is most likely to plunge further when market's open on Sept. 30.

Banks and Sharks Are Profiteering of the Devaluation

Brazilian dailies report Sept. 25 that the real came under intense pressure after the government announced, at the end of the previous week, that it would pay off the $1.51 billion in dollar-indexed debt when it came due on Sept. 25, because it wasn't willing to pay the more than 50% in interest rates demanded by "investors" to roll them over. The key to dollar-indexed bonds is that the government is forced to repay the holders, not what they paid for them originally, but the dollar-equivalent of what they paid— at the time of maturity. Since the higher the real's value was at the close of Sept. 24, the greater the profits for the bondholders when they were repaid on Sept. 25, the "markets" struck. Jornal do Commercio estimated the additional profits secured by the bond holders simply from the real's collapse in the two days after the government's announcement, was R$331.4 million— over $89 million. Ahh, the wonders of market economy!

Another $1.25 billion comes due Oct. 1, which the government will also have to pay off, so the looting continues.

Uruguay Seeks a Debt Moratorium

The desperate government of Uruguay's President Jorge Batlle is examining options for rescheduling its debt, via a swap of short-term for longer-term debt, but is anxious that the move be seen, not as a default, but rather an "authorized moratorium," press reported on Sept. 20-21. Government authorities see this as an implementation of IMF Deputy Managing Director Anne Krueger's crazy scheme to allow debtor nations to restructure their debt, while imposing severe austerity. The Uruguayan officials don't want to cause problems for the country's creditors, according to El Observador.

For the rest of this year and through 2003, Uruguay must pay $2.2 billion in interest and principal, and another $1 billion in 2004. It is scheduled to receive a total of $3.8 billion from the IMF/World Bank/Inter-American Development Bank, which will be used to pay these obligations.

Meanwhile, the country's collapse continues unabated. Imports for August declined a whopping 51%, compared to the same month last year. La Republica reported on Sept. 23 that real wages have fallen 30% this year, making this the worst year for real wages in the country's history.

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