In this issue:

Deutsche Telekom Posts Biggest Annual Corporate Loss Since World War II

Euro Central Banks Batten Down Hatches Ahead of 'Cross-Border Contagion'

Paraguay Narrowly Averts Default to Multilateral Lenders


From Volume 2, Issue Number 11 of Electronic Intelligence Weekly, Published Mar. 17, 2003

World Economic News

Deutsche Telekom Posts Biggest Annual Corporate Loss Since World War II

Europe's largest telecommunications firm, Deutsche Telekom, lost 24.6 billion euros ($27.1 billion) in 2002, the biggest corporate yearly loss in Germany since the Second World War, mainly due to a third-quarter writedown in the value of its holdings, such as U.S. wireless company T-Mobile USA, and on U.S. mobile-phone licenses. Telekom is in a drive to cut costs and debt--61.1 billion euros ($67.2 billion) at the end of 2003.

France Telecom reported a net loss of 20.7 billion euros ($22.7 billion) for 2002, while Vivendi Universal said it lost 23.3 billion euros ($25.6 billion) in 2002--a record annual loss for a French company.

Euro Central Banks Batten Down Hatches Ahead of 'Cross-Border Contagion'

On March 10, the central banks and financial supervisory agencies of Western and Eastern European countries agreed to a joint "Memorandum of Understandung" (MoU) on "high-level principles" of cooperation in "crisis-management situations." The European Central Bank stresses that the MoU "is not a public document," so it will not be published. The document specifies principles and procedures for cross-border cooperation, including setting up a logistical infrastructure, to ensure the "stability of the financial system" during financial emergencies.

The ECB notes that the agreement was important because developments such as "the integration of financial markets and market infrastructures in the EU, the growing number of large and complex financial institutions and the diversification of financial activities," have increased "the likelihood of systemic disturbances affecting more than one Member State" and have possibly also increased "the scope for cross-border contagion."

Paraguay Narrowly Averts Default to Multilateral Lenders

A desperate Paraguay narrowly averted default on $54 billion owed to multilateral lenders the first week of March, by borrowing money from the Central Bank against future sales of electricity. To convince the Bank to lend it money owed to the World Bank, the Inter-American Development Bank (IADB), and the Japan Bank for International Cooperation (JBIC), the government said it expected to receive $39 million, by April 6, from the giant Brazilian-Paraguayan Itaipu hydroelectric complex, and $15 million from the Argentine-Paraguayan Yacyreta hydroelectric complex. However, the Bank would only cover the $39 million, apparently considering the Argentines to be unreliable. Where Paraguay's Gonzalez Macchi government found the remaining $15 million is unknown.

Borrowing money from the Central Bank is only a short-term fix for impoverished Paraguay, which is under fierce IMF pressure to ram an austerity package through the Congress as a conditionality for a standby loan. Standard & Poor's has already classified the country as being in "selective default," because it had previously defaulted on $21 million in bonds held by local banks. According to a just-released confidential World Bank report, "Paraguay's financial system is highly vulnerable." The report warns of an "imminent crisis" at the state-run National Development Bank, and recommends that pension funds deposited there be withdrawn immediately.

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