In this issue:

U.S. Dollar Going, Going....

Dollar Dump Threatens Derivatives Contracts, Hedge Funds

EU Moots Trade Sanctions Against U.S. Goods

Brazil Warned To Ram Through 'Reforms'—or No IMF Loan

Hungry Children Steal Food in Israel


From Volume 2, Issue Number 19 of Electronic Intelligence Weekly, Published May 13, 2003

World Economic News

U.S. Dollar Going, Going....

The U.S. dollar dropped to a new four-year low against the euro, falling to $1.15 per euro, the lowest since Jan. 27, 1999, in New York trading after the European Central Bank left interest rates unchanged at 2.5%, keeping yields higher in Europe than the United States. Over the past six weeks, the dollar has plunged by 9% against the euro, bringing its 12-month drop to 21% against the European currency.

Gold futures rose as much as $8, to as high as $350 per ounce, in trading on the New York Mercantile Exchange, closing at $348.70 per ounce.

Japan spent 2.38 trillion yen ($20.44 billion) on currency intervention in the January-March quarter, buying dollars and euros, according to data released on May 8.

According to a feature in the German economic daily Handelsblatt, written from Beijing, there are now preparations and moves all over Asia to lower the dependency on the dollar. About 80% of worldwide foreign-exchange reserves are held by Asian central banks, which are very much concerned about "the weak U.S. economy, Washington's aggressive foreign policy, and the ongoing corruption scandals" in the U.S. corporate sector and at Wall Street banks, Handelsblatt said. In September of last year, notes the article, several Asian governments set up task forces, in cooperation with European governments, to advise central banks how to diversify their foreign-exchange reserves and how to issue international bonds denominated in euros, not in dollars.

Mahendra Siregar, adviser to the Indonesian Finance Ministry, confirmed over Easter weekend that the country is considering introducing the euro as a currency for foreign trade: "Many institutions in Indonesia are studying this idea," Siregar said. The idea was first proposed in Indonesia by the state-run oil-and-gas producer, Pertamina.

According to Singapore's Business Times, the central bank of Indonesia has already quietly replaced 15% of its dollar-denominated foreign-exchange reserves—in total $33 billion—with euros recently.

All these efforts, states Handelsblatt, obviously have a political background: Besides Japan and South Korea, all the other capitals in the region are quite unhappy about the rising American pressure, and one way to react to this problem is by reducing the dependency on the U.S. currency.

Dollar Dump Threatens Derivatives Contracts, Hedge Funds

The collapse of the dollar could blow out derivatives contracts and hedge funds, warned IMF chief economist Kenneth Rogoff, according to the Washington Post May 9. A sudden large drop in the dollar's value "might lay bare weaknesses in the financial system," by causing severe losses to major market players with derivatives portfolios and hedge funds, some of which rely on a stronger dollar, Rogoff warned in an interview with Washington Post columnist Paul Blustein.

EU Moots Trade Sanctions Against U.S. Goods

The European Union threatened to slap trade sanctions worth a record $4 billion on U.S. goods, unless Congress moves by Sept. 30 to repeal the Foreign Sales Corporations provision, which gives tax breaks to large exporters such as Microsoft and Boeing. The warning on May 7 comes just days after the EU and U.S. pledged to work together to restart stalled global free-trade talks, and comes after the World Trade Organization approved a list of 1,800 U.S. products targetted by the EU, goods that could be hit with duties up to 100%. A WTO panel ruled in January 2002 that the FSC provision violated global trade rules; Washington agreed to comply with the ruling, but Congress has not begun debating the two proposals to revise the law.

EU Trade Commissioner Pascal Lamy said, "The Commission will review the situation in the autumn, and if there is no sign that compliance is on the way at that time, it would start the legislative procedure for the adoption of countermeasures by January 1, 2004."

The EU ultimatum likely reflects growing European anger at U.S. unilateralism, typified by its imperial occupation of Iraq.

Brazil Warned To Ram Through 'Reforms'—or No IMF Loan

As an IMF mission arrived in Brazil to evaluate whether to release the next tranche of the $39-billion loan package, an editorial in London's Financial Times on May 6 warned the Brazilian political establishment that it had better not succumb to "euphoria," just because the government sold $1 billion in debt last week. "Far-reaching reforms of the pension and tax system" have yet to be passed, the FT reminded them, specifying that trade unions and others will try to dilute the reforms, but the Lula government and Congress must ram them through.

The "carrot" being waved before the Lula government is the $10-billion tranche of the IMF package, scheduled to be released in June, if the IMF approves the government's "performance" in getting these austerity reforms passed.

Hungry Children Steal Food in Israel

Ten Israeli children, ages 9 and younger, were arrested in Israel on charges of burglary, when caught by police stealing food from residences. They were discovered taking meat, fruit, and bread from a house to an abandoned home, where they were storing it. The children told police that they were hungry. The police commented that they see a direct link between these arrests and the current financial depression facing Israel.

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