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.irope's Business Newsoaoer 


Rolls-Royce to 
unveil supply 
deal with BMW 


MONDAY DECEMBER 19 1994 


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Rolls-Royce Motor Cars, 
known worldwide for the 
Spirit of Ecstasy figure 
(left) on its luxury cars, 
will today unveil a deal 
with BMW of Germany. 
Under the agreement. 
Rolls, a subsidiary of 
Vickers of the UK, will 
receive BMW compo- 
nents and technology to 
help cut the cost of prod- 
ucing its next generation 
of models. It is understood this includes BMW sup- 
plying Rolls-Royce with one of its most fundamen- 
tal needs - a modem V12 engine to replace Rolls' 
current V8 power unit Page 15 

Berlusconi government on the brink: The 

government of Italian prime minister Silvio Berlus- 
coni looks almost certain to collapse in a confidence 
vote on Wednesday after the weekend defection of 
Northern League leader Umberto BossL Page 14 


China w ar ns over debt baH-oub Chinese 
officials distanced the government from responsibil- 
ity for the debts of state-owned companies after a 
series of foreign reports about difficulties over pay- 
ments. Foreign investors wore waned they could 
not count on the government balling out projects 
that went sour. Page 14; China and Ga±t, Page 13 


US aoofca closer ties with Elf: The US Is 

proposing a stronger trade and economic partner- 
ship with the European Union. The US is keen to 
win EU support for stricter international disciplines 
on export subsidies, particularly the use of official 
aid to win big infrastructure contracts in the devel- 
oping workL Page 2 

Trafalgar House executives met advisers last 
zright amid expectations that the UK conglomerate's 
bid for regional power company Northern Electric 
could be made as early as today. Page 15 

Fear of organised crime set to grow: 

Financial crime and fraud will replace terrorism as 
the most [messing security concern for international 
businesses, says report by Control Risks, a London- 
based international corporate security consultant 
Page 14 

Spanish stores chain in trouble: Galenas 
Predados, Spain’s second-ranking department store 
drain, went into receivership with debts of 
Ptaa64bn ($485m). Britain's Marks and Spencer has 
been discussing the acquisition of some of the 
stores and another British department store. Har- 
vey Nichols, is also believed to be interested. 

Page 17 

Criminals target bootleg boom: British 
criminal gangs which run pub protection rackets 
are muscling in on the boon in cross-Channel alco- 
bol smnggHiig, according to Frank Nicholson, man- 
aging director of Sunderland-based brewer arid pub 
owner Vans. The gangs have pressed landlords to 
sell smuggled beer in their bars or turn a blind eye 
to Its sale in pub car parks. Page 5 

German hostel set ablaze: Arsonists set fire to 
a German hostel for refugees from former Yugo- 
slavia. A woman and two children were slightly 
injured, but nine other residents escaped unhurt 
from the building near the Dutch border. 

Ulster drugs bush five people were being 
questioned after police and customs officers seized 
one of Northern Ireland’s biggest hauls of cannabis 


Court move likely cm BCCfc The High Court in 
London win today hear the latest plan for settling 
with creditors of the foiled Bank of Credit and Com- 
merce International Any deal must be approved by 
courts in two other jurisdictions as well 

Iberia pBots to strike: Iberia edged closer to 
bankruptcy when pilots at the beleaguered Spanish 
state-owned airline said they would strike from 
December 28 to January 8. Page 3 

HezboHah threatens Israeli targets: 

Lebanon's pro-Iranian Hezbollah group responded 
to threats of Israeli military action by sowings its 
fighters would stage suicide raids on Israeli targets 
worldwide. 

Lord Pitt dies: Lord Pitt, one of Britain's first 
black peers and a tireless worker against racial 
prejudice, died after a long illness at the age of 8L 


European Mon etar y Sy s te m : The Irish punt 
slipped marginally below the Belgian franc in the 
EMS grid last week, despite Ireland’s gett i ng a new 
government after a month of political uncertainty. 
This week the grid will focns on the meeting of the 
Bundesbank ooundL Currencies, Page 23 


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agreed central rates against the other members of the 
mechanism. The exceptions are the D-Mark and the 
guilder uOrich move in a 2.25 per cent band. 


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Saatchi given deadline to stay at advertising group 


By Robert Proton in London 

Mr Maurice Saatchi has been 
given until January 3 to decide 
whether to stay at Saatchi & 
Saatchi, the advertising group lie 
founded 24 years ago. If he 
remains it wiQ be in the largely 
honorific position of president 
and chairman of the subsidiary, 
Saatchi & Saatchi Advertising 
Worldwide. 

After the boardroom coup, 
winch on Friday night saw him 
ousted from the chairmanship of 
the company and removed from 
the board following a row over 
options, his friends said they 


Ousted company founder consults brother on launching, new agency 


were sure he would sever all con- 
nectians with, the group. 

Mr Saatchi was this weekend 
discussing with his brother 
Charles whether they should set 
up a new agency. The chances of 
the brothers starting again are 
remote, according to a dose col- 
league, who said: "After all the 
money they have made and at 
their age [on the cusp of 501 I 
don’t think they really have the 
appetite for it” 

Meanwhile, a senior adviser to 
the ruling Conservative party 


suggested Mr Saatchi might be a 
candidate for the vacant post of 
head of the Prime Minister's Fed-, 
icy Unit SaatnM St Saatchi holds 
the party's advertising account 
and devised the "Labour Isn’t 
Working” campaign. 

Mr Charles Scott, Saatchi's 
chief executive, will this week 
start the process of finding a new 
name for the company, after the 
board’s dedston to drop "Saat- 
chi” from the hniiffing company's 
identity. 

Mr Scott will also try to step 


important cheats deserting. The 
group is particularly worried 
about three accounts; Mars; the 
confectionery group, British Air- 
ways, and Mirror Group Newspa- 
pers, all of which were dose to 
Mt SaatchL 

Such to Mr Saatchi’s closeness 
to the Mars brothers, John and 
Forrest, that on Boday evening; 
when the board toJd him he was 
being removed, he contacted 
them in a last-ditch attempt to 
put pressure on Saabdri directors. 

Mars, British Airways and Mir- 


ror Group Newspapers contribute 


£80001 (JL2btt> annual revenue. 
The comp an y therefore regards 
their potartial loss as serious but 


ifirrar feuup is thought likely 
to keep ite account with Saatctd 
unless ft! becomes lathappy with 
the agency's work. Mr David 
Montgomery, MGN chief exeat- 


week to express his gratitude for 
Mr Saatdbfs work over the years. 
However, Mirror Group sources. 


suggested Mr Saatchi's departure 
had fitfie impact on its day-today 
relationship with the agency. 

. British Airways said yesterday 
it . had made no decision an the 
future of its relationship with 
Saatdd & Saatchi. 

A senior advertising industry 
exec u t i ve said be did not believe 
all three would desert “It is very 
difficult for . them to leave, 
because it would require them to 
change their adver tising cam- 
pai g ns, which they will be reluc- 
tant to do,” be said. 

V ' Lex, Page 14 

Letter, Page 12 


Yeltsin threatened with choosing between bloodbath and betrayal jXJK Tones 

hit by cut 


Russia rejects 
peace talks offer 
from Chechnya 


By John Lloyd ki Moscow 

The Russian government last 
night appeared to reject an offer 
of peace talks by Chechnya’s 
President Dzhokar Dudayev, who 
had sent a telegram to Russian 
President Boris Yeltsin. 

The stalemate between the 
Russian and Chechen leaderships 
yesterday threatened not just the 
stability of other northern Cauca- 
sian republics, but also that of 
the Russian administration itself. 

In the week ahead Mr Yeltsin 
faces the agonising choice 
between committing troops to a 
bloodbath which may topple Gen 
Dudayev or .seeking a compro- 
mise which may be seed by the 
army and Russian nationalist 
forces as a betrayal. . 

The Chechen offer oT-Ctalks 
appeared to conform beiatetfr;to 
Russia’s demand that v <3en 
Dudayev meet senior at 

the Russian military base of Mas- 
dok, near the Chechen border. 
Russia had demanded that Gen 
Dudayev negotiate an agreeme n t 
on handing over weapons, and 
had set a deadline of midnight on 
Saturday for compliance. 

Gen Dudayev had earlier 
Insisted on meeting the Russian 
president, but Russia offered 
talks only with Mr Nikolai Yego- 
rov, a vice premier, and Mr Ser- 
gei Stepashin, head of the Fed- 
eral Intelligence Service. 

Yesterday saw relatively light 
engagements between the Rus- 


We are the IBeratore, say 


sian division to the north of 
Grozny and the Chechen forces - 
even though the Russian dead- 
line had expired. However, a 
series of explosions was heard 
north of the city in the late after 
noon, and nins Chechen refugees 
were reported shot dead by Rus- 
sian soldiers.. 

- The tire 

Russian ami Chechen forces have 
seen a Russian general in the 
field, supported hysome of his 
superiors, refuse to fight. Tire 
past week has also seen the splin- 
tering of Russia's liberal/demo- 
cratic forces over the issue, and 
hostility or at best scepticism 
from the parliament towards the 
administration’s acti on s. 

A series of threats on the part 
of senior officials has not been 
followed through in spite of the 
flouting of three separate Rus- 
sian deadlines 

In a publicity coup, Gen 
Dudayev has asked Turkey to 
mediate in the conflict, according 
to the Tm-high foreign ministry. 
The ministry said he had sent a 
telegram to President Sffleyman 
Demird, saying he was wining to 
stop fighting and “find a peaceful 
solution” with Turkish help. 

The ministry said Turkey had 
been first to voice its concerns 
over developments in Chechnya 


and that "it has become obvious 
that Turkey's concerns were war- 
ranted”. 

Mrs Tansu Qfller, tire Turkish 
premier; said in a separate mes- 
sage to Mr Victor Chernomyrdin, 
tiie Russian prime minister, that 
tire Turkish people were worried 
about the fighting. The Che- 
chens, hire tire Turks, are largely 
Moslem and had. in the past been 
part of tire Turkish e mp ire. 

Tire cmrfHr* has already pro- 
voked warn 
erationof 
which alma to unite tire region's 
republics, that if there. is a war, 
"it would not be a Russtah- 
Checfaen war, it would be a Has- 
sian-Caucasian war.” 

Russian liberal deputies were 
still in (huzny last night, having 
held an all-night sfitingan Satur- 
day night with Gen Dudayev and 
his officials in an attempt to 
secure the release of Russian 
prisoners held by the Chechens. 
They claimed their presence 
probably helped avert an attack. 

Me Yeltsin sent troops to tire 
mountainous region, of about one 
million people after it had defied 
Kremlin rule for three years. 
Russian government officials say 
14JW0 Chechens have tied (frozny 
since tire troops weal in. Many 
headed for other autonomous 
regions in tire Caucasus an Rus- 
sia’s southern rim. 

We are the liberators, say 
Chechens, Page 2 


Threat to aid for N Korea 
after US helicopter downed 


By John Burton, Seoul 


The US was trying yesterday to 
secure the return of a captured 
army pilot and the body of Ids 
co-pflot after their helicopter was 
shot down in North Korea, 
pro m pting us calls for a suspen- 
sion of aid programmes. 

The incident comes at an awk- 
ward time for both countries, fol- 
lowing their recent agreement to 
halt Pyongyang’s nuclear pro- 
gramme in exchange for the 
opening of diplomatic ties and 
economic aid. 

President BUI Clinton said in a 
statement released by the White 
House that the helicopter had 
"strayed into North Korean air- 
space” on Saturday. He declared 
that the “tragic loss of life was 
unnecessary” and that "we are 
using all available channels to 
press for an early resolution of 
this matter”. 

Hie situation is potentially 
embarrassing to tire US, as tire 
helicopter appeared to violate the 
trace agreement that ended the 
135053 Korean war. Aircraft from- 
either side are not supposed to 
fly near tire demilitarised zone 


between North and South Korea, 
let alone cross it 

Mr William Perry, US defence 
secretary, said the helicopter. 
Which Was on a framin g migginn , 
had strayed into North Korea due 
to a navigational error. North 
Korea dlaimwii that it then shot 
down the helicopter. 

Republican Senator Pete 
Domradci, incoming budget com- 
mittee chairman, said yesterday 
that unless North Korea co-oper- 
ated over tire incident, tire US 
should not hand over funds 
promised for building safer 
nuclear reactors: 

Democratic Senator Daniel Pat- 
rick Moynihan was asked 
whether the helicopter issue 
should prompt the US to delay 
implementation of the nuclear 
deal. "That is exactly what the 
[North] Koreans shoidd be ask- 
ing," he replied. “They are not 
exactly in an enviable position, 
are they? Their dictator [the late 
President Kim 11 Sung] is dead. 
Their economy is dead." 

Analysts believe that North 
Korea may try to use the inrifr” 1 * 
for propaganda purposes and to 
extract new concessions from tire 
US. But North Korea is unlikely 


CONTENTS 


to try to use r eturning the pilot 
as a bargaining chip as this 
would set back its efforts to 
improve relations with the US, 
while giving conservative US 
critics of the recent nuclear 
accord new grounds on which to 
oppose it 

North Korean officials have 
recently expressed concern that 
the new Republican-controlled 
Congress may try to block tire 
nuclear pact, which critics 
believe offers too many conces- 
sions to Pyongyang. 

The US has called far a meet- 
ing of the m ffl fan y armistice com- 
mission (MAC), which supervises 
tire trace, to discuss the situa- 
tion. But North Korea may refuse 
to attend: it withdrew from fire 
MAC earlier this year in an 
attempt to pressure tire US to 
sign a peace treaty to end tire 
Korean war formally. 

TnctaHri Noth Korea may use 
the cur re n t visit to Pyongyang of 
Mr Bill Richardson, a Democratic 
representative from New Mexico, 
to arrange the phot’s release. 

Ufr Richardson yesterday held 
talks with senior North Korean 
officials on tire helicopter inci- 
dent 






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Russia’s deputy emergency situations minister 
of a Russian soldier killed tn Chechnya 



in business 




g 


By Water Marsh In London 

Britain’s ruling Conservative 
party faces sharply mounting dif- 
ficulties raising funds from its 
traditional business supporters. 

A Financial Times investiga- 
tion shows a steep fall in dona- 
tions from Britain’s biggest com- 
panies and a poor performance 
by tire secretive nationwide fund- 
raising network it has set up 


A survey of Britain's largest 
100 companies shows that dona- 
tions to .tire Tories fell 34J per 
cent in reel terms last year com- 
pared ^with 1988, an equivalent 
year in the election cycle. 

The IT has also found that the 
n etw or k, of business executives 
set up to fund tire party is likely 
to fell well short of its ■financial 
targets this year, d eepening "the 
-gfooen surrounefing Tory central 
Office finances. 

The party already has a £15m 
o verdraft and Is expected to face 
a struggle to break even in the 
finanrial year ending in March. 

Ufe. to half of the donations 
from companies and individuals 
to tire party's central office are 
channelled through a network of 
10 regional industrial councils, 
each one comprising as many as 
12 Tory-supporting business lead- 


tire body 


In the past tire network has 
provided up' to £4m ($6.3m) a year 

Continued on Page 14 
Fundraisers look world ride, 

Page 5 


' Waterproof steeL watches, for ladies and gentlemen., 
with an interchangeabU steel bracelet and leather scraps, from £ 1100 . 


© THE FINANCIAL 


LIMITED 1994 No 32.553 Week No 51 


LONDON - PARIS - FRANKFURT - NEW YORK •' TOKYO 




071493 0983 , 

















_ moNDAV DECEMBER 19 - 1994 

FINANCIAL. TIMES MON 



INTERNATIONAL 



Congress 

leaders 
outline 
tax cut 
scheme 


By Nancy Dunne 
n Washington 

Leading Republicans yesterday 
outlined an aggressive pro- 
gramme to cnt both US govern- 
ment and taxes, promising to 
move swiftly in January to 
reduce spending before moving 
on to tax relief measures. 

“We will do more in the first 
100 days than has been done in 
the last 10 years in this town," 
Mr Dick Armey, the inc oming 
House majority leader, said on 
television. 

He and Congressman John 
Kasich, incoming House bud- 
get committee chairman, again 
attempted to seize the initia- 
tive from President Bill Clin- 
ton, who offered a tax reduc- 
tion scheme on Thursday. 
They said the House, immedi- 
ately after convening, would 
create an “American tax relief 
savings account” which would 
hold the savings from pro- 
gramme cuts to pay for tax 
reductions. 

“Nobody on Main Street and 
no-one on Wall Street is going 
to think we’re going to give out 
the goodies without cutting 
government first," Mr Kasich 
said. They would move imme- 
diately to lower previous bud- 
get caps and force appropria- 
tion subcommittees to make 
spending reductions. Those 
savings would go into the spe- 
cial “bank”, Mr Kasich said. 

Republican Senator Bob 
Packwood, incoming chairman 
of the finance committee, pre- 
dicted Congress would pass a 
“balanced budget” amendment 
to the US constitution by Aprfl. 
He forecast this would win 
approval by the state legisla- 
tures next summer. Various 
versions of the amendment 
would require a balanced bud- 
get in five to seven years. 

Senator Pete Domenici, 
incoming budget committee 
chairman, said there would be 
“a revolution in this country”, 
with scores of programmes 
eliminated or cuL 
“I’ve got the longest list in 
town,” said Mr Armey, sug- 
gesting the Departments of 
Energy and Education could be 
eliminated and the Commerce 
Department and the Environ- 
mental Protection Agency 
severely reduced. 

The Republicans Indicated a 
willingness to work with Mr 
Clinton. His tax cut plan would 
be considered, said Mr Bill 
Archer, a Texas Republican. 
"He came late to the dance, but 
he's on the dance floor and we 
welcome that” 

They said they would back a 
temporary line item veto, for 
perhaps four to six years. 


Kohl backs 
bombers 
for Bosnia 


Chancellor Helmut Kohl will 
today throw his political 
weight behind a decision to 
send German Tornado fighter 
bombers to Bosnia by telling 
MPs that Germany owes it to 
its allies to become involved in 
former Yugoslavia, writes 
Michael Lmdmmm in Bonn. 

In an interview with Bild 
Zeitung, Germany's best-sell- 
ing newspaper, Mr Kohl 
appealed to deputies, who must 
approve any deployment, to set 
aside their party affiliations 
and listen to their consciences. 

The cabinet is expected to 
decide tomorrow whether it 
will send the aircraft, medical 
facilities, engineers and naval 
units. Two German navy frig- 
ates are already part of a fleet 
enforcing an embargo. How- 
ever. officials said Germany 
would continue to resist pres- 
sure to send combat troops. 


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■ . 

We are the liberators, say Chechens 


M r Usman Imayev, the 
Chechen minister of 
justice, sits in his 
office in battle dress with gre- 
nades dipped to his belt, car- 
tridge iMgraftifss curving out 
of Ms pockets and a Kalash- 
nikov automatic on his fax 

TTWfihrnp. 

“In March 1991," he says, 
“there was a referendum on 
the continued existence of the 
Soviet Union, in which mil- 
lions of people voted, including 
in Chechnya, and it got a 
majority. 

“Then in December 1991 
three men, the leaders of Rus- 
sia, Ukraine and Belarus, 
decided to break up the Soviet 
Union* Chechnya had no h a nd 
in that We did not sign the 
federation agreement with 
other republics of Russia. We 
did not take part in the refer- 
e od u m on tho Russian cansti- 
tutkm. So when Yeltsin talks 
about unconstitutional acts - 
who began them?” 

Mr Imayev's words have a 
certain logic. Most obviously. 
President Boris Yeltsin recre- 
ated Russia from the ruins of a 
state which was internation- 
ally recognised and function- 
ing. 

By acting to break up the 
Union, he lays himself open to 
the charge to which all revolu- 
tionaries who attempt to stabi- 
lise a new order are subject 
what gives them the right to 
say where the revolution 
stops? If such action was taken 
to liberate Russia, why cannot 
Chechens act in the same way 
to liberate Chechnya from Rus- 
sia? 

Second, Mr Yeltsin broke up 
a state which was multina- 


The root of the conflict lies in the break 
of the Soviet Union, reports John Lloyd 


tionaL Even if Russian pri- 
macy was indisputable, the 
forms and many of the prac- 
tices inscribed the equality of 
the races. 

Now Russia has to remake 
herself according to Russian 
traditions - which are not 
even formally those of a Mos- 
lem mountain people like the 
Chechens, whose greatest pride 
is their long struggle against 
Tsarist colonisation. 

In this knot of issues lies the 
root of the conflict, and ©fits 
importance to the Russian 
state and the future of its 
democracy and its reforms. 
Soviet communism gave Rus- 
sia a cloak for prolonging 
impe rialism and, at tbB same 
time, placed constraints on 
how it acted. 

For those who liked Russia 
least - and the Chechens of all 
the peoples within Russia must 
take the prise for that - the 
new order is felt more as a 
burden than a liberation. 

Thus when, three years ago, 
General Dzhokar Dudayev, a 
Soviet air force general, roused 
his nation to independence 
from Russia, he was playing on 
strings of national conscious- 
ness which vibrated ever more 
strongly to his touch. 

-“hi the first year of indepen- 
dence,” said Mr Suleiman 
Khadjimuratov, a prefect of 
Vedenskopvo region near the 
capital, Grozny, -many people 
were not sure what It meant 
Now, no one will give it up.” 

The issue, it seems, tran- 


scends the manifest personal 
and public fellings of a leader 
who has helped reduce the 
Chechen standard of living far 
bdow that of much of the rest 
of Russia and reneged an all of 
his promises of a better' life 
and greater security. 

Gen Dudayev is not greatly 
admired by most nhgffTims fin* 

his achievements - save only 
that be established indepen- 
dence. That appears to he gen- 
uinely, widely, popular. The 
attempts by Russian leaders 
such as Mr Nikolai Yegurov, 
the Russian deputy premier 
who is the presidential repre- 
sentative for Chechnya, to 
paint the country as a nation 
of “slaves” terrified into acqui- 
escence by Gen Dudayev's 
thugs, are wide of the mark. 

C hechnya thus poses a 
fundamental challenge 
to Russian statehood. 
This anyway is fragile and 
incomplete, cramped within 
borders which, though still 
vast, are im familia rly trun- 
cated in the minds of most 
Russians accustomed to regard 
the Soviet Union as their free 


In the minds of the Che- 
chens, Chechnya is the historic 
land of their fathers. 

For Mr Yeltsin, who has for 
three years delayed attempting 
to unravel, or cut, the Chechen 
knot, it is the sharpest issue 
since the parliamentary revolt 

against h™ tn Hip m rnmar and 

autumn of last year. 


To cede Chechnya on the 
grounds that its people do not 
wish to be part of the newly 
recreated Russia is to call into 
question all of the lauds and 
peoples conquered in the 19th 
century, and even before. 

There is. besides, some truth 
in the propaganda put out by 
the Russian authorities on 
Chechnya. 

It has been for most of the 
past three years a state in 
which criminal bands operated 
relatively freely and where the 
proceeds from vast amounts of 
oil were diverted. And it has 
been a region from which the 
Russians, and many others 
(including many Chechens) 
have fled In fear of the future 
or in disgust at a present in 
which their nationality is 
treated as a barrier to employ- 
ment and advancement 

Two voices are battling for 
Mr Yeltsin’s ear. 

One is that of his security 
and military advisers and min- 
isters, for whom Chechnya is 
the jdaoe where the rot stops 
and the crack of firm govern- 
ment is heard, ft says that a 
chance must be grasped firmly 
to demonstrate to Russians, 
their neighbours and the world 
that the integrity of the Bus- 

cian gfcatfk ran not tin riialtoip d 

without a great cost being 


Chechnya as because of what it 
will do to democratic institu- 
tfoos. 

Mr Yegor Gaidar. leader of 
Russia’s Choice and the most 
vocal on the issue, pleaded 
again with the president, with 
whom he is reluctant to make 
the final break, to pull back 
from an attack which would 
“destroy all you have 
achieved” in the way of 
reforms. 

For Mr Gaidar and other 
reformers the coalition of 
forces mobilised to take 
Grozny at any price, embold- 
ened by their success in mak- 
ing fibe president bead of the 
war party, could sweep on to 
atriTce against the market and 
representative institutions. 

Perhaps because of this 
cacophony of voices, Mr Yelt- 
sin as of last night had not yet 
sanctioned the final push 
against Chechnya. Perhaps he 
cannot. After all, a sizeable 
part of the invasion force, that 
commanded by Gm Ivan Babi- 
chev, has stopped over 30 miles 
from Grozny and refused to 
move further. 

However this affair ends, the 
Babichev challenge, with sup- 
port from fellow generals Alex- 
ander Lebed of the Fourteenth 
Army and Boris Gromov, the 
first deputy defence minister, 
wiS have consequences which 
must be dealt with. 

The Chechnya affair has not 
ended: it may only have just 


The other voice is that of the 
democrats and liberals, the 
majority of whom are horrified 
by the war, not so much 
because of what it win do to 


At stake are democracy, 
reform and the survival of the 
present administration. As 1994 
runs out and the fourth year of 
the new Russia begins, these 
are all at hazard. 


Mountain conflict ‘could spark unrest throughout north Caucasus’ 

Partisans 
prepare for 
guerrilla 
campaign 

By Steve LeVine to Grozny 

If Russia's troops try to take Grozny by 
force they risk being drawn into a 
p rotract e d guerrilla war in Chechnya's 
mountainous terrain which could 
spark unrest throughout the Mamie 
peoples of the north Caucasus, Chechen 
resistance fighters say. 

In a village outside Grozny, Mr Ayub 
Khansulatov, a 30-year-old Chechen 
who is carefully placing pins into a set 
of hand grenades, says: “We have to 
get ready.” Pointing to a stash of 
amour-piercing rockets, machine guns 
and Kalashnikov rifles lying a few feet 
away, he adds: “These are for Yeltsin.” 

As Moscow’s ultimatums to the Che- 
chen people expire, hundreds, perhaps 
thousands, of partisans like Mr Khan- 
sulatov are preparing to wage a guer- 
rilla war. Along the roads oat of 
Grozny are gr o ups of fighters dressed 
in foil battle gear huddling round fires 
of burning tyres to keep warm in the 
sub-zero temperatures. 

“I have been ready to fight for a 



A man reported to have been wounded in a shootout with Russian troops yesterday is carried to hospital by his colleagues ap 


week but now we have been ordered to 
take to the mnnntaiTw and fight a guer- 
rilla war,” Mr Khansulatov says, boast- 
ing of his skirmishes with Russian 
troops. 

Many of Grozny's 400,000 inhabit- 
ants have already left for the moun- 
tains to the south. On Chechen televi- 
sion, bearded soldiers urge the rest of 
the population to leave the town to the 
troops. 


They say the crowds of civilians, 
which have been mobbing Russian 
farces to persuade them to turn back, 
should move out of the way of fighting. 
One soldier reads from an instruction 
manual iwHiwaHnp the most vulnerable 
points of a tank. 

Mr Khansulatov says his detachment 
of 150 men would fight for as long as it 
took to make the Wnadaiw leave. He 
says he has already moved his wife and 


three children to seek shelter in the 
south. 

“I have taken my belongings to the 
mountains. If I die, my son will get 
them,” be says, standing in Us house 
bare of all furniture except two beds, a 
load of weapons, and a television and 
video recorder on which he plays a 
tape of Us toother’s wedding celebra- 
tions. “Why cannot they let us five in 
peace. You see how good fife can be?” 


US seeks closer economic ties with EU 


By Guy de Jonquferes 

The US has proposed a 
stronger economic and trade 
partnership with the European 
Union, aimed at curbing the 
growth of subsidised export 
financing and co-or dinating 
policies more closely towards 
Japan, China and big emerging 
markets in the developing 
world. 

According to a senior admin- 
istration official, the proposal 
is Intended to reassure the EU 
that the US has not sacrificed 
transatlantic relationships in 
its enthusiasm for closer trade 
links with Asia and Latin 


America, and to seek practical 
ways of working together on 
shared commercial objectives. 

The administration’s think- 
ing was outlined by Mr Ron 
Brown, US commerce secre- 
tary, at meetings in Brussels 
last week with Mr Jacques 
Santer, president-elect of the 
European Commission, and Sir 
Leon Brittan and Mr Martin 
Bangemann, respectively the 
commissioners for trade and 
industry. 

The US has not decided what 
form the new partnership 
should take. But Mr Jeffrey 

Garten, under-secretary of 

commerce for international 


trade, who accompanied Mr 
Brown, said it would demean 
the proposal to describe ft sun- 
ply as a free trade area. 

He said the administration’s 
aim over the next year was to 
elevate the European dimen- 
sion of its international poli- 
cies in several ways. 

A top US priority was to win 
EU support for stricter interna- 
tional disciplines on export 
subsidies, particularly the use 
of official aid to win big infra- 
structure contracts in the 

developing world. 

Though the administration 
bas sharply stepped up support 
for exports, Mr Garten said its 


ultimate goal was to reduce the 
role of governments in interna- 
tional markets. He was worried 
by Japan’s untied aid, which 
he said totalled $15bn to $20bn 
(£9bn-£12to0 jnmuaHy, almost 
half of it for infrastructure pro- 
jects in China. 

The US suspects the aid is 
used to favour Japanese com- 
panies and w a nts more infor- 
mation about how it is spent 
Washington also wants inter- 
national action to curb the use 
of bribes to win export orders. 

Mr Garten said another 
important goal of the proposed 
dialogue with the EU was 
closer co-ordination of trade 


policy in the new World Trade 
Organisation and other multi- 
lateral forums. 

However, Mr Garten said 
this did not rule out further US 
bilateral trade initiatives, par- 
ticularly towards Japan a n d 
China, where very vigorous 
action was likely. 

The US also wants to seek 
ways of reducing obstacles to 
trade with the EU, particularly 
in the information industries. 
Mr Brown has proposed that 
the two sides should hold pre- 
paratory talk* before a G7 
meeting on telecommunica- 
tions policy in Brussels early 
next year. 



John Bruton; eager to see progress in Ulster folks 

Road ahead for 
Irish premier is 
well 



By John Murray Brawn 
biDubHn 

Mr John Bruton, Ireland’s new 
premier, has a boyish candour 
which often n^kas him seem 
oat of place in the wheeler- 
dealing atmosphere of Irish 
politics. 

Yet, after his more than 90 
years in the Dail, there are few 
politicians with a more acute 
knowledge of the workings of 
parliament At 47, and with a 
wealth of ministerial portfolios 
under ids belt, the real ques- 
tion is whether he has the 
qualities of diplomacy and 
political toughness that Ireland 
needs at this watershed hi its 
history. 

Ireland is entering uncharted 
waters. The Northern Ireland 
peace process is at a critical 
juncture as paramilitaries 
enter exploratory talks with 
UK officials and unionist} 
await the publication of the 
important joint framework doc- 
ument which London and Dub- 
lin hope will form the basis for 
all-party talks on meter’s 
future. 

Mr Bruton wifi enter the pro- 
cess at the head of an uneasy, 
coalition of conservative and 
radical elements -led by Fine 
Gael an essentially conserve- 
five party, and including 
Labour, the party of modem 
European secular politics, and 
the Democratic Left, the suc- 
cessor of the Official IRA. 

Personality problems may 
resurface. Mr Bruton behaves 
he was let down when Mr Dick 
Spring, leader of the Labour 
party, went into coalition with 
Manna Fail in 1982. The two 
politicians also squabbled over 
economic policy in the last 
Fine Gael- Labour coalition, 
which fell in IS87. 

Today one key difference is 
that not only is there a shared 
dete rminatio n to keep FlaXUUt 
Fail out of office, but the econ- 
omy’s strength will make deci- 
sions on sensitive issues fika 
public spending less divisive. 

Mr Bruton’s first task is to 
assert control over his own 
party machine. A challenge in 
the short term is unlikely but 
any slip could precipitate one. 

The policy objectives are 
well signposted. On Northern 
Ireland, Mr Bruton's team will 
have to pick up where the out- 
going government left off, 
while stamping its. own charac- 
ter an the peace process. How 
he will balance the need to 
keep hardline republicans har- 
nessed to the peace process, 
without compromising his 
sympathies for the northern, 
unionists, is difficult to see. 

In a deliberately low-key 
acceptance address to the Dail 
last week, Mr Bruton stressed 
his greatest concern was to see 


progress sustained. If the out- 
going administration secured 
the peace, he said, his task 
would be to.foster the "recon- 
ciliation" of the island's two 
religious traditions. 

In the Forum fits’ Peace and 
Reconciliation on Friday, Us 
first meeting with Mr Gerry 
Adams, leader of Sinn F6in 
(the IRA’s political wing), pro- 
vided litas mare than a cur- 
sory handshake. Few believe 
Mr Bruton can replicate the 
rapport Flaiuia Fail enjoyed 
with the republicans. 

Fine Gael, historically identi- 
fied as the party which voted 
for the Anglo-Irish Treaty of 
1921 whkto enshrined partition. 
Is still hot comfortable with 
Stmt F&n. 

But in Mr Ptioasias De 
Roesa. Democratic Left leader, 
Mr Bruton will have a useful 
ally. A fanner IRA Internee, 
Mr De Rossa provides ample 
evidence of the benefits that 
accrue to Chose republicans 
who abandon, the bullet in 
favour of the ballot box. 

On social questions like 
d iv orce and abortion there Is 
more common ground between 
the parties. 

Mr Bruton campaigned In 
favour of legalising divorce 
when it was last put to a refer- 
ftfWftim |y) 1886. AD three par- 
ties seem agreed it may be 
overambitious to contemplate 
winning backing in a referen- 
dum substantive reforms legal- 
ising abortion, although there 
may be.a good chance of pass- 
ing legislation on an abortion 
information bill allowing 
women to be referred by doc- 
tors to specialists outside 
Ireland. 

Perhaps the area where there 
will be most strain will be on 
the economy. Mr Bruton's Fins 
Gael is the party of low taxa- 
tion and tight spending. 
Labour and the more radical 
Democratic Left will want to 
take a more Keynesian 
approach, injecting spending 
Into the economy to create jobs 
and reduce the burden of pov- 
erty for the lower paid and 
unemployed. 

Mr Bruton’s first test is to 
see a new budget through par- 
liament Democratic Left, to 
charge of the big spending 
social welfare portfolio, is 
expected to push for a wifitUy 
expansionary budget in an 
attempt to ease unemploy*! 


■ ( 


Mr Bruton's budget record is 
far from convincing: to 1962, 4P 
when be was finanw minister 
in Dr Garret Fitzgerald’s coali- 
tion, his attempts to impose 
VAT on child clothing and 
shoes was opposed by fa w lepgn- 
dents. This led to the defeat of . 
his budget, and eventually the 
coalition's dow nfall . 


Turkey’s rights record jeopardises customs union 


G reek intransigence and 
anger at Turkish 
human rights abuses 
are threatening a crucial meet- 
ing in Brussels today between 
the European Union and Tur- 
key. 

EU foreign ministers, senior 
European Commission officials 
and a Turkish delegation are 
scheduled to take a final deci- 
sion cm establishing a customs 
union, due to come into force 
on January 1 1996. 

But the sentencing earlier 
this month of eight Kurdish 
MPs to long jail terms far vio- 
lating Turkey’s strict security 
laws has crystallised opposi- 
tion to the union in the Euro- 
pean parliament and some 
national governments. Fore- 
most among the opponents is 
Greece, which, after faffing to 
persuade Germany, the EU’s 
current president, to postpone 
today’s meeting, appears deter- 
mined to veto the deaL 
Officials hope the meeting 
will still go ahead, with a deci- 
sion postponed for a few 


months to allow tempers to 
cool and negotiators time to 
reach a compromise. However, 
were the meeting to be can- 
celled at the last minute, there 
could be an angry confronta- 
tion between Turkey and 
Europe which would damage 
an already troubled relation- 
ship. 

Ankara state security court’s 
verdict on the MBs an the eve 
of the European Union's Essen 

summit could scarcely have 

came at a worse time. It embar- 
rassed the German presidency, 
which had lobbied for customs 
union. 

European Commission Presi- 
dent Jacques Defers said in a 
French television interview 
that jailing the Kurdish MPS 
was “scandalous”. He added be 
was against customs union 
without “guarantees" that Tur- 
key would respect h uman 
rights. 

Last Thursday the European 
Parliament adopted a non-bind- 
ing resolution calling for 
today's meeting to be 


suspended and demanding the 
jailed MPs* release. Support in 
some EU govern m ents far Tmv 
key all but evaporated after 
the trial 

To make matters worse for 
Turkey, a Kurdish human 
rights lawyer was murdered 
last week, and Ankara's secu- 


Greek prime minister, failed at 
last week’s EU summit to win 
agreement on a definite date 
for starting talks on Cypriot 
accession. Together with cus- 
toms union, Greece will con- 
tinue to block the release of 
EcufiOQm (£4TL2m) in EU aid to 
Turkey, held up for eight years 


turns and Turkey to make con- 
cessions on human rights. 

Customs union would give 
European, companies free 
access to a market of 60m peo- 
ple and an economy that un til 
fids year was the fastest grow- 
ing in the OECD. Half Turkey's 
trade is already with the EU 


A crucial meeting in Brussels today is under 

threat, write John Barham and Kerin Hnne 


rity court begins proceedings 
today against two human 
rights campaigners accused of 
violating anti-terrorism laws 
by writing a booklet on tor 
tore. The booklet was partly 
financed by the EU. 

Greek opposition to customs 
union is linked more closely to 
the Socialist government's 
efforts to secure EU entry for 
Cyprus by the end of the 1990s 
than to its traditional hostility 
to Turkey. 

Mr Andreas Papandreou. 


by lack of progress on reunit- 
ing Cyprus. 

White the European Commis- 
sion is committed to including 
Cyprus in the next EU enlarge- 
ment, membership negotia- 
tions are likely to be oomph- 
cafced by the island’s division 
into separate states. 

However, France, which 
assumes the EU*s rotating six- 
month presidency next month, 
is determined to see customs 
union adopted and wifi, press 
Greece to abandon its objec- 


and two thirds of its forei gn 

investment comes from 
Europe. 

Turkey would in effect join 
the single European market, 
with some of the rights and 
obligations of an EU member. 
Yet in contrast to the position 
of the post-communist coun- 
tries of eastern. Europe or even 
or Cyprus, Brussels 
told Turkey that membership 
is not on the agenda. It bas 
twice rejected Turkish applica- 
tions fiOT foil mawnh^r nhi p 


For Turks, who see them- 
selves as Europeans, rejection 
is deeply wounding. They 
believe concern for human 
rights is a smokescreen for 
Europe’s anti-Moslem preju- 
dices. President SUleyman 
Demirel says: “Turkey is a 
European country. Europe is 
not only a geographic area, but 

a system of values. I think Tur- 
key should be part of Europe, 
it should not be ousted.” 

Prime Minister Tansu (filler 
says customs union will 
“anchor Turkey to the west in 
a definitive and irreversible 
way”. Rejection, she and many 
European officials argue, 
would halt Turkey's progress 
to full democracy, it would 
benefit extremists, marginalise 
democrats and st un t the eco- 
nomic growth that could foster 
stability. 

However. Mrs (filler bears 
great responsibility for Tur- 
key’s present predicament It 
was she who urged parliament 
to lift the eight Kurdish MPs’ 
parliamentary immunity. 


allowing them to be prose- 
cuted. Parliament fapa still not 
approved a political reform 
package her wwHtim gownfe 
ment promised three years ago. 

Yet di plrmiftfl hriww a HR 
introduced to t o parifanwmt on 
Friday creating a human rights 
ministry indicates that pres- 
sure from Brussels Is having a 
positive e ffe ct . 

But there Is no sign of an 
end to violence to the matotf 
Kurdish south-east, where 
fighting between /ser^“” 
forces and t he Kun**t 
party (PKK) has V 
“ore than 13,000 lives _ ^ 
Past io years.. The 
asainst PKK guerrillas -Wj* 
entrenches the military* pea- 
res! power and fe ta jus- 
tify security laws -that pamteh 
entires of thought”. . • 

As Mr Klaus Kiakel. 
many’s foreign minister .-who 
ess supported customs wsfei* 
Put it last week: “H T* 

"atits to join Europe, 
not turn a cold shouhter 
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Difficult choices ahead for Mercosur 


Trade quartet must decide 


Angus 


» - . 


1 , atfrnigfat summits often 
spawn hyperbole and 
Jl talk of breakthrough, 

hut the upbeat statements 
earning out of the colonial Bra- 
-■ dhan town of Ouro Preto this 
we^end have a basis in fact. 
/The Mercosur trade group erf 
Brazil, ‘ Argentina, Paraguay 
■ ami Uruguay agreed to become 
a customs union from January 
h in* deddon, an idea which 
finur years ago was dismissed 
by many as politically inspired 
and wishful thinking, will ere- 
.ate the world’s second largest 
customs union, linking econo- 
•'-■■ ndes with a combined GDP of 

--about $800bn (£490bn) and 
2Q0m ccmsumezs. 

Mr Fernando Henriqtue Car* 
doso, Brazil’s president-elect, 
described the agreement as a 
"historic landmark”, while 
President Carlos Menem of 
Argentina said its effects 
would be “highly positive” for 
the four countries’ economies. 
Both men marvelled at the 
achievement, remarkable given 
that relations between Brazil 
and Argentina have until 
recently been poor and that 
their economies for decades 
encouraged protectionism. 

Despite the celebrations, 
some difficult choices lie 
ahead. The partners must 
decide whether to push on 
towards a common market 
with free movement of labour 
and capital, or .whether to con- 
centrate on leading South 
America’s integration with 
Nafta in the planned Free 
Trade Area of the Americas 
(FTAA). Mercosur’s success 
also threatens to concentrate 
investment in the richer areas 


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‘Historic landmark’: (left to right) Uruguay President Lute Alberto LacaBe, Brazil’s Itamar Franco, Juan Carlos Wasmosy of 
Paraguay and Argentina’s Carios Menem join hands after the weekend pact ap 


of Brazil and Argentina, two 
countries which already suffer 
from dangerous differences in 
regional wealth. 

According to diplomats, the 
catalyst for agreement was the 
d e c i sion to allow sensitive a n d 
less competitive products tan- 
porary exemptions from the 
free trade regime. For trade 
between the four countries, 
where tariffs have been faffing 
since 1991. less than 10 per cent 
of trade will get the special 
exemptions. However, these 
products, ranging from Argen- 
tine paper to Brazilian 
peaches, will have their tariffs 


reduced to zero by 1999. 

With the common external 
tariff (GET) covering trade 
with countries outside the 
area, less than 10 per cent of 
products will have an exemp- 
tion from the tariff. In these 
cases, governments have until 
2001 to apply the CET, whose 
average rate for all products is 
14 per cent. Two sensitive 
areas, cars and sugar, will also 
be excluded until the next cen- 
tury. 

A second important reason 
for agreement was the recent, 
and still fragile, economic 
recovery of Brazil, which has 


seen its monthly inflation rate 
fall from SO per cent in June to 
less than 3 per cent this month 
because of a new currency, the 
Real. 

Now the four countries must 
decide how much further to go. 
The Protocol of Ouro Preto, 
which gives Mercosur a legal 
status and lets it negotiate 
with other trade groups such 
as the European Union, also 
commits the partners to review 
by 2001 whether they want a 
foil common market Predict- 
ing the outcome is diffi cult, 
especially since Argentina 
holds presidential elections 


next year, and Brazil in 1993. 

Until the review, the two 
main partners are determined 
to limit the growth of Merco- 
sur’s institutions. A Uru- 
guayan proposal to establish a 
supranational court to rule on 
trade disputes was opposed by 
Brazil and Argentina, which 
feared their sovereignty would 
be diluted. Mercosur's secretar- 
iat will remain a small, admin- 
istrative organ, and policy and 
decisions will remain with the 
four governments. 

Despite these intentions, 
however, closer integration is 
likely to lead to stronger Mer- 


cosur institutions and devolved 
sovereignty. 

In place of a court, the coun- 
tries agreed over the weekend 
to set up an arbitration tribu- 
nal A Brazilian-Argentine pro- 
posal to merge their automo- 
tive industrial policies by 2000 
also implies the ‘ ceding of 
national interests to those of 
Mercosur. 

Mercosur officials talk of the 
next few years as a time of 
“deepening" integration. But 
an important distraction is the 
2006 deadline for a continent- 
wide free trade area, which 
was agreed at the recent Sum- 
mit of the Americas and which 
will involve a convergence of 
existing trade blocs like Mer- 
cosur, Nafta and the Andean 
Pact countries. 

Mercosur has already opened 
talks with Chile and Bolivia 
about their joining the free 
trade area rather than becom- 
ing customs union members. 

Mercosur is the natural 
negotiating partner for Nafta. 
especially if relations continue 
to improve between the two 
biggest countries, the US and 
Brazil. However, there are real 
limits to Mercosur's Airther 
expansion. Some countries 
such as Venezuela want to 
establish links, principally to 
reduce their reliance on US 
trade. But Caracas is closer to 
Miami than Mercosur’s main 
crescent, between S&o Paulo 
state in Brazil and Buenos 
Aires. 

The expanse, and poor com- 
munications, of the Amazon 
are also a barrier to further 
integration between north and 
south of South America. 


BAT nears American Tobacco takeover consent 


By Richard Tomktes 
in New York 

BAT Industries, the British tobacco 
and financial services group, looks 
well placed to win a US court’s con- 
sent this week for its planned glbn 
(£600m) takeover of American 
Tobacco, the fifth biggest US cigarette 
maker. 

Over the past two weeks the Lo 
Federal Trade Commission has been 
arguing in a New York court that the 
takeover should be blocked on comper 


tition grounds because BAT already 
owns Brown & WSliamsan Tobacco, 
the third biggest US cigarette maker. 

The case closed last Wednesday 
with the judge reserving his decision, 
so neither side yet knows knows the 
outcome. But lawyers far the Federal 
Trade Commission acknowledge that 
BAT seems to have come out ahead. 

Mr Merlin Orlans, who represented 
the FTC during the hearing, said that 
the judge had dearly not been dis- 
posed towards the FTC’s arguments. 

During tile hearing, the FTC argued 


that the US tobacco industry was 
already highly co n centrated because 
it had only six participants. If two of 
the participants combined, competi- 
tion would be further reduced and it 
would become easier for the remain- 
ing participants to raise prices. 

BAT countered that a merger of 
Brown & Williamson with its 11 per 
cent market share and American 
Tobacco with its 7 per cent share 
would increase the combined compa- 
ny's ability to compete with. Philip 
Morris and JSeynolds JTnbacco , 


the two industry giants, which 
together account for 70 per cent of US 
cigarette sales. 

The FTC appeared to start the pro- 
ceedings with a strong case, but as 
the hearing progressed, it became evi- 
dent from Judge Milton Pollack's 
grilling of key FTC witnesses that he 
was for from convinced by the FTC’s 
arguments. 

Judge Pollack is thought likely to 
announce his decision tom o rrow or 
Wednesday. But the FTC and BAT 
may- yet reach a settlement -before 


then under which the FTC would drop 
its opposition to the takeover. 

For the FTC, a compromise would 
be better than an outright defeat For 
BAT, an agreement would eliminate 
the likelihood that the FTC, if 
defeated, would further delay the 
takeover by lodging an appeal 

One compromise that the FTC and 
BAT are understood to have consid- 
ered would involve an agreement by 
BAT that it would shed an American 
TObaoco factory and some its brands 
if the takeover went ahead. 


WORLD NEWS DIGEST 

Iberia pilots to 
strike on pay cut 

Iberia, Spain's embattled state-owned flag carrier, inched 
closer to bankruptcy over the weekend when its pilots’ union 
said they would strike over the peak holiday period between 
December 28 and January 8. 

The pilots have rejected a viability plan backed by Iberia’s 
other unions to salvage the crippled airline . Hu plan involved 
pay cuts of 15 per cent for the pilots, and their union said it 
was only prepared to negotiate salary cuts if Iberia’s manage- 
ment was replaced. The confrontation means the management 
may introduce a more drastic restructuring plan involving 
large-scale redundancies among the airline’s 25,000 labour 
force and the sale of some of its subsidiaries. 

Iberia, which has debts of Pta-12-ibn (£2.06bn) half of which 
are short term, has written off accumulated tosses of Ptal44bn. 
reducing its capital and reserves to a mere Pta69bn. The 

airline is on course to lose Pta44bn this year and the com pan)’ 
said yesterday the pilots' strike would cost Iberia at least 
PtalObn in lost revenue. Tam Bums, Madrid 

Former Banesto chief quizzed 

Mr Mario Conde, forma: chairman of Banco Espafiol de Cre- 
dits (Banesto), is to be questioned today by a Madrid high 
court judge who on Friday ordered the imprisonment of Mr 
Arturo Romani, the bank's former deputy chairman. 

Mr Romani was arrested and refused bail by Judge Manuel 
Garcia Castelldn after two days of questioning in connection 
with a fraud probe into the group, which collapsed a 

year ago. Legal officials said the questioning centred on about 
Pta5bn (£2A3m) allegedly defrauded from Banesto sharehold- 
ers. 

Mr Conde was indicted on fraud charges last month. He 
became chairman of Banesto in 1967, and was dismissed by the 
Bank of Spain last December, together with his follow Banesto 
directors, after an official inspection, discovered the banking 
group had overvalued its Pta7,000bn assets by Pta503bn. Tom 
Bums, Madrid 

Carter starts peace mission 

Former US president Jimmy Carter yesterday began his peace 
mission to Bosnia to try to break the diplomatic deadlock 
among the warring parties. As his visit got under way, 
defeated Bosnian-go vemmen t troops were withdrawing from 
Velika Kladusa. a strategic town in the north-western Bihac 
pocket which fell to Serb and renegade Moslem forces. 

After meeting President Fkanjo Tudiman of Croatia, Mr 
Haris Silajdzic, the Bosnian prime minister, and UN officials, 
in the Croatian capital Zagreb, Mr Carter left for Sarajevo 
amid tight security. Today he is to meet Bosnian Seri) leader 
Radovan Karadzic in Pale, the Serb mountain stronghold 
above Sarajevo. Laura saber, Belgrade 

Russia signs energy charter 

Russia has o vercome long-standing reservations and joined 45 
other nations in signing a European Energy Charter designed 
as the single most important instrument for stimulating the 
integration of former eastern bloc economies into the world 
market However, the US declined to sign the treaty in Lisbon 
an Saturday, mainly because it considers the charter foils to 
guarantee adequate protection for investors and foils below 
standards already obtained by the US in bilateral and other 
multilateral investment agreements. The treaty provides free 
and equal access to energy markets among the signatories. 
Peter Wise, Usbon 


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FINANCIAL TIM ES MONDAY DECEMBER .. .9*4 


China seeks to resolve copper dispute 



NEWS: INTERNATIONAL 


By To nr Walker 
h Beijing 

The China International Trust and 
Investment Corporation said yester- 
day it was committed to a “reasonable 
solution" in Us dispute with London 
Metals Exchange copper traders and 
other creditors over non-payment of 
copper trading losses totalling $30m- 
940m. 

In elite's first detailed comment on 
the dispute, which dates bade to early 


this year, a spokesman attributed the 
problems to dealers associated with 
the organisation's Shanghai branch 
acting without the knowledge or 
authority of Citic itself. 

Mr Xu Xiwei, a senior adviser to 
Citic .Shanghai, said two dealers and 
two managers, including the former 
president, had been charged with cor- 
ruption and detained. 

The Citic official, however, did not 
commit the organisation to a settle- 
ment 


The official said that this would 
depend on the outcome of meetings to 
be h^M soon in London. 

But lie noted that Citic Shanghai 
was “an Independent legal entity 
under the law of China" and was 
therefore responsible for its own prof- 
its and losses. 

Mr Xu said an international 
amumting firm had been entrusted 
with responsibility for investigating 
the insms and suggesting solutions. “1 
ainrpr ei y hope all parties concerned 


will find a reasonable solution 
through friendly consultation," Mr Xu 
said. 

He blamed creditors, including 
western banks, for lax procedures in 
their efforts to assist Citic Shanghai 
to overcome its trading losses. 

“I must regretfidly point out that 
certain foreign counterparts have . got 
some screws loose in their own 
house,” he said. “In other words, what 
they have done has to some extent 
assisted such a thing happening unin- 


tentionally or intentionally." 

Mr Xu said that credit had been 
extended to Chic's Shangh ai branch 
equivalent to “five or six times" 
equity. This was done without notify- 
ing Citic headquarters, let alone 
requiring any guarantee from Citic. 

"Any counterpart, if he is prudent, 
should have related extension of 
credit to Citic Shanghai's capacity 
and in line with China's relevant laws 
and regulations governing foreign 
exchange." 


■ 

Banks scramble for Shanghai’s prime sites 

analyses the municipality’s disposal of the city’s sought-after waterfront properties 

rvat- Shanghai** fi n a n c ia l bants A- : m a - 


B angkok Bank is renovat- 
ing No 7 on the Bund, 
Banque Indosuez has 
signed a letter of intent to pur- 
chase No 29, and the Bank of 
China is repurchasing its old 
headquarters next to tire Peace 
Hotel- 

After a hiatus of more than a 
year, the Shanghai municipal- 
ity is moving on the disposal of 
the majestic properties on the 
city's waterfront, the Bund. 

The Shanghai Stock 
Exchange has indicated an 
interest In purchasing the most 
prominent landmark on the 
waterfront - the former head- 
quarters of the Hongkong and 
Shanghai Bank. The SSE’s 

expression of interest may 
prompt a bidding contest since 
Hongkong Bank Itself is keen 
to move back into its 
27,000 sq m premises, now used 
as the mayor’s office and Com- 
munist party headquarters. 

The establishment of the 
S hang hai Bund Buildings 
Function Transformation Cor- 
poration has created a vehicle 
for the sale of 37 properties in 
an area the Chinese have 
taken to describing as Asia’s 
Wall Street, although a revolu- 
tion in the financial sector will 
be necessary to realise the 
dream of restoring the Bund to 
its former glory. 

At the same time, across the 
Huangpu River, on the east 
bank, work is advancing on 
creating a separate “finance 
district" that will be linked 
with the Bund by underground 
railway, pedestrian tunnels, 
and bridges to create a central 
business district Of Shanghai. 

Mr Zhang Zhe, vice general 
manager of the Shanghai 



New financial centre ! 

/I ! 



*.*■ ♦'! M 

. - fed.* 




OBJECTS OF DESIRE: Properties along Shanghai’s waterfront, the Bund 


Lujiazui Finance and Trade 
Zone Development Company, 
is confident that marriage 
between the old and the new 
can be effected to the advan- 
tage of both. “The two banks of 
the Huangpu can help each 
other and pull each other for- 
ward,” he says. 

Lqjiazui Development was 
formed in 1992 to develop a 
LSlsqkm site in the Pudong 
development zone, including G9 
buildings, among them offices 
of China's big specialised 
banks, insurance companies 
and investment corporations. 
A new securities exchange is 
also under construction, and 
space is being set aside for resi- 
dential facilities. 

Mr Zhang estimates develop- 
ment costs for the site, includ- 
ing buildings and infrastruc- 
ture will run to about $4bn, of 
which glbn has already been 
committed. Twelve buildings 
are actually under construc- 
tion, and 20 are in the 


advanced planning stage. 

The Lujiazui finance and 
trade zone, as the financial dis- 
trict will be known, will be 
dominated by three skyscrap- 
ers, including a Ministry of 
Foreign Trade and Economic 
Co-operation structure rising 
88 floors. If the planners’ 
dreams are realised, one of 
Asia’s more remarkable devel- 
opments will rise from marshy 
ground in place of a gaggle of 
decaying godowns, crumbling 
houses and the odd paddy field. 

Western bankers In Shang- 
hai welcome plans to create a 
central business district span- 
ning the Huangpu and envis- 
age no great problems in the 
city creating a business core 
bisected by a big waterway. 
The Huangpu, which runs into 
the Yangtze near its mouth, 
acco mmo dates an enormous 
amount of shipping traffic. 

Mr Fiepko King, chief repre- 
sentative in China of Banque 
[nrinsi lea , sees no reason why 


the “heart of the city" should 
not span the Huangpu “like 
the left and right hank in 
Paris". 

But in common with bis col- 
leagues from other hanks inter- 
ested in returning to their 
homes on the Bund, Mr Klug is 
extremely circumspect about 
prospects of securing their old 
properties, and even more reti- 
cent on the issue of price. 

Banque Indosuez, he says, 
has signed a letter of intent 
which is no more at this stage 
than an indication of an inten- 
turn to discuss reacquisition. 
“We would see our return to 
the Bund as an Indication of 
confidence in the development 
of Shanghai and in the future 
of China,” he says, “but the 
final decision has to be taken 
on the basis of price.” 

Other organisations, such as 
Hongkong and Shanghai Rank, 

eyeing their former Bund prop- 
erties covetously, are even less 
forthcoming. Mr Richard Gra- 


ham, chief representative in 
Shanghai of Baring Securities, 
said there were “political sensi- 
tivities" over the prospect of 
companies such as Hongkong 
Bank returning to their former 
“hunting lodges” on the Bund, 
from which they were uncere- 
moniously ousted after the 
1949 revolution. 

Hongkong Bank is said to 
have been asked to pay 
between $l50m and $200m for 
its former headquarters, but 
there is also no doubt that the 
symbolic value of acquiring 
the property would be almost 
incalculable. However, Mr Wei 
Wenyuan, general manager of 
the Shanghai Stock Exchange; 
said its present location was 
insufficient for its fast-growing 
business. 

The SSE is at present operat- 
ing from a converted former 
hotel, but is bunding a new 
exchange in the Pudong area. 
According to a Chinese news 
agency report, the SSE wants 


the old Hongkong Bank site to 

“get a foothold on the Bond 
which is to become the symbol 
of Shanghai as an interna- 
tional financial centre”. 

While the larger western 
institutions continue to play a 
game of cat and mouse with 
tiie Shanghai authorities over 
price and leasehold terms, a 
Thai bank has quietly stolen a 
march. 

The Bangkok Bank signed a 
30-year lease in October, 1993 
on No 7 and renovations are 
well under way. 

Mr Chalit Tayjasanant, chief 
representative in China, said 
negotiations with the owner, 
Chang Jiang Shipping, had 
been completed in a “few 

months * 

Facilitating the sale was the 
fact that the building was 
solely owned by the shipping 
company, avoiding ownership 
complications afflicting other 


Leadership of 

ANC admits 

party 




By Mark Suzman 

In Bloemfontein 

The top 
leadership of 
the African 
National Con- 
gress has ack- 
nowledged that 
the party is in 
organ isatio nal 
disarray was unprepared 
for tiie dwiumds of becoming 
the dominant partner in South 
Africa's government of 
natinwil unity. 

In. his trfflgfal report to the 
ANCTs triennial conference in 
Bloemfontein yesterday Mr 
Cyril Ramaphosa, ANC secre- 
tary general, said the party 
had not sufficiently prepared 
itself for dealing with the 
bureaucratic, tasks of govern- 
ment As a result, the slow 
flow of new legislation, com- 
bined with ineffective policy 
implementation by a recalci- 
trant bureaucracy, bad delayed 

delivery on the party's election 


For most of the properties, 
the owner is the municipality, 
and complex commercial and 
political considerations 
involved in the sale of these 
historic sites have weighed 
heavily. 

Delays are attributable in 
part to an argument within the 
focal government over the best 
means of disposal - whether 
by auction, tender or private 
treaty. 

One awkward issue not 
being addressed in talks on re- 
acquisition, at least not pub- 
licly, is tiie curious happen* 
stance that the former owners 
are bring obliged to lease back, 
for substantial sums, proper- 
ties that belonged to them in 
the first place. 


Israel reviews 
plan for stock 
market tax 


By JuBan Ozanne in Jerusalem 

Israel’s cabinet yesterday 
reviewed controversial govern- 
ment plans to tax stock market 
profits from January 1 as 
debate over economic policy 
widened. Mr Yitzhak Rabin, 
Israeli prime minister, met key 
economic officials after senior 
cabinet ministers launched a 
campaign to have the tax 
scrapped, amended or post- 
poned. 

Since the unpopular capital 

gains (ax WES annnnnrwri ear- 
lier this year analysts say it 
has contributed to the continu- 
ing weakness on the Tel Aviv 
Stock Exchange and calls have 
been growing in Mr Rabin’s 
Labour party for it to be abol- 
ished. 

The Mistanim two-sided 
index has plunged almost 30 
per cent from 240-250 points 
last year to a current level of 
170-180 points and shows little 
sign of a quick recovery. 'Hie 
continuing weakness of the 
market has placed s e v e re con- 
straints on the government’s 
privatisation programme and 
the ability of private compa- 
nies to raise capital 

The abolition campaign has 
been led by Mr Shimon Stae- 
treet, economics minister, who 
has argued the tax is a big 
factor in Labour's recent 
riprfinp in the opinion polls. A 
recent Gallup poll showed that 
38 per cent of those polled 
opposed the tax while 32 per 
cent supported it. The same 
poll showed 58 per cent of 


investors in the stock market 
wanted the tax scrapped. 

Mr Shetreet has called the 
tax “absurd and draconian” 
and said It would hurt the 
small investor most The right- 
wing Likud opposition party 
has also condemned it A pri- 
vate member's bill to scrap it 
was defeated 36-26 in parlia- 
ment last week. 

Mr Abraham Shochat, minis- 
ter of finance, has warned that 
any attempt to abolish the tax 
would send negative signals to 
investors about government 
economic policy. He rays the 
tax brings Israel into line with 
other countries and will be 
structured to allow deduction 
of fosses, and has strongly crit- 
icised opposition to the mea- 
sure based on political consid- 
erations. General elections are 
due in November 1996. 

“Zigzagging on the issue, 
speculating as to what will 
happen in 1996, and flinching 
because of political intrigue 
and fears, all mean fleeing 
responsibility,” he said last 
week. “The leadership of a 
country is evaluated according 
to its determination, its back- 
bone and its trustworthiness. 
Popularity ratings and political 
intrigues should not determine 
what needs to be done.” 

The tax has been strongly 
supported by Mr Jacob 
Frenkel, Bank of Israel gover- 
nor. However many Labour 
members feel Mr Rabin is open 
to persuasion and could agree 
to postpone its implementation 
or amend fL 


INTERNATIONAL PRESS. REVIEW j 


In a well-received address to 
3,000 ANC delegates from 
around the country, Mr Rama- 
phosa also admitted that the 
party's paid-up membership 
had dropped off sharply follow- 
ing the April election, and that 
unmet debts incurred during 
the election campaign had led 
to the use of fewer full-time 
party officers. However, he 
said he expected the confer- 
ence to agree on a new mem- 
bership structure to help com- 
bat this as well as cutting the 
excessive workload for top 
party officials. 

The admissions are an ack- 
nowledgement by tiie ANC of 
some grassroots dissatisfaction 
with the slow pace of change 
since it came to power follow- 
ing the c o untry's April elec- 
tions. 

Still, the conference seems 
likely to accept a proposed 
strategy document presented 
yesterday by deputy President 
Thabo Mbeki, which puts for- 
ward a generally moderate 
political fine and calls for a 
national consensus on eco- 
nomic policy centred around 
opening the South African 


market to increased bade and 
capital (Iowa to boost local 
investment and productivity. 

However the wWe-wwgfog 
document notes that, while foe 
ANC needs to Improve Its 
standing among whites. Its pri- 
mary focus should be the needs 
of the country's Mack commu- 
nity. It also says that the 
bureaucracy, army and police 
force should be rapidly trans- 
formed to make them mere 
representative in terms of both 
race and gender aiuL more 
accountable to government. 

Both Mr Ramaphosa and Hr 
Mbeki’s speeches followed the 
line set In President Nelson 
Mandela's opening address- to 
the five-day conference on Sat- 
urday, when ho admitted that 
the pace of change had been 
slow, but insisted there were 
no short-term solutions to foe 
entrenched problems South - 
Africa feces. “Ours is not a 
programme of quick handouts 
but one for serious and testi n g 
transformation, “ he said. _ 

Mr Mandela also west out of 
his way to defend the ANCs 
commitment to fiscal dtedpifans 
and economic reform agai n st 
radicals calling for faster 
change. He insisted that such 
policies were "neither luxuries 
nor requirements foreign to 
the ANC's own policies", 
stressing that they represented 
the best way of achieving sus- 
tainable growth. 

In this light, Mr Mandela 
said that given the difficulties 
a t governance and driimy.-foe- 
ANC should mate more of an 
effort to explain to people the 
reasons behind unpopular ded- 
afops. "This is tin bast anti- 
dote to attempts by opportun- 
ists of all hues to gain 
popularity on the basis of radi- 
cal-sounding but impractical 
propositions," he arid. 

The president reiterated that 
f>ny of the obstacles fee- 
ing the government’s economic 
programme was the preponder- 
ance of economic power In 
white hands. This, he said, led 
to “attempts to discourage new 
entrants and fore ig n Investors 
because the cartels over- 
charging society fear competi- 
tion". 





, i 


«wt I. 




Eritrea struggles 


'I 

T-Jrti 


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1- 




T aiwanese eye China wanly to rebuild a f aid 


: u 
x . 




TAIWAN 


By Laura Tyson 


“Will s miling Slew take off the 
white gloves?” asks a headline 
in yesterday's Independence 
Everting Post in Taiwan. 

The respected liberal daily 
refers to the Island’s intricate 
arm's-length pas de deux with 
China. Mr Vincent Siew, 
renowned for his ever-present 
grin, was put in charge of 
shaping the island’s policy 
toward Its giant neighbour and 
ostensible rival In a cabinet 
reshuffle last week. 

The question embodies both 
the hopes and dreads of Tai- 
wanese, who find themselves 
variously fearing an invasion 
by the People's Liberation 
Army, dreaming of a return to 
tiie ancestral fold jthI planning 
how to plunder the El Dorado 
of the orient 

It also reflects the chief fear 
of many ordinary Taiwanese: 
that of being involuntarily 
absorbed by China, which 
views Taiwan as a rebellious 
province and threatens to use 
force if the island should for- 
mally declare independence. 
Most countries accept Beijing’s 
view and do not accord diplo- 
matic recognition to Taipei 



Taiwan's President Lee Teng-hui says, “Look! We have 
democracy!” The Chinese response (left): “Stupid!” 


“Given Siew Wan-chang’s 
background in trade and eco- 
nomics, in the future, cross- 
strait commerce will take pre- 
cedence over politics, and some 
people find this disturbing.” 
the article says. During his 
previous brief as economic 
planning minister, Mr Siew 
drafted a plan to transform the 
island into a regional business 
hub. Press reports suggest that 


he has been brought in to head 
the Mainland Affairs Council 
to carry out that plan. 

The missing 1 link - literally — 
in Taiwan’s grand ambition to 
become a regional centre for 
business, finance and transport 
is direct shipping and flights to 
China, hannad fry Taipei since 
the Kuomintang government 
fled to the island after losing 
China’s civil war in 1949. Busi- 
nessmen who have Invest- 
ments in China and are forced 
to travel back and forth via 
Hong Kong see things differ- 
ently from the average Taiwan- 


In a Sunday editorial, the 
Commerc ia l Times, a financial 
daily which broadly supports 
government policy.wrote in 
favour of the Economic Plan- 
ning Ministry's suggestion to 
cre at e an “offshore transport 


centre" which would be used 
to establish direct shipping and 
air Unfa With HMna 

“From an economic point of 
view, direct cross-strait trans- 
port would save time and 
money and promote develop- 
ment of two-way trade and eco- 
nomic development on both 
sides, 1 ' the paper argued. 

The pro-government China 
Times, in an editorial pub- 
lished yesterday, said the rul- 
ing Kuomintang would be 
likely to step up economic ties 
with riMna, possibly opening 
direct finks, in order to gain 
support in crucial legislative 
elections late next year and 
firsttime presidential elections 
slated for early 1996. 

“The iron ' votes have 
rusted,” the paper said in a ref- 
erence to the loss of once loyal 
supporters to opposition par- 


ties. "Faced with upcoming 
elections. . . what other more 
effective card does the ruling 
party have to play?” 

But in a letter published last 
week in the United Daily Neios, 
which is seen as being more 
closely aligned with the Kuo- 
mintang faction whose mem- 
bos came from China in 1949, 
a Shanghai-based Taiwanese 
businessman wrote: “ Many 
people believe that Taiwanese 

Taiwanese fear 
invasion, dream 
of a return to the 
ancestral fold 
and plan how to 
plunder the 
El Dorado of 
the orient 

businessmen support direct 
links, but actually that is not 
so. If direct links were opened 
tomorrow. . . like a magnetic 
force, Taiwan would be swal- 
lowed alive." 

But the issue of direct links 
will become, in practical terms, 
a moot point in 2% years in 
any case, as the Economic 
Da3y News hinted in an edito- 
rial last week. “Tim 1997 dead- 
line for Hong Kong is forcing 
us closer by the day. In the 
past we could avoid dealing 
with the direct links igaw . . 
but soon we will be compelled 
to face [China] directly," the 
paper warned. The British col- 
ony reverts to Chinese sover- 
eignty in 1997. 


meeting 





Pledges by donors are likely to be 
generous, writes Leslie Crawford 


- V 

ii 

*4 1 

Ui 

\ ?l 


Blackouts in Algiers after 

saboteurs hit power supply 


Algiers has suffered serious 
electrical power difficulties for 
three days because of sabotage 
to the Algerian capital’s power 
supply, according to Algerian 
officials, Agencies report. 

A “serious incident" cut 
power last Wednesday night 
and r emaining power was 
being rationed among city dis- 
tricts, Sonelgaz, the state-run 
electricity supplier, said at foe 
weekend. The problem could 
continue for some time, it 
added. 

Government officials, who 


refused to be named, said five 
towers carrying electricity 
lines had been blown up in 
Zemmouri, east of Algiers. 
There was no claim of respon- 
sibility by last night. 

Algerian television reported 
that a big food warehouse sup- 
plying Algiers, Boumerdes to 
foe east and Tipasa to the west 
was destroyed by armed men 
who planted bombs and set it 
on fire. 

According to the television, 
monitored by foe BBC, an uni- 
dentified group of some 40 


attackers planted the bombs 
throughout the building, which 
contained huge stocks of dried 
milk, medicines and domestic 
electrical appliances. 

Algeria says more than 
10,000 people have been killed 
in foe civil strife since January 
1992 when the authorities can- 
celled a general election that 
fundamentalists were poised to 
win. 

Sabotage has accounted for 
$2hn in damage between Feb- 
ruary 1992 and December 1993, 
according to foe government 


All white-collar criminals 
in Malaysia to be caned 


By Kieran Goalee in Kintfa 
Lumptr 

The Malaysian government 
says it will make caning a 
mandatory punishment for 
white-collar crimes. 

Mr Syed Hamid AXbar, the 
law minister, said white-collar 
crime had grown considerably 
in recent years and accounted 
for 15 per cent of all crimes 
reported. However, white-col- 
lar cr iminals did not cause 
their victims physical injury 
so the canings administered to 


them would not be as severe 
as those delivered to other vio- 
lent offenders. 

Hr Hamid said businessmen, 
bureaucrats, company employ- 
ees and lawyers were among 

lug in Malaysia and ffing a pm ^ 
is carried out with a thick 
bamboo stick or rotan and 
causes intense pain, often 
splitting the bMu , 

The Malaysian cabinet also 
approved a plan to do away 
with all trials by jury because 
of increasing difficulty in find- 


ing juries for long trials. 

• Malaysia's GDP grew by an 
annual rate of &9 p«- cent in 
the third quarto' of the year, 
according to Mr Anwar Ibra- 
him, the finance minister. Xu 
each of the two previous quar- 
ters GDP grew by A3 per cent 
on an annualis ed basis. Mr 
Anwar said inflation in the 
third quarter had moderated 
to 3l2 per cent However last 
week Malaysia’s central bank 
said inflati on for the first 10 
months of the year was 3.7 per 
cent 




E ritrea, Africa's newest 
nation, will hold its first 
donors’ conference with 
the World Bank and western 
governments in Paris today 
and present its masterplan for 
rebuilding a country emerg in g 
from more than a quarter cen- 
tury of civil war. 

“Our global needs are tre- 
mendous,” Mr Haile Wolden- 
sai, Eritrea’s finance minister, 
said yesterday, declining how- 
ever to place a figure on Eri- 
trea’s aid requirements. 

“Every sector of the econ- 
omy was affected by the war, 
but we also want to be realistic 
and take into account the 
financial constraints of the 
donor community.” 

The Eritrean People's Libera- 
tion Front been running 
the Red Sea state since it 
defeated the Ethiopian occupa- 
tion. forces In May 1991 follow- 
ing a 30-year liberation war. 
But Eritrea only became a ful- 
ly-fledged sovereign state after 
a referendum, on independence 
from Ethiopia in May 1993. 

It took another year before it 
could join the World Bank and 
the International Monetary 
Fund, hence the delay In seek- 
ing international assistance for 
its reconstruction efforts. 

Government officials such as 
Mr Halle still work -without 
pay. So do the teams of navvies 
- former combatants awaiting 
demobilisation - who have 
been, rebuilding the bomb-dam- 
aged port of MOssawa and the 
country’s few dilapidated 
roads. 

In the countryside, villagers 
trek for miles to build 

dams and stone terraces on 
foodfor-work projects. 

Millions of tree seedlings are 
being grown in nurseries, 
ready for planting to help fix 
foe soil on the eroded hniw^ 

. The donor community is 
impressed by the single- 
minded tenacity with which 
Eritreans have gone about the 
task of forging a new nation. 
The aid pledges at the Paris 

meeting are expected to be gen- 
erous. 

But Eri trea, which inherited 
no external debt upon in depen- 
dence (President Melos Zenawi 
of Ethiopia, himself a former 
guerrilla fighter, agreed to 


shoulder the debt obligations 
of his country's former prov- 
ince), is wary of felling into the 
trap of aid dependence which 
afflicts the rest of the conti- 
nent. 

“We want to establish a new 
approach between donors and 
the recipient country,” Mr 
Haile said. “Development pro- 
grammes and priorities should 
be established by Eritreans, 
not by the donor community.” . 

The Eritrean government 
has welcomed offers of interna: 
tional assistance, but it is kes 
keen on accepting the Legions 
of highly-paid foreign consul- 
tants who roam around Africa. 

A recent offer by the Italian 
government to rebuild the rail- 
way linking Maasawa to the 
capital, Asmara, at a cost of 
685m (£54m), was politely 
turned down. 

President Isayas Afewerid 
told the Italians Eritrea would 
rebuild the railway on its own. 
The first new sleepers were 
laid last month. 

There are few Illusions, 
however, over the scale, of 
the task which feces the new 
government. 

Even after three years of 
peace, Eritrea cannot feOd 
Itself. It .depends -on .faienip-: 
tional donations to meet tiie 
needs of 1.5m people - half of 
the population. 

A fhrther 500,000 Eritreans 

are awaiting repatriation fleon 
refugee camps to neighbouring" 
Sudan - a country with which 
Eritrea severed diplomatic 
relations two .weeks ago 
because of Khartoum's alleged 
training of Eritrean Mamie 
insurgents. 

Nevertheless, foreign Inves- 
tors, led by the US and Israel 
are showing an interest fia Eri- 
trea now that a foreign i nvert- 
ment code and property 
and land rights havi been 
established. 

Several US. oil rompahtoft 
including Mobil,- Amoco and - 
Hunt, are negotiating oil axph> .. 
ration contracts for the shM* 
low waters off Eritrea’s S fed 
Sea coast 

Israel hopes to start figririff 
operations soon after a Sfrywr 
break, white Middfr and 
German concernaara afreeriy 
negotiating for licenoss. 


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FINANCULTIMES MONDAY DECEMBER 19 1994 




NEWS: UK 


Bootleggers threaten pub landlords 


Qjr Roderick Oram, 

Consumer Industries Editor 

Criminal gangs that ran pub 
protection rackets are reported 
to be mnacHng in on Britain's 
booming business in bootleg- 
ging cheap French beer by 
intimidating inner-city pub 
landlords. 

Bootleggers have told some 
landlords In the cities of 
Sunderland and Newcastle 
upon Tyne in north-east 
Englan d to cooperate in mak- 
ing it easier to distribute JH&- 
gafly imported beer, according 
to Mr Frank Nicholson, manag- 


ing director of Vaux, the 
Sunderland-based brewer and 
pub owner. The government 
has refused to cut import 
duties on alcoholic drinks and 
tobacco to make imports from 
France less lucrative. And it 
has played down reports that 
organised crime baa mffitratpd 
beer bootlegging, although it 
recognises that the problem 
exists with tobacco imports. 

The brewing industry esti- 
mates that some 3.5 per «*nt to 
4 per cent of beer sold in 
Britain - or some 15 per cent 
of beer consumed at home - is 
imported from France. 


Mr Nicholson says there is 
dear evidence that some boot- 
legging is being organised by 
the criminals who run pub pro- 
tection rackets. “I am alarmed 
because it Is a new element, to 
an old vice, and the avenues to 
do it are very easy to exploit,” 
he said. “It is a neat extension 
of their business.” 

Bootleggers have 
“suggested" actions to some 
Yarn licensees. The most popur 
lar include: selling smuggled 
beer in their bats; turning a 
blind eye to it bring sold in 
their car parks; and opening 
their pubs later than usual to 


ensure that more people are at 
home when the bootleggers 
take a sales trip around the 
neighbourhood. 

“I have seen myself bootleg- 
gers selling beer from a van 
outside one of our Sunderland 
pubs," said Mr Nicholson. "Ihe 
pub car park is a good meeting 
paint" 

Protection racketeers often 
threaten landlords with vio- 
lence or damage to their prop- 
erty, although Mr Nicholson 
said he was not yet aware of 
any bootleg-related violence. 

Typical consequences of fail- 
ure to comply with protection 


rackets are damage to property 
and starting fights in tars. 

Rumours of intimidation by 
bootleggers had begun to circu- 
late in the trade earlier fth 
year, hut Mr Nicholson is the 
first brewer to go on the record 
about the problems his land- 
lords face in tough inner-city 


A London brewer told Mr 
Nicholson of a similar experi- 
ence in Croydon, south Lon- 
don, when they met at the 
Brewers and Licensed Retailers 
Association earlier this week. 
He has also been told of intimi- 
dation in Manchester. 


4 T 


- i . ’ * 


Conservatives’ 
fundraisers 
look worldwide 


By Jimmy Bums 

One of the first big individual 
donors to the Conservative 
party to he publicly identified 
was Mr John Latsis, the Greek 
shipping billionaire, who is 
thought to have contributed 
£2m to the party when Baron- 
ess Thatcher was prime minis- 
ter - he used to send her 
bunches of flowers. 

"He was one of our biggest 
donors daring the 1980s," a 
senior Tory confirmed. While 
unwilling to put a precise fig- 
ure on the sums received, he 
recalled bow Mr Latsis once 
wrote out two cheques for con- 
tributions of £200,000 each in 
less than two weeks. 

Tory insiders also confirm 
that Li Ka Siting, the Hong 
Kong mflHonaire and a former 
business associate of Mr Mark 
Thatcher, Mrs Thatcher's sun, 
was another significant foreign 
donor. He is thought to have 
contributed £500,000 after being 
approached by senior British 
business figures with interests 
in Hong Kong including the oil 
magnate Mr John “Algie” 
Clufl. 

The Tory party’s Hong Kong 
financial connection has con- 
tinued with the involvement of 
Mr David Davies, the chairman 
of Johnson Matthey, the met 
als gro u p, who is in charge of 
the party's overseas ftmdnds- 
tog efforts. 

Some donors to the Conser- 
vative party have become fagi.- 
tives from British justice, 
Increasing pressure In parlia- 
ment for more transparency in 
political donations. Concern 
over donations to the Conser- 
vatives by Mr Aril Nadir, the 
former head of the collapsed 
Polly Peck empire who jumped 
bail, led to an inquiry by the 
House of Commons home 
affairs committee, which 
reported in April this year. 


The Conservative party's 
fund-raising operation is 
headed by Lard Hambro, durir- 
man of Hambros, the bine chip 
mer chant bawfc, and Sr Philip 
Harris, chairman of discount 
carpet retailer Carpetrfght, 
writes William Lewis. 

They were appointed party 
treasurer and deputy tre asur e r 
respectively in 1993. Insiders 
say they have developed a 
“nasty and nice" fund-raising 
technique in their quest to 
overcome the party's £l5m 
024.6m) overdraft 

“Hambro is the titular head 
- be sweet- talks the donors - 
and Harris comes in the next 
day to collect the cheques," 
one Tray party source said. 

Sir Philip said the two 
tended not to work together in 
raising corporate donations. 
“We are a team, but Charlie 
and I do not go to the same 
people. I look after the retail- 
ers and industrialists and he 
looks after insurance and 
banking." 


The Conservative majority 
on the committee saw no 
advantage in /flumping the 


rules on political 


cash i 


contri- 


butions, although the opposi- 
tion Labour party continues to 
call for a ban on overseas 
donations. 

While UK-registered compa- 


nies are required by law to 
declare substantial political 
donations, the role played by 
offshore companies and Indi- 
vidual donors was known only 
to a small group of senior 
Tories. 

In September 1991, the Conr 
servative party was publicly 
challenged to disclose the 
extent of its dependence on 
“foreign funds" by four senior 
Labour party MPs including 
Mr Tony Blair, who is now 
Labour's leader. 


.-.A • 



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t jam* pm*****: 


Tax rule is overturned 


By Barbara EKs 

A court ruling in London 
means that people who come to 
live in Britain wID no longer be 
subject to tax on income from 
investments made offshore 
before they arrived, in the UK. 

Three judges in the Court of 
Appeal ruled in a tittle-noticed 
judgment last week that Sec- 
tion 739 of the UK's Income 
and Corporation Taxes Act, a 
wide-ranging anti-avoidance 
provision, is limited to those 
who are resident in the Britain 
at the time of investing off- 
shore. 

The UK’s Inland Revenue 


said It believed the potential 
loss of revenue resulting from 
the decision would be £18m 
($29£ml. 

The Revenue had pursued 
Professor Peter Willoughby for 
income tax on income rolling 
up within a Royal life Gste of 
Man ) investment bond. Prof 
Willoughby, who taught law at 
the University of Hang Kong 
far same years until 1987, origi- 
nally invested in the Isle of 
Man bond while resident in 
Hong Kong. But he was living 
in the UK again when the orig- 
inal bond matured, and he 
reinvested in 1989 and 1990 in 
similar bonds. Prof Wil- 


loughby, who now lives in 
Alderney, one of the Channel 
M a u ds near the French coast, 
was supported in his court 
action by Royal Life. 

Mr Chris IJutott of Baileys 
Shaw & GiUett, the law firm 
which acted for Prof Wil- 
loughby, said the derision was 
a landmark because it over- 
turned previous practice and 
interpretations of legislation, 
virtually uncha nged since 1936. 

The Revenue said after the 
case that ft might Stitt appeal 
to the House of Lords, the une- 
lected upper house of parlia- 
ment which acts as the UK’s 
final court of appeal. 


UK NEWS DIGEST 


MP rebukes 
newspapers 

D VPr 1 nttprv J°b prospects improve 

^ V t/X IV/ l Ivl y Next year win open with the best first-quart 


lent claims - estimated to have totalled £600m 
(9984m) this year - still add on average about 
4 per cent to the cost of Insurance, the associa- 
tion calculates. Mr Mark Boleat, director-gen- 
eral, said insurance companies' efforts at pre- 
venting fraud were “now beginning to pay off, 
with signs of a frill in the number and cost of 
fraudulent claims." 


Mr Jack Straw, the opposition Labour party's 
shadow h o me secretary. Is to protest to the 
Press Complaints Commission because two 
newspapers yesterday named the man who 
won a record prize of almost £ISm (929.5m) in 
the UK’s national lottery last week. 

Winners are allowed under lottery laws to 
choose to remain anonym our, and some news- 
papers at fust of£oed rewards to readers who 
led them to the £i&n whiner, who emphasised 
that he wanted anonymity. The winner was 
identified in s om e newspapers last week as an 
Asian father of three who lives in Mr Straw’s 
constituency. He was named for the first time 
yesterday to Yorkshire on Sunday and in the 
News of the World, Che topselling newspaper 
in the UK. 

Mr Straw urged the commission to issue 

“dear guidance on privacy”, saying: “If they 
foil to do so, it will amply hasten the day 
there are very stringent privacy laws." He said 
he had already complained to the commission 
about the way the press had hounded the 
winner's family. But the behaviour of the two 
Sunday newspapers was “in a different league 
of hre5ponsilidlity". 

Insurers attack fraud 

Insurance companies have cut fraudulent 
claims by about 25 per cent in the post two 
years, says an Association of British Insurers 
survey released yesterday. However, fraudu- 


Next year will open with the best first-quarter 
employment prospects since 1990, says a sur- 
vey by Manpower, the employment services 
company. Although manufacturers have 
replaced services as the most optimistic sector 
of the economy, employers in the energy and 
water industries are much more pessimistic: 

The survey - based on responses from more 
than 2,000 employers - shows that 18 per cent 
are forecasting job increases and 16 per cent 
losses. 

Workplace worries rise 

Half of all employees fori their Jobs are less 
secure than they were last Christmas, says a 
survey of workplace opinion by the white- 
collar union MSF. It says Job security is the 
main concern In the workplace. The survey 
also shows that nearly half of respondents 
think they are treated badly by their employer 

and that stress at work is increasing. 

Passengers may sue 

Cunard, the shipping line owned by Trafalgar 
House, the engineering and property conglom- 
erate, may be sued by angry holidaymakers 
denied a Christmas cruise on the QE2. Com- 
pensation claims against the line could 
amount to Same 300 passengers were 

turned away hours before the Linar set sail for 
New York on Saturday night because of unfin- 
ished plumbing to about 100 of the stop’s 960 
cabins. 



We’re Ready To Fly. 


Until a few days ago, people knew us as IBM Havant. Then our management finalised a successful buyout. So today, 
we’re Xyratex and masters of our own destiny. 

That mighr frighten some fledglings, bur not us. After all, look at what weve got going for us. Over 2,000 highly 
skilled and qualified people. 25 years' grounding in the IBM school of excellence. A leadership position in network consultancy and 
the manufacture of disk drives, storage systems, flexible circuits arid networking products. An on-going supplier relationship with 
IBM and newly signed manufacturing partnerships with other leading companies in the computer and allied industries. Plus a 
range of innovative technologies to bring leading edge products, such as test systems and applications software, to the marketplace. 

It's no wonder we're already forecasting a turnover of around £300 million. So just watch this fledgling soar. 

Xyratex, PO Box 6, Langstone Road, Havant, Hants. P09 ISA, England. Tel: 01705 486363. 

Fax: 01705 45361 1. For more information just ask for lan Massey, Sales Manager. 







? 



■ ■■* 





6 


FINANCIAL TIMES MONDAY DECEMBER I? 1994 


MANAGEMENT 


■ 

A testing time in the j ob market 

Motoko Rich and Richard Donkin examine the controversies provoked by psychometric assessment 


H ow do you *hmk you would 
react if you had to view 
corpses and accompany than 
to tbe airport? Visit prisons? 
live in areas where disease is 
an everyday problem? 

Such Questions may seem bizarre but 
they are routine for applicants to the UK's 
Foreign and Commonwealth Office. 

Before fntng an application, would-be dip- 
lomats complete a “toff-assessment ques- 
tionnaire” which is wtant to test their suit- 
ability for the sort of professional and social 
life they can expect while working for the 
foreign office. Candidates score themselves, 
and if they reach a designated threshold, 
they are invited to proceed with tbe applica- 
tion. If not, they are told to consider 
another career. 

Customised psychometric tests of this 
kind are not just used to identify the flexi- 
ble types required to defend and advance 
British interests. Their popularity Is rising 
in the UK and some estimates suggest the 
majority of larger companies have used the 
tests to assess personalities and abilities for 
recruitment, career development, team- 
building and, in some cases, redundancy 
selection. 

The tests are not without controversy. 
Several cases recently have highlighted the 
varying quality of test providers and the 
dangers which can arise if they are sold for 
the wrong purpose or fall into the wrong 
hands. These have led to calls from occupa- 
tional psychologists, personnel managers 
and, most recently, trade unions for better 
administrative standards. 

Testing is not new. Intelligence and per- 
sonality tests were first used on a large 
scale by the US army to determine who 
could handle tbe stress of trench warfare in 
the first world war. In the 1950s and 1960s, 
interest in the UK was fuelled by the 
growth of graduate trainee schemes in large 
corporations, when employers used the 
tests on inexperienced candidates. 

Experts say it is important to distinguish 
between ability tests, which measure 
numeracy and verbal filcffi, and personality 
tests, which measure people's perceptions 
of their own behaviour. 

If properly used and designed to evaluate 
skills relevant to the job being filled, many 
psychologists agree that ability tests can be 
highly effective. The use of personality 
tests, however, is more controversial. 

Unison, the public service union, has 
raised questions about the use of personal- 
ity tests when Anglian Water decided it 
needed to shed 900 staff as part of a big 
reorganisation. All staff were given a per- 
sonality test to help managers decide who 
would he given new jobs. 

According to Unison, the company said 
the tests would only influence 30 per cent of 
the decision. But Unison says the tests 
must have had more weight in the process. 
The union also claims the company deter- 
mined the competences the test would iden- 
tify before it had determined what charac- 
teristics or skills were needed for the jobs. 

In the US, a court in California, awarded 
$L3m (£800,000) damages against a super- 
market chain which had used a personality 
test to recruit security guards. One of the 
recruits complained that the questions were 
intrusive and bore no relation to the job he 
was bang required to do. 

Similar complaints have been voiced by 
UK employees who lost their jobs at South- 
wark Council in London after personality 
tests were used to decide who was made 
redundant in a job-shedding exercise earlier 
this year. Unison is taking up the South- 
wark incident in an unfair dismissal case 
before an industrial tribunal 


It may take one of these cases to remove 
the veil of statistical and psychological jar- 
gon that characterises academic debate and 
salesmanship in psychometrics. The exces- 
sive use of jargon is one reason why psy- 
chometric tests are so open to abuse. Man- 
agement neglect is another issue. Because 
tests are used mainly as a recruitment tool, 
senior executives have often been content 
to leave their adoption and use to personnel 
specialists who, some critics beEeve, have 
been too ready to embrace psychometrics as 
another 'hoy scout badge" in the field of 
human resources. 

“There is a lot of black magic around 
psychometric tests," says Steven Blinkhom, 
co-director of Psychometric Research & 
Development, a consultancy which develops 
custom-built tests. “It gives personnel man- 
agers a sort of cachet because it gives them 
something they can do that others in the 
organisation cannot” 

That said, many psychologists and per- 
sonnel managers argue that psychometric 
tests can add value to a company's selection 
or career development processes and that 
they are better guides to a candidate's 
potential than the interview, references, 
letters of application and other traditional 
selection methods. 

“The same kind of critical criteria that 
are applied to tests are not applied to the 
interview as a selection method,” says Clive 
Fletcher of Goldsmith College, London Uni- 
versity. “Tbe interview does not predict 
future performance at all and it is a marvel- 
lous vehicle for lues.” 

Blinkhom and his consultancy partner 
Charles Johnson have written that such 
tests can often “bamboozle an unsophisti- 
cated public with pseudo science” and that 
tests “play fast and loose with statistical 
methods, and . . . make claims that do not 
stand up to dose inspection.” 

Steve Sefton, manager of ASE, the busi- 
ness psychology divirion of test publisher 
NFER-Nelson, Is not as critical but con- 
cedes the tests have their limitations. 
“Tests are really designed to be predictive 
of people’s behaviour, rather than their job 
performance,” he explains. 

Along with the other leading test publish- 
ers, however, he insists that personality 
tests can be helpful tools in selection if used 
and understood correctly in conjunction 
with other recruitment methods. 

Many psychologists, however, believe no 
test should be used in isolation or for 
redundancy purposes. “Tests should be 
used as a part of a batter of selection 
techniques such as interviews, group dis- 
cussions and application forms,” says David 
Bartram of Hull University, and a member 
of the test standards committee at the Brit- 
ish Psychological Society. 

Saville and Hcldsworth, the UK's largest 
test publisher, with a turnover of £30m 
worldwide, publishes hundreds of tests, 
including the Occupational Personality 
Questionnaire, which is one of the most 



respected on the market Other reputable 
tests include the 16PF, published in the UK 
by ASE, and the Myers Briggs, which was 
developed by two Americans in the 1960s. 
There are more than 5,000 tests in the 
Rngiish language on the market some of 
which, say foe BPS, are of dubious validity. 

The Institute of Personnel and Develop- 
ment has developed a code of conduct for 
its members and the six leading test pub- 
lishers have issued guidelines for test pub- 
lishers and users. But none of these bodies 
has regulatory clout; nor can they vouch for 
the effectiveness of test methods. 


In an a t temp t to introduce some stan- 
dards into the field, the BPS has devised 
certificates of competence for those admin- 
istering ability tests; equivalent qualifica- 
tions for personality tests are expected 
sometime text year. 

To obtain a certificate, company person- 
nel officers have to enrol in BPS training 
courses run by chartered psychologists. The 
courses train non-psychologists to' distin- 
guish between types of tests, analyse statis- 
tical data, identify the abilities or character 
is tics that need to be tested, and judge if a 
test is valid for a company’s needs. 


readin g publishers are also a ttem pti n g to 
police their own tests and improve trai ning 
- frhnug h foeir motives may not be entirely 
nltniterip. Users of Saville and Hddsworth's 
for example, must attend week-long 
courses before being allowed to purchase 
any of the materials. Such training is 
expensive: users can expect to pay more 
than fii, OOP for a course. The requirement to 
attend In-house training before tests can be 
bought, though, means the publishers may 
he “milking foe market", according to Pau- 
line Grant, business director of IAR&Ash> 
ridge, a consultancy. 

The respectable publishers, however, are 
not the main problem. Price often influ- 
ences choice and cheap, quick-fix tests that 
claim to be easy to operate are often run on 
computers and probably have as much to do 
with objectivity as the "Are you the world’s 
best lover?" quizzes in teenage magazines 
which have proved highly popular. 

Research dating bade to 1958 shows that 
poor tests are about as good as star-sign 
columns in Sunday magazines. A psycholo- 
gist tested 68 personnel managers and later 
gave them each Identical reports describing 
their personality. In what is known as the 
Bamum effect, half of them described the 
report as “amazing ly accurate”, and 40 per 
cent of them said it was “rather good”, 
while the other 10 per emit thought it was 
“half and half”. . . 

Before any test is adopted, employers 
should conduct a thorough job analysis. 
“The first thing yon need to do is identity 
the tew* demands of the job,” says Blink- 
horn. “Ask if people need to bring those 
drills ready-made or if some of these skills 
are in part learned on the job.” 

R ecruiters needed to talk to people 
already doing the job, as well as 
supervisors and management. 
Once the ridlls and characteristics 
genuinely needed for the job are identified, 
t hen an employer is better placed to choose 
the best test to evaluate them. 

Perhaps the most important thing for 
potential test-users to remember, however, 
is that the tests have their limitations. 
When assessing personality, Grant says 
“people with very different personality 
characteristics could both do the same jab 
very well”. 

Bartram also says employers need to 
decide whether they want to measure per- 
sonality at all before they decide which test 
to use. All too often, he says, the debate is 
focused on foe quality of the test rather 
than the question of whether personality is 
relevant to the job at alL 
If a company does decide to use psycho- 
metric instruments, he says there is no jus- 
tification for choosing inappropriate tests, 
just to save a few pounds. “In the long run, 
companies who use unreliable, cheap tests 
are going to lose out by doing that They 
will be picking people who are not foe best 
for the job.” . 


What’s the score on choice? 


S electing a test involves more than flip- 
ping through a few catalogues and 
picking one that sounds good. Consci- 
entious employers should consider a num- 
ber of factors before choosing a best 
David Bartram erf Hull University, and a 
member of the British Psychological 
Society’s test standards committee, 
encourages employers to naming any 


potential test for 

Q Scope - what areas of ability or 
personality are you trying to cover? 

• Accuracy or reliability - will the sanw 
test yield s imilar results if the same 
individual sits in two weeks’ time? 

• Validity - does tbe test measure what it 
says it does? 

For example, if a test yields a score on a 


person's persuasiveness, will the person 
who scores high on that scale actually be 
more persuasive than others who score low 
on the scale? 

A good test should always include 
statistical date to back up its claims of 
validity, and the BPS competency courses 
should train users to be able to read these 
statistics. 


• Fairness - is there any evidence to show 
that the test is unfairly biased against 
certain groups, such as women or ethnic 
minorities? 

• Acceptability - how well wQl the test 

you are planning to use fit into the 
organisation and its image? • - 

• Practicality - assess the time, resources 
and cost factors involved with the test 


The annual agony of Christmas giving 


I t is now the Christmas party 
season: a time for lechery and 
indolence. It is also a rime of 
gift exchange, personal and 
corporate, which like so many 
things at Christinas is fraught with 
difficulty. 

Gift buying is an annnai torment 
which mgawg so much to the chan- 
cellor of the exchequer, the high 
street shops and the credit card 
companies. But what makes this 
business or gift exchange and pres- 
ent-buying so difficult? 

Maybe it is because they are 
imbued with much meaning - they 
can be statements of influence, 
power, taste, sympathy or emotion. 

It is not only the problem of to 
whom one gives presents or not, 
and/or how much/little to spend, 
but more importantly what sort of 
item to purchase. Gifts are one of 
the ways in which the mental pic- 
tures others have of us are trans- 
mitted and likewise, we disclose to 
our gift recipients our pictures of 

The subtlety of the exchange can 


be best seen when it goes wrong. 
We can all remember, as a child, 
receiving a present which was 
insulting because we had outgrown 
it 

On the other hand, over-eager 
parents may cause extreme anxiety 
by giving gifts for which the child is 
simply not ready. Most toy manu- 
facturers recognise this problem 
and indicate the toy’s appropriate 
age range. Wouldn't it he fun to do 
the same for adult presents, putting 
labels on aftershave tike “ideal for 
Essex man”: or executive toys “for 
the middle manager going 
nowhere”? 

It is precisely because we give 
people something “suitable”, as we 
perceive it, that individuals are so 
frequently given the same sort of 
present. How many executives 
receive bottles of whisky? 

Should a person receive a variety 
of unusual presents, one may won- 
der at the gift-givers' very different 
perceptions and the real identity of 
the recipient 

The Christmas present also 


ADRIAN FURNHAM £ 



imposes an identity on the giver, as 
well as foe receiver. Some men con- 
firm their “macho" identity by pres- 
enting non-personal gifts, such as 
cigars following the birth of a child. 
There is the conspicuous presenta- 
tion of extensive gifts to celebrate 
simultaneously one’s wealth and 
generosity. A gift may also be a 
portion of oneself - a sort of exam- 
ple of one’s talent - so the artistic 
give pictures, gardeners a plant 
Gifts can be an important source 
of dominance particularly if one 
cannot reciprocate. Occasionally, 
adults can embarrass each other by 
the generosity of the present To 
accept a gift is, to an extent to 


accept the Identity it imposes. 

However, gifts can be rejected if 
they are perceived as unfriendly 
acts. A giver may express contempt 
by purchasing a gift for an individ- 
ual which is inferior to those openly 
given to others. Gifts may have 
symbolic qualities - a gold watch 
for good riddance, travel luggage 
encouraging a long journey. 

“Hint-type" presents may also be 
rejected - cosmetics to conceal poo: 
skin, a watch for the habitually 
late. Many “joke” presents fell into 
this category, for example, hot, 
spicy chewing gum (for the loud 
mouthed). Joke gifts may also 
reflect a rather insecure relation- 


ship. Just as easily, gifts can be an 
expression of guilt, such as an 
attempt to compensate for a certain 
deficit They make excellent items 
to use in the atonement of shw but 
they can be easily rejected as not 
befog sufficiently compensatory. 

Exchanging presents is another, 
more acceptable form of rejection. 
There are so many people returning 
unwanted gifts to the stores after 
Christmas (clearly not always 
because tbe size is wrong) that one 
wonders if anybody received a pres- 
ent which they wanted. 

Some groups try to prevent gift 
inflation, such as setting a limit on 
a present's cost 

Another way of coping can be to 
set aside certain goods or services 
as specifically gift-related mm some- 
how not part of the mundane eco- 
nomic world. Confectionery and gift 
tokens play an important rote here. 

But, however hard people try, the 
social rankings so beloved by the 
British are reflected in, and main- 
tained by, Christmas gifts, for the 
allocation of the quality and quan- 


tity of presents brings people into 
comparison who are rarely con- 
trasted with one another. “What did 
you get for Christmas?" provides 
excellent data on exactly where 
someone stands in the pecking 
order. 

Both buying and receiving pres- 
ents is a maze, full of rules and 
conventions and sob-texts and mes- 
sages about multiple facets of the 
giver and receiver alike. Even a 
statement of one’s ideal gift can be 
a minefield, as the British ambassa- 
dor to Washington discovered. 

The diplomatic envoys from sev- 
eral countries were canvassed by a 
local radio station; the French 
ambassador described his ideal 
Christmas present as peace 
throughout the world, the Canadian 
ambassador wished for an end to 
starvation, while foe British ambas- 
sador requested a nice box of crys- 
tallised fruit 

The author is head of the business 
psychology unit at University Col- 
lege London. 



**' 


• ■ ■ ^ , J 

■ . hjul ■» 

I. s. «* 


. RaDRUTTs 


P4LACE 

HOTEL Si MORITZ 

for nearly 700 years the meeting place for connoisseurs 

Winter season 1994/95: 

December 17 to April 2 

Tel. ++41 82 2 11 01 , Fax ++41 82 3 77 39 


S 



A 






Every day, 
we help 
thousands of 
people like 
fight 


, Give people with cancer a fighting chance 

J Over 90p in every £! ilunamj goca directly into cur viral research 
I f would like to nuk« rt dcvKOacm of £ 

| (Cheques payable ta Imperial Cancer Research hmd) 

| charge £ — do aj Atccss/V isa/Anbcx/DincrJC 3 uuiij Cord No. 


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PROPHETS 



the grey-suited ptnibMn _ 

itoMHfo bat qad w WbK plwk 



bytatsrl 
fa "petty - 
^tisstprikto”. SS& abiding 
rdtvaaeefa foe world of 


Artec* 

the Prince te the XOTwwtey 
equivalent of Dale Gttnegte’a 


Influence People. Embedded 
tmuofo details of Atamn&r 
VFs tribulations, ft* a ready 
supply of HA •. 


appro p ria te to many of 


foey were hearty 500 year* ago. 

"It is unnecessary for a prince 
to have all foe good qualities I 
tare enumerated, hoc ft is vary 
necessary to appear to have Y 


useful “to he a great pretender 

and dtewrm&teTyBat 7 fa Prince 
goesbeyrmd swfohetotol 
preseotatiwalUnte 
UkfraSfofrgreat boots.lt ■' . 
offers widttg for evgyoaie. . 


difficult to take in hand* more 
po rtions to or mow / 

uncertain ta Its success, than to 
take the lead fa foe fatro da ct faa 
ofanewonferoffokm-^Orax 


ought, above all things, to keep 
Ids moat wett-organised and 
drifted, to ftdfcar incessant ly the 


. Abwft ll, Mitc btaYe&teth e r _ 

through 

cunning and Intrigue, foe v- 
triumphed texeowreasoii.An 
a du fos rof ROigto MachiaveflJh 
had adtetod view ofhmnan .. . 
nature. &npowe£ment was not . 
finhfeyocabohay. 

Unfortunately history has . 
repeatedly proved that a - - 

eorafonationofte^agarmedto 
foe teeth and devious is more 
fikeiy to aBow yon to achieve 
your objectives. It fa all very 




“should know howto enter into 
evil whoa necessity commands’*. 

Areordfogtopoychologlst 
Robert Sharrock of consultants 
YSG "Mb foeJeaders 
MacfaiaveBa sought, to defend, 
some executives tend to see . 
foemaefofr Bstitenatozalrnfers 
in whose hands organisations . 
osfo bo entrusted. Theories . 
abound, on their motivation. Is it 
a defensive reaction against 
feflure oraneed for . 
predictability through control? 
The effect of the power-driven . 


.nsoaHyjplainto see . 1 

In compcmias addicted to 
• internal politics, AfachfaveDL . . . 
remains the stuff of day-today 
:■ realtty. But, warns Sharrock, . ' ' 

■ ^teduavelijlan managanentniay 
have Rad ies day, "The gentle 
■ art of persuasion is finding 7 
..fashion, with managers. The . 

no longer, justify foe . ; . 

.■means. There Isa return to foe . 



ntoeBed 


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-to daws, Managers may ' : 
nothave read Tht Prince but . 
Wftlbeahfetft identify '< 

PWlto elffg observation 

prfoce ot^htfahave nootber 


-.anything else for-hfe. study, tin 
. war aftd its rates and 
.vjMsdfohie?*: infos corporate . • 
MaoMawfl i hnmh s 
‘ttaAd Ch ri st aa s reading; • : 


- 1 


> , ■ * 


Stuart CramerC 


| Expiry Parc / 
| Mi/Mq/MtoVM? 


Signature 


■ 

J Imperial Cancer 
* -ji* Research Fund 


F\nrrnAr I 

Pkue return your doaatioa kx ® 
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“Omega’s dynamic qualities 
make it the leader of its class” 

Coche Actual (Spain) 

“In handling, safety and comfort, 
the new Omega V6 is out in front” 

Auto Zeitung (Germany) 

“The finest car in its class by a 
comfortable, if not heroic margin” 

Autocar (UK) 



• >. i 



The public often rejects that which the 
experts admire. And vice versa. 

The new Opel Omega, however, has 
clearly avoided such a fate. 

It was launched In March this year to 
rapturous reviews from the motoring 
press. Among the praise which 
accompanied that above were quotes 
such as ‘The Omega holds three 
trumps: performance, fuel consumption 
and level of equipment” from 
Action Auto Moto in France and “A jump 
ahead” from Corriene della Sera in Italy. 

Car buyers, too, showed their 


appreciation. Sales of the Omega 
throughout Europe surpassed even our 
expectations and we’ve had to add a 
night shift at our Russelsheim plant in 
Germany to meet demand. 

You won’t be surprised, therefore, to 
learn that the Omega has already won 
some major motoring awards, among 
them the prestigious “Goldenes 
Lenkrad” award for best new model in 
its market segment, given by Germany’s 
Bild am Sonntag and the RJC award for 

“Import Car of the Year” in Japan. 

\ 

The Omega is just the latest in a long 
line of Opel success stories which have 


helped us to become the leading car 
brand in Western Europe with no less 
than 12.5% of the market. 

Meanwhile, you can rest assured that 
we’re busily developing more exciting 
new models for the future. 

Cars which, we have no doubt, will also 
prompt both praise and sales in equally 
impressive measures. 








8 


TTTNANCIAL TIMES mondaybbce MBBR WJW 



PEOPLE 


■ a 

The catalyst for new year 
resolutions at Hoechst 

Jurgen Dormann is bringing about radical changes at the world's bigg 
chemicals group, say Christopher Parkes and Daniel Green 

A ccording to German corporate 
tradition, JOrgen Dormatm 
bad one crucial qualificatlnn 
fix* bis elevation last May to 


A ccording to German corporate 
tradition, JOrgen Dormann 
had one crucial qoalificatlnn 
fix bis elevation last May to 
chairmanship of Hoechst mare than 30 
years* unbroken, faithful service. By 
another traditional measure, he is not 
qualified at all: he is not a chemist But 
file 54-year-old former finance director 
- the first nun-technical man to run the 
show - shows no signs of suffering any 
deficiencies as a result. 

Dormann himself suggests that it is 
partly because he has been around so 
long that fiu most radical shakeout yet 
seen in Germany’s much-restructured 
chemicals sector has so for been the 
success it has, Hoechsfs staff do not 
see him as an “occupying force", he 
says, and he is thus accorded more 
accolades than resistance. 

His colleagues, meanwhile, laud him 
fix not succumbing to the paralysing 
conservatism and aversion to risk 
which routinely characterise many 
lxrag-servtng German managers. "Para- 
noia is a fifing of the past,” says one. 

So, too, is the old hierarchical muddle 
which used to typify the structure of 
the world’s biggest chemicals group and 
fourth biggest pharmaceuticals com- 
pany. On January L everything win be 
turned inside out - officially. 

The number of operating divisions 
will be cut from 15 to seven. Clearly 
separate stand-alone operations win be 
run as such. Responsibility, exercised 
centrally fix decades, win be distrib- 
uted. Rewards win be commensurate 
with performance. The management 
board will give up a seat to its first 
foreigner, an American. Questions from 
the public and press wfil be answered. 
And concerns from the population 
about the chemicals and drugs indus- 
tries - particularly in Germany - will 
be addressed in an accessible fashion. 

Dormann, a skinny, nervous-looking 
Hessian, has earned much popular 
credit for instituting afl this change. 
But the reality appears to be that he is 
what is known in other business cul- 
tures as an enabler. His assumption of 
power in the wake erf the unlamented 
Wolfgang HTlger. a dour man with little 
appreciation of the merits of communi- 
cation, has simply released reserves of 
talent which had been bottled up. 

Dormann scoffs at any suggestion 
that outside business consultants have 
had a hand in his scheme. All the 









flhang ps and new itfesq r^rpo from HT1 

.eight-man team of senior managers 
called together four weeks before he 
took control and set seriously to work 
an the day he moved offices in May. 
Their proposals were ready by the end 
of September and approved by the 
board in eariy October. 

An were promoted, and several put in 
charge of the projects they proposed - a 
tactic which seems to appeal to Dor- 
mann’s sense of humour. "They have to 
five up to their ideas.. J told than at 
the beginning 1 was not a string than to 
come in, prepare an analysis and then 
go off again like other consultants." 

Further down the line, he admits, 
“it’s hard to convince people that they 
have to get more business- and market- 
oriented, that they have a bottom-fine 
responsibility, and that they will be 
paid based on the goals we agree on.” 

But he insists there has been little 
resistance to change. Indeed, the works 
and middle management appear to be 


suffused with a sense of relief - if not 
excitement - that the old order has 
been swept away so comprehensively. 
“Even though there are a lot of familiar 
faces stfll in the top m an a ge me nt, thou 
is a feeling that they have seriously 
changed their way of looking at and 
doing things,” says one senior manager. 

Part of the relief stems from a convic- 
tion that it is now inconceivable that 
the management is capable of repeating 
the blunders accompanying last year’s 
series of accidents at the group’s main 
site near Frankfort, when Hoedxsfs 
response - disnnssivenessj, followed by 
panic - showed it as disorg anis ed, 
defensive and arrogant. 

Dormann is none of these. An indus- 
trialist with political skills, he can be 
engagingly informal bat visibly weighs 

Ids words before speaking. “We are not 
hiding any longer,” he says. The main 
message is that we want to manage our 
activities based on long-term goals and 
virion." . . . 


Much of the propaganda drive is 
addressed to Goman environmental 
concerns, he acknowledges. It is one of 
the few areas in which he is prepared to 
say that domes tic issues play a strung 
part in strategic thinking Perhaps fids 
is not surprising, given that the com- 
pany has built its last largMcafe chemi- 
cals plant in Germany. There is more 

than enough capacity; tbs issue is one 
rf iwHMgfog a r erinefinm In she. 

Dormann is not afraid to movecapac- 
iiy and even headqaarteis ftusctkms out 
of the country. The fibres dfririca, one 
of fas' core business areas he has iden- 
tified, is now bring run from the EES 
with an American in charge. “It's not a 
question erf passports or rationalities; 
it’s a question of competence, markets, 
technology and creativity" he says. 

For example, the logical sites for 
manufacturing chemicals for use in the 
electronics industry are in Japan rather 
than Germany, he says. 

Top priority is now overseas gro wt h : 
in north America, eastern Europe - 
above all, in Asia. Just returned from a 
visit to China. Donuaim, knew "that 
L2bn people live there. But seeing it 
makes the difference. My God, what a 
lot of tasks we face. We are negotiating 
four or five joint ventures in the indus- 
trial gas business. We might be a Etfis 
late, but China is such a huge market” 

In the US, be would fike to add maybe 
two or three mid-sized p harma c eu ti c als 


tem drugs operations - recently bol- 
stered by a minority stake in Copley 
Pharmaceutical, which specialises in 
generic products. Since Hoechst took 
file stake, Copley has been hit by a 
series of problems inchaMng the recall 
of faulty products. 

Perhaps surprisingly, Dormann 
admits that he is not altogether dear 
what has happened. But then it may be 
the sort of admission which an 


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prepared to make, especially in the 
earfy stages, if he is p r o p e rl y committed 
to delegation. “It’s our job here to 9ee 
the links [between our companies]. We 
try to involve our di vis io nal people in 
strategy discussion hut not in the 
flgfenig of cost-cutting," he says. The 
new corporate formation will, he hopes, 
act as an eariy warning system. 

But the changes go far deeper than 
structure, be says. “We have 
ilia mood." j ■ — - 


As tt turned out, his absence 
was oedy temporary. When 
Campean drove Federated into 


was wooed back to pull the 
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sriftedidgence - "doing iH 
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p re p a ri ng fora more rigorous 


offices fax Los A ffF fl l flff r 
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The London Hilton Hotel on Park Lane - 8 February 1995 

The Financial Times and OFTEL have joined forces to arrange a conference on i nte rco nn ection, focusing on 
the critical nuts and bolts of the competitive telecommunications regime as it goes into its second decade. 

PROGRAMME 

CHAIRMAN: - INTERCONNECTTON TECHNICAL ISSUES: NICC 

Dr Andrew Adonis (NETWORK INTEREACES COORDINATION 

R 1 ^rSS 5lar COMMITTEE) PROGRAMME, QUALITY OF SERVICE 

Mr Frier Welker 


OPENING ADDRESS 
Mr Don Cnridkshank 
Director General 
OFTEL 

FORUM : UK I NTERCONNECTION PROGRAMME 

- COMPETITION ISSUES: 

INTERCONNECTION, ACCOUNTING SEPARATION 

Mre Ann Taylor 

DirectOT of Competition 
OFTEL 

- LONGER TERM ISSUES: UNIVERSAL SERVICE 
OBLIGATION, ACCESS DEFICIT CHARGES. RE- 
BALANCING, ALTERNATIVE COSTING AND 
CHARGING STRUCTURES 

Mr Alas Befl 

Economic Director ■ 

OFTEL 

- OTHER ACCESS ISSUES: NUMBERING, 
PORTABILITY, INFORMATION SYSTEMS 

Mre Pit Seders 

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Director of Licence Compliance 
OFTEL 


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INTERCONNECTION AND INFRASTRUCTURE 
COMPETITION - A EUROPEAN PERSPECTIVE 

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Director, Directorate A (Tekcommiiiucations and Postal Services) 


Earopean Commission 

COMPETmON IN INTERNATIONAL 
TELECOMMUNICATIONS - THE UK’S 
PERSPECTIVE AND POLICY 

Mr WUam Madutjre ca 

Head of Tetecommn piogiom Division 

Department of Trade and (sdns&y 

INTERCONNECTION AND A GLOBAL 
INFORMATION INFRASTRUCTURE (GH) 


Bureau Chief, International Bureau 
Federal Communications Commission 

TOE SWEDISH APPROACH TO 
INTERCONNECTION 

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Director General 

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FINANCIAL TIMES MONDAY DECEMBER 19 1994 


New- age Britannica 
gets foot in the door 

Martin Mulligan explains how the encyclopaedia 
company is meeting the challenge of new technologies 

PMStMities. Today’s flood of articles and 44m words of the trad 
?? sr ™ in ® y® 4 tofcrmation. Esposito argues, has tioual Britannica. But they are th 
doorst f p Brtannica. in afl its forms, right words, as distinct from mer 

sateman of encyclo- more -valuable than ever. An envi- infonnatiML 

Daecuas. You miffht Winmonf iv> nrhi^U P-H. /m s_ j n j a- ii. 


H e is etched in urban 
legend: the smiling yet 
implacable doorstep 
salesman of encyclo- 
paedias. You mi ght 
think him a member of a threatened 
profession, trading on borrowed timo 
in an Increasingly high-tech, infor- 
mation-rich world. But yon would be 
mistaken. If the leaders in the 
field are to be trusted, the 
future of the doorstep encyclopaedia 
salesman is assured. In fact, his 
prospects have never seemed more 
alluring. 

Which is strange. After aU, aren’t 
books themselves said to be living 
on borrowed time, perhaps already 
superseded by CD-Rom, interactive 
and multimedia products? 

Joseph J Esposito, north American 
president of Encyclopaedia Britan- 
nica, sees t>m»gg differently. 

At ease in Ms book-lined office, a 
short walk beyond the stone lions 
that guard Chicago’s Art Institute, 
Esposito describes himself as “an 
English professor manque”. He 
combines a keen sense of mismnn 
with an eye for what is really hap- 
pening in the global information 
market 

A self-confessed bookahobc, Espos- 
ito quotes T S Eliot and Voltaire in 
the same breath as he outlines the 
cyclical pattern of sales since Ency- 
clopaedia Britannica, now in its 15th 
edition, was founded by three Scots 
in Edinburgh in 1768. 

His mission is that of self-ap- 
pointed protector of particular val- 
ues. “As long as the gnlightpnmawh 
spirit exists in the world, there will 
be a Britannica,’’ he declares. Stuffy 
be Is not 

Today’s Britannica comes in four 
“flavours”. There is the printed ver- 
sion we all know and love, Britan- 
nica CD-Rom, and, most recently, 
Britannica Online, in a local area 
network version and a World Wide 
Web version. The latter two are 
available at present only to universi- 
ties and colleges (the first BE insti- 
tutions have bought licences very 
recently). 

Britannica is making big efforts to 
enable libraries, schools, companies 
and borne users to gain access to its 
World Wide Web version. It does not 
know how quickly that is likely to 
happen, but even within Chicago’s 
bastion of enlightenment, the Inter- 
net is seen as holding the most excit- 


ing possibilities. Today’s flood of 
Information, Esposito argues, has 
made Bri tannica, in all its forms, 
more valuable fliyn ever. An envi- 
ronment in which thg questions 
have multiplied is tremendous news 
for a man in the business of giving 
answers. 

But the issues nm much deeper. 
More than ever before, knowledge is 
endangere d by wave upon wave of 
information. A knowledgeable per- 
son is now r>rv> who understands just 
how much of this information «*n be 
ignored. 

What that person needs is a versa- 
tile, navigable, intellectual ark to 
carry the inquiring mind from flaw 
to place on the back of the flood. 
And the various versions of Britan- 
nica are just such arks. 

As Esposito has said: “What is 
essential for the future of knowledge 
is filters and classifiers, fnfj'ywrefrj ww 
tools that cut out the noise and give 
us pieces of the universe in know- 
able units.” 

All well and good. But bow does 
that square with the 32-volume, 
hand-tooled, leather-bound monolith 
on the bookshelf - that alternative 
universe of print and colour plates 
in which an fma ginaH im ririH could 
lose itself for hours. Has that special 
experience gone for ever, replaced 
for today’s and subsequent genera- 
tions by CD-Rom or on-line versions 
of Britannica? 

Perhaps not Globally there is lit- 
tle hard evidence that sales of elec- 
tronic products are at the expense of 
book sales. There may even be a 
small positive impact on bode sales. 
Brit annica *s experience to date tends 
to support this. Its traditional 
printed version still comes in seven 
different bindings - to match room 
deco ra tions- 

“Most people buy the CD-Rom and 
print versions together, making up 
fully 40 par ce nt of oursales. Virtu- 
ally no-one is buying CD-Rom with- 
out tile print version,” says Esposito. 

It may be, after aU that print and 
electronic media do not have to fight 
ea c h other. Against all expectations, 
they may be able to enjoy a symbi- 
otic relationship. 

CD-Rom is an “interim technol- 
ogy”, according to Esposito and his 
colleagues. But nobody can say how 
long the interim wfil last The single- 
disc Britannica CD. contains a dictio- 
nary, a thesaurus, and the 65,000 


articles and 44m words of the tradi- 
tional Britannica. But they are the 
right words, as distinct from mere 
information. 

Britannica CD is described as folly 
interactive but not m ultimedia. It is 
claim ed to be the most interactive 
encyclopaedia going, because it has 
the “best search engine on the mar- 
ket". 

A typical encyclopaedia contains 
7m to 10m words. At 44m, Britannica 
is thus the big boy on the block. Its 
competitors in print include Collier, 
Grolier and World Books, but it says 
that its market share in print in the 
last few years has grown. Esposito 
nominates Grolier and Microsoft as 
its most successful electronic com- 
petitors. 

Its strategy has been to invest in 
continually updating its database 
and developing powerful search-and- 
retrieval functions, rather thaw 
adding the random snippets of sound 
and video that characterise most 
CD-Rom encyclopaedias. Esposito 
admits that only 10 per cent of the 
print version's illustrations 
have translated into the CD-Rom for- 
mat 

Could it be that Britamnca's inter- 
est in CD-Rom is fuelled by the 
gnawing suspicion that many of its 
prospective younger r eader s are los- 
ing themselves in the branching net- 
works of, say, Compton’s Interactive 
Encyclopedia, a screen-based “read- 
ing experience" which is perhaps as 
memorable and exciting for today’s 
school-age children as their parents' 
first encounter with the traditional 
Britannica? 


E sposito praises the compe- 
tition, then quietly 
observes that “it is proba- 
bly unfortunate that Bri- 
tanntefl and its competi- 
tors share the name of 
encyclopaedia.” 

It is a harsh foot of life that qual- 
ity publishers tend to lose money. Is 
Britannica defying that trend? 
Esposito does not evade the ques- 
tion, but his reply is carefolly con- 
structed. Britannica is owned by the 
WUHam Benton Foundation, a non- 
profit corporation in Illinois, 
founded by the former senator 
which supports the University of 
Chicago. 

“Historically,” says Esposito, “we 
are in a very cyclical business, and 



tins has been true of [our] US sales 
for tiie e nti re century. We felt the 
1991 recession. In terms of total com- 
pany revenue, lately international 
has been greater than domestic. But 
the economy has begun to turn, and 
there is a great sense of optimism.” 
He is a ware that “complacency Mils 
companies, and the future does not 
necessarily belong to us”, bat takes 
heart from the feet that “the more 
affluent consumer market is 
showing a preference for our prod- 
uct" 

But what of Britannica Online, the 


jewel in the crown if the word of 
information scientists is to be 
accepted? How does it differ from the 
printed Britannica? Esposito reckons 
that “a truly electronic encyclopae- 
dia will no more resemble a print 
encyclopaedia than a horseless car- 
riage resembles a horse.” 

Britannica Online certainly offers 
a hint of what that might mean, hi 
addition to the 44m-word database, it 
carries celebrated articles from past 
editions, new articles not included in 
the printed Britannica, essential 
graphics and illustrations, and - 


crucially - references to other 
Internet resources that can be 
easily accessed by clicking on an 
icon. 

That last feature is pivotal. By 
clicking on “hotlinks” within 
articles, users can access, for exam- 
ple. the Soviet Archives Exhibition 
provided by the Library of Congress 
or the Art and Culture of Mexico 
exhibition at the University of Gua- 
dalajara. Here is a real hint of bow 
an Internet encyclopaedia may soon 
form a gateway to the world's know- 
ledge. 


Rapid 
growth for 
voicemail 


By Abm Cone 

Love It or loath it, voicemail, 
the business equivalent of the 
domestic telephone answering 
machine, is here to stay. 

According to Dataquest, the 
marketing consultancy, the 
UK market alone for voicemail 
and voicemail products was 
worth $163. lm in 1993. a 
growth rate of approximately 
55 per cent in one year. 

A recent survey carried out 
for Octel Communications, a 
designer and manufacturer of 
voicemail products, suggests 
that some 3S per cent of the 
UK's larger companies now 
have voice processing systems 
installed, with manufacturing 
Industry the most 
enthusiastic. 

Financial services 
companies, however, seem the 
most satisfied, with almost 

three-quarters of those 
surveyed reporting improved 
customer service. 

Management, however, 
tended to be onenthuslastic 
about voicemail until after 
installation. “Initial 
resistance,” the survey sold, 
“seems to be linked with a 
sense that the company may 
be losing Its human face.” 
Indeed, a major disadvantage 
detected was that some staff 
hide behind voicemail either 
to avoid answering calls or to 
camouflage absence. 

The principal errors that 
management makes in 
installing new technology - 
failure to train staff 
adequately, or to measure 
response - were very evident 
in voice maiL Michael Persky, 
Oriel's marketing director, 
said: “Only 59 per cent of 
companies installing voicemail 
make training for users 
compulsory. This should be 
100 per cent If organisations 
are to maximise their 
investment” 

Can It be only a matter of 
time before European 
companies follow the lead of 
their US contemporaries and 
appoint “voicemail police” to 
check that colleagues are 
changing their greetings 
regularly and listening to 
their mail? 

* Getting the Message: trends in 
Voice Processing, £25 from 
Finely Communications, 
071-3814505. 


Businesses warned over 
lax security on Internet 

How secure is the network? Stephen McGookin reports 

W hen General Elec- month by Ernst & Young and Internet, Neale outlines the destruction of ] 
trie of the US Information Week magazine need for effective security pro- While the ] 
admitted recently quizzed more than 1^250 vari- cedures - known as firewalls. Misuse Act dc 
that computer ous-sized companies. More In effect these are “gateway” any statutory i 


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W hen General Elec- 
tric of the US 
admitted recently 
that computer 
hackers had gained access to 
sensitive company material via 
the Internet, it raised fears 
among businesses about the 

nonfUfanHnlity nf their ripfllrngg 

on the rapidly-expanding 
worldwide computer network. 

“Many people believe the 
Internet offers them all the 
security of a royal telephone 
call," says Gerry O'Neill of 
Britain's National Computing 
Centre in Manchester, speak- 
ing ironically. 

He estimates that around 60 
per cent of all traffic on the 
Internet is of commercial ori- 
gin, based on message 
wrrihnng BB using the XO suffix, 
which identifies business 
users. “Security practices 
which are required for an 
internal network with a few 
users simply do not 
guarantee secure links to an 
Internet community of 35m 
people,” he says. 

The responsibility rests with 
companies to establish their 
security properly. But there 
are indications that some of 
the 25,000 or so companies 
worldwide thought to be using 
the Internet commercially may 
not be taking security as seri- 
ously as the risks warrant, or 
that they do not regard their 
data as particularly sensitive. 
A survey in tire US lest 


month by Ernst & Young and 
Information Week magazine 
quizzed more than i£50 vari- 
ous-sized companies. More 
than, half admitted suffering 
some kind of loss doe to com- 
puter security problems, but 34 
per cent of respondents said 
their senior management saw 
information security as only 
somewhat important, and 8 per 
cent - around 100 companies - 
said the issue was viewed as 
not im port a nt at aU 

Dr Brian Neale, a UK-based 
specialist on Internet security 
with US computer company 
Digital Equipment, points out 
that once a system’s security 
has been breached, its advan- 
tages are lost to legitimate 
users until the problem is 
solved. Even if the loss is only 
for a few hours, the cost can be 
high. GE*s system was off the 
Net for about a week. 

“The scramble among busi- 
nesses not to be left behind by 
the Internet revolution has 
meant that the normally high 
security standards found 
among large IT users are not 
mirrored in their policies 
towards the Internet,” Dr 
Neale says. He estimates that 
three-quarters of large firms 
currently using; or intending 
to nse, the Internet fen into 
this category and are under- 
protected, making then “dan- 
gerous drivers on the informa- 
tion superhighway". In a study 
called Secure Connections to the 


Internet, Neale outlines the 
need for effective security pro- 
cedures - known as firewalls. 
In effect, these are “gateway” 
computers which distinguish 
authorised access from unau- 
thorised. “The aim of the Digi- 
tal firewall is to allow employ- 
ees to gain access to Internet 
services In as near-transparent 
fashion as possible, while pre- 
venting access of unauthorised 
external users,” he says. 

Britain's Department of 
Trade and Industry has a per- 
manent team working an pol- 
icy for IT security. With sev- 
eral leading companies, 
including BT, Unilever, Mid- 
land Bank and Nationwide 
Building Society, the te am has 
produced a code of practice 
advising information security 
managers how to establish and 
develop a secure information 
strategy. 

But a big part of the security 
problem as it specifically 
relates to the Internet is that 
there is no risible r^ulator or 
any overall authority that for- 
mally polices those who use 
the system. 

Fundamental legal require- 
ments are laid down by the 
1984 Data Protection Act, one 
of the principles of which 
states that “appropriate secu- 
rity measures shall be taken 
against unauthorised access to 
or alteration, disclosure or 
destruction of personal data 
and against accidental loss or 


destruction of personal data.” 

While the 1990 Computer 
Misuse Act does not impose 
any statutory requirements on 
b usinesses, its is to deter 
unauthorised access to, and 
modification of, information 
held an computers. 

It creat ed thre e offences: act- 
ing with intent to gain unau- 
thorised access to programs or 
data held on computer; unau- 
thorised access with intent to 
commit or facilitate commis- 
sion of more serious offences; 
and unauthorised modification 
of the contents of a computer. 

The DTI believes companies 
should promote awareness of 
these offences as part of t h ei r 
computer security policies, in 
addition to taking steps to 
reduce the risk of offences 
being perpetrated on their 
computer systems. 

As became clear from the GE 
breach, even the existence of 
sophisticated firewalls does not 
rioter dedicated backet s. What 
is obvious, however, is that as 
the nature of on-line commerce 
evolves, companies will be 
forced to reassess their com- 
puter security provisions 
fli-mngfr continually. 

• Dr Brian Neale, who is 
author of the report Secure 
Connections to the 
Internet, can be contacted at 
brian.neale@sbpjqt8.dec.com 
or through the Digital com- 
pany liaison: shani.mor- 
ris@reojntsxiec.coni 


Demos calls for regulator 
for communications 


, ix l -U.V 

»■* l 


- 1 ■■ 




By Alan Cane 

A new regulator - OfCom - responsible 
for all fekrmimtnniortiM lS and hnwflfffflEt- 
isg networks is one of the cor* proposals 
in a newiy-publtslied analysis of the social 
and political implications of information 
technology. It comes from Demos, a radi- 
cal think-tank, whose advisory council 
includes John Ashworth, director of the 
Loudon School of Economics, and Martin 
Taylor, chief executive of Barclays Bank. 

Its views are expressed In a series of 
articles published both on paper and on 
tiie IntaneL Geoff Mnlgan. its director, 
says to an introductory essay that regula- 
tory structures to UK communications 


have become too complex; and that the 


dated into an Office of Communications: 
“The core of OfOom sbould take tiie form 
of a commission, with open recruitment 
and hearings before a sdect committee on 
the membership and chair,” be writes. 

Its primary goal should be the achieve- 
ment of satisfaction, or welfare, among 
tiie public, he says, with competition as a 
means, not an end. He advocates a sepa- 
rate regulator responsible for taste and 
content in the cinema, press, television 
and video worlds. 

Martin Cave, professor of economics at 
Brand Unive r sity and a special adviser to 
Britain’s existing telecommunications 


regulator, raises questions to a farther 
essay about the way a combined regulator 
might operate: "The key lies in the recog- 
nition that communication services 
involve a series of stages, beginning with 
creation of the message; in some cases 
involving a bundling or wholesale func- 
tion and c ulminating m delivery to final 
consumers. The regulator should seek to 
rarahift the degree of dominance at any 
stage in the process, and in the case of 
bottlenecks for faptwtieic, man. 

date access, institute price control 
arrangements or take alternative 
actions.” 

Liberation Technology, £5, from Demos. 9 
BrideuxU. Place, London EC4 6AP. 


FTNANCIAI. TIMES 
Mmn/tfffenr 

Thu InfuriMmsioa you provide will be bold by u« and may be med by uthcr acfcrci qua lily owupurites Air mailing IKI purpuvi.'v 

A . ■ — — —■ «■■■■ ■■ ■ ■ ■■ ■■ — ■ ■ ■ 

INYTTATION 

TO EXPRESS INTEREST IN THE 
MANDELLI GROUP IN EXTRAORDINARY ADMINISTRATION 

The Mandrill Gawp is one of the main producers of machine tools in Italy and is present on lbe domestic and international markets with 
die following manufacturing companies : Mandrill fndnstrtale apa. (Piacenza); Mandril! s.pa. (Piacenza); Mandrill 2 spa. 
(Montefredane); Spring s. pju (Piacenza); Hkec Pampamia spa. ( Montef redane); Prometa s.p^u (Monicfretlane); EJMLS.-PAMA s.pj. 
(Rovereto); loose Macchfne UtensiQ sjeL (Brescia); Saimp Ssttmi s.pju (Padova); Plasma s.pm. (Piacenza). 

The Group is operating within the recovery plan according to art. 2, para. 5, of law 3 April 1979, no. 95 (Prodi Law), approved by the 
Minister of Industry on June 30th, 1994, and has already obtained a significant backlog of orders in Italy and foreign countries. 

The Commissioner intendb to start a procedure for the sale of the assets belonging to the Mandelli Group (tangible and intangible assets 
except for debts and credits prior to the beginning of the Extraordinary Administration, and with the exclusion of specific accounts payable 
and receivable, and lbe employment rats in tins with the plan) wi thin the scope of the extraordinary administration, and therefore 

invites 

foe parties interested in purchasing to express four interest in writing, by registered mail, to Mr. Vincenzo Nicastro - Commissioner of the 
Mandelli Group in extraordinary administration c/o notary public Marchetti - Via AgneUo, IS - 20121 Milano (Italy), specifying : 

a. identification of the interested party, which should be a limited company or other collective body, with the list of the 
first 10 shareholders and a copy of the last approved balance sheet; 

b. a short description of foe item and reason of interest. 

c. the commitment to confidentiality regarding all the information which will be provided by the Commissioner. 

d. a declaration that foe interest is exclusively personal, or, if on behalf of third parties, details on foe principals and the information 
requested in the above print a), should be provided; 

e. any other indication which is considered useful by foe interested party in order to highlight its economic and 
financial possibilities in view of the acquisition. 

t foe subscription by the legal representative of the interested party, or the copy of the power of attorney in case of 
application on behalf of third parties. 

The parties winch will have expressed their interest according to the above instructions within February 28, 1995 will : 

a. rely on confidentiality concerning foe existence and contents of their communication; 

b. obtain an informative document containing the main data of the companies object of interest; 

c. obtain wihueqnent information, except for what the Commissioner considers covered by secrecy (manufacturing procedures, name of 
customers, etc.). 

Once foe information phase is completed, the Commissioner reserves the right to open a bid for sale of the assets belonging to the Mandrill 
Group, in the form and according to the conditions subject to public announcement 


This announcement does not, at any effect, constitute: 

■ offer to the pobfic according to art. 1336 of the Italian civil code. 

• public offering of securities, since tire items subject to (Mura sale will not in any 
stocks or securities of any kind. 


case, directly and indirectly, consist in 


This announcement and the consequent rriationships, for winch the governing text is exclusively in Italian language, 
are subject to Italian law and jurisdiction. 

The Commissioiter of the Mandril! Group 
in Extraordinary Administration 
(aw. Vincenzo Nicastro) 


rf.* - 


” J -*‘ 













10 


FINANCIAL TIMES MONDAY DECEMBER 19 1994 


BUSINESS TRAVEL 



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The pick of the 

Parisian ‘palaces' 

Nicholas Haslam offers a guide to the benefits 
and expense - of staying in the top hotels 

P arisians modestly call A single room costs FFrUBOO, Defense, many hotels on 
their best hotels “pal- but low-season reductions Left Bank have a particv 
aces", but then argue of up to 25 per «*r>* are avail- character and charm, 
furiously over which able. The Lntltia on Boulev 


P arisians modestly call 
their best hotels “pal- 
aces", but then argue 
furiously over which 
ones merit the title. Yet no one 
seems to doubt that the Plaza 
Ath&nde, the King George V, 
the CrUlon and the Ritz are in 
line for first place. 

Sited in the exclusive central 
1 st and 8 th ammdissements, 
and the briefest of limousine 
rides from La Defense business 
and commercial district, these 
hotels cater for those whose 
pockets - or expense accounts 
-are deep. 

Booms at the Plaza start at 
FFriL300 (£280), while a presi- 
dential suite costs FFr9,440. 
For this, however, you will 
receive some of the best ser- 
vice any hotel can offer, and 
join a guest list that reads 
like an International Who's 
Who. 

A few Metro stops from the 
Champs ElysSes, the Grand 
Hotel Intercontinental looms 
beside the Opera in the heart 
of the Grand Boulevard dis- 


A single room costs FFrL600, 
but low-season reductions 
of up to 25 per cent are avail- 
able. 

Do not count, however, an 
hang ing on to your savings: 
partners waiting for spouses to 
return from m terminable busi- 
ness meetings can go shopping 
at Galeries Lafayette across 
the road, where guests from 

People say in Paris 
that if you work 
on the Bight Bank, 
you play on 
the Left 


the Grand get a 10 per cent 
discount 

If you want to lunch outside 
the hotel, the area is full of 
excellent little rest aura nts. The 
Petit Gaillon in Rue Gaillon, 
just by the Opera, has excel- 
lent French and Senegalese 
food, and the Chartier at 7 


Defense, many hotels on the 
Left Bank have a particular 
character and charm. 

The Lutftia on Boulevard 
Raspafi has one of the best art 
deco facades in Paris. It is 
close to the Senate and the Sor- 
boxme, and many guests are 
diplomats, politicians and aca- 
demics. 

The hotel has 280 rooms and 
12 conference rooms, the larg- 
est at which can hold up to 900 
people. Rooms start from 
FFr950, while a two-bedroom 
apartment costs FFr6.000. The 
Brasserie Luttea fronting the 
hotel is a well-known rendez- 
vous. (While sipping a beer and 
watching the crowds go by, it 
is best not to think of the Lut£- 
tia’s guests half a century ago, 
when the hotel served as 
Gestapo HQ.) 

Not far from the Lutdtia, 
next to the GaOimard publish- 
ing house, is Hotel Montalem- 
bert Reopened in 1991 after a 
year-long restoration, the hotel 
oozes Left Bank literary chic. 



• e ■ 

An hour to spare: Paris 

The gloriesof 

the Khmers 



\ i 


You are in Paris, with an 
hour between meetings. What to 
do? 

The suburb of Passy seems a 
long way from Phnom Penh. 
But here, safely preserved in 
the Mus 6 e Gufrnet, is the great- 
est collection of gbww** sculp- 
ture outside Cambodia - and 
one of the least trumpeted art 


modem French design, and 
start at FFr1,625. There are two 
conference rooms, the largest 
with a capacity for 25. 

At the back of the Montalem- 
bert, on Rue de lTJniverait§ 
and Rue Jacob respectively, 
are two smaller hotels patron- 
ised by fashion buyers, journal- 
ists, artists and musicians. 

The Lenox has 30 designer- 
famished rooms, and those an 
the top floor have views across 


reputation in the basement. 
The TTMmagpment: stresses that 
the dub is wen insulated from 
the rooms above, which start 
at FF 18 OO (suites FFr1,950). 

Women business travellers 
alone in Paris should note that 
the Left Bank is one of the 
city's most secure areas, night 
and day. And non-French 
speakers should get a copy of 
Pariscope, a weekly magazine 
with a section in English that 


75008 Paris, let (1) 47 23 54 00, 
fax: (!) 47 20 48 00. 

Ritz, 75 Place Vendtone, 75001 
Paris, let (1) 42 60 38 30, fax: (1) 
42 60 23 7 L Crihon, 10 Place de 
la Concorde, 75008 Paris, tel : (I) 
44 71 15 00. fax: (1) 44 71 15 02. 
Grand Intercontinental, 2 Sue 
Scribe, 75009 Paris, let (1)40 07 
32 32, fax: (1) 42 SB 12 5L 

Lntdtia, 45 Boulevard Ras- 
ped. 75279 Paris, let (1)495446 
4$ fax: (1) 49 54 46 00L Monta- 


The MusGe Gmmet holds a 
kind of cultural Utmus paper 
up to Fiance’s far eastern colo- 
nial past, but its glories are the 
outstanding Khmer carvings,- 
displayed in just three ground- 
floor galleries. 

The Khmers seem .to have 
originated in southern India 
and to have imported and 
adapted their native religion 
and culture, establishing them- 
selves during the ninth cen- 
tury as the dominant power In 
Indo-China for half a millen- 
nium. Their legacy is a cam- 

plex of 

five centuries and. some 75 
square mQes. 

While Angkor Wat, the 
funerary monument, holds its 


carved with scenes from The 
Samayana , illustrates the vig- 
our and originality of the 
Khmer artists, even In the 10th 
century. A glorious horse- 
headed deity is a version of 
Vishnu, the stone of his torso 
and head polished to a satin 
silvery grey. All around, 
wig n deities cast enchant- 
ing enigmatic smiles and 
voluptuous asparas (dancing 
girls) leap gracefully In bas- 
relief. 

T heatrically spotlit in an 
inner sanctum is the 
sculpture in the style of 
the Baycm, the temple built by 
Jayavannan VII U18M201). 
Ja y a vanea n. a late convert to 
Buddhism, believed 
Buddha incarnate, and his 
image smiles down from the 
victory gateway and tbs 54 
peaks of the bayon. The 
Guimet has a heed of this 
serene god-king. It is a 
work of enormous subtlety and . 
beauty. 

If you have time for nothing 
else, this ts the place to 


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MONDAY DECEMBER 19 1994 



1 


11 


GO 


ARTS 


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UJ 


BERLIN 

‘‘La traviatcj 17 is hardiy the kind of 
Christmas show you would 
expect trc-m the Kornische Opcr - 
and not just because of its tragic 
ending. Verdi has never been 
much favoured by a company 
which places more emphasis on 
brilliant acting than beautiful 
Singing. Nevertheless, the 
production which opens on 
Thursday has undeniable 
potential: Yakov Kreizberg {left) 
conducts, Harry Kupfcr produces 
and Violetta is sung by the young 
Noemi Nadelmann, 


> s 

+. w 


v jf 

s wz 


VIENNA 

The magic of the waltz fiiis 
the air over the next two 
weeks as the music of the 
Strauss family {Johann, the 
younger, left) once again 
sweeps Viennese society off 
its foot. The festive season 
culminates in the Imperial 
Ball on New Year's Eve and 
the Vienna Philharmonic 
Orchestra's New Year's Day 
concert, presided over by 
Zubin Mehta and televised 
worldwide. 




» 


M 


LONDON 

"Peter Pan 1 ' 
nres into 
the 

Cambridge 
Theatre 
tomorrow 
with N ico In 
Stapleton in 
the title role 
and Ron 
Moody (left) 
as Captmn 
Hooro 


_ -• ■ 
V 



W i 

/ 


NEW YORK 

The Metropolitan Op*ra 
celebrates Christmas 
and New Year with gala 
performances of Otto 
Schenk's production of 
' Dio Rodcrmaus” 
(below). The cast 
includes Pamela 
Coburn ((eft), Hermann 
Prey, Jochen Kowalski 
and Wolfgang BrendeL 


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married to madness 


Nigel Andrews talks to Rod Steiger, who returns to the cinema after ten years in the wilderness 


W hat do you do if an 

un exploded bomb 
is lying about in 
yonr movie? Do 
you defuse or deto- 
nate it? Or do yon just rejoice that 
it is there? The Specialist, opening 
on Boxing Day, is a Sylvester Stal- 
lone thriller full of fafc* explosions 
and dummy showdowns: but It has 
one genuine exposed bomb in its 
cast The name is Rod Steiger. The 
63-year-old Je wish-iris h actor is 
back: ex-Oscar winner for In The 
Heat Of The Night, ex-sparring part- 
ner to the great (Brando in On The 
Waterfronf) and for decades the 
most articulate spokesman far the 
postwar era’s best-known acting tra- 
dition. The Method. 

In The Specialist Steiger, marry- 
ing madness to Method, careers 
about the screen with- a gun and 
Cuban accent as if he had never 
been away. Butlbr ten years he was 
away, in a private hell of near-clini- 
cal depression. It was caused in part 
by a. faltering career and bad role 
choices. I met him recently in Holly- 
wood. Yachting cap an head, face 
round as a Gouda, voice primed far 
that raspy singsong, he talked far 
two hours about acting; with a pas- 
sion and breadth I have never met 
in any other practitioner. 


Steiger accepts that he is no lon- 
ger first choice for top character 
roles in modem Hollywood. “Every 
time I see something I like,” he 
snarls, *1 run into Semi Connery or 
Gene Hackman.” But he is still 
mildly shocked when he encounters 
executives who demand an inter- 
view before casting him. 

“They've never heard of me. 
Some of your executives today are 
30 years old, what the hen do they 
remember of me? Yon just have to 
go in and swallow your pride. I fig- 
ure if Brando could do a screen test 
for Godfather - smartest move he 
ever male - 1 can do auditions too.” 

False pride he has given up. He 
vanished into his black hole, com- 
pounded of drink, divorce pains and 
career depression, soon after mak- 
ing what he thtnta was his worst 
ever career Judgment, turning down 
the lead role in Patton. 

1 woke up one morning and 1 
was young and vibrant and alive 
and my phiinmphiftg were strong, 
and I said I'm a pacifist! . m have 
nothing to do with , this man. Big- 
gest mistake of my life. If I’d been 
successful in that part and it won 
George. C. Scott an Omar, I might 
even have had a shot at the Godfa- 
ther." 

Instead the Steiger glory days are 


the 1950s and *603, when in the era 
before Hoffman or De Niro he was a 
one-man phenomenon: a character 
actor with the power and presence 
to push into stardom. 

Steiger thinks he never pushed 
quite that far. "1 was never a lead- 
ing man. I miaseA that one pre-req- 
uisite for real stardom, I never was 
what they call a ‘sax symbol’. If you 
don’t get the farnata following of a 
tribe, you don’t get that big as an 
actor. Brando had it. James Dean. 
Nicholson even has it - the attrac- 
tiveness of eviL” 

So he settled for the rollercoast- 
ing life of a high-exposure character 
player. There was joy here, from 
“the freedom of being other people”. 
And there was fear too: the energis- 
ing anxiety that comes from ever- 
changing challeng e s on stage and 
screen. 

Tear motivates an actor,” says 
Steiger. "Tin gonna try to be good 
in tins part,’ you say, and you don’t 
care who is watching, you have to 
entertain them. If I was in a roam 
with just an automatic camera, and 

li ghting , anii no h uman hfling g [ ami 

there was just the studio cat, Fd 
w or ry about how the cat was react- 
ing. Or a cockroach. Did the cock- 
roach look at me? Did I entertain 

Wm?> 


"But there’s a price to pay for 
living with the childhood romantic 
dream of having adventure and 
challenge. After a while you don’t 
have so many ‘highs’, because you 
don’t get employed that quickly any 
more. And then you watch out 
because boredom comes in and 
you’re looking frantically for some- 
thing to give that fear again, 
because you misinterpret that fear 
as being alive.” 

Glamour, not tenor, lured him 
into acting. "I came from a neigh- 
bourhood in Newark, New Jersey, 
where if you put the garbage out 
and helped with the dishes your 
mother gave you fifteen cents and 
you went to the movies an Saturday 
afternoon and watched the golden 
people.” 

Steiger’s voice rises and stretches 
on that “g-o-l-d-e-n." He knows, 
even off camera, where the oomph 
should come in a sentence. When he 
joined the golden people himself, 
enrolling in the Actors Studio, then 
going on stage and TV to hew his 
reputation as a powerhouse Every- 
man, Steiger became famous for 
pushing and palling his scripts. Not 
just accents and emphases but 
whale words and phrases. 

"What are sentences?," he says. 
"They’re prismatic particles, flying 



Back from the brink on Basing Day: Steiger argues that ‘fear motivates an actor’ 


out from the centre of a thoug ht 
And you catch the flashing of their 
individual light and you understand 
that sentence. So you fool around 
with it a little, so long as you keep 
the meaning." 

He and Brando did so in the 
famous taxi scene in Or The Water- 
front CT coulda been a contender. 
Charlie”). The scene was bom, 
recalls Steiger, from an accumula- 
tion of happy mishaps. 

"We spent eleven hours shooting. 
The producer Sam Spiegel had 
promised us back-projection. When 
Kazan the director arrived, there 
was no street footage to project 
behind the cab’s window! 

"WeU, a crew member said he’d 
come in that day in a taxi with 
Venetian blinds. So Kazan used 
that And we were in that tight 
space - half a mock-up cab - and 
Kazan brought the camera right in 
on our faces. We played that scene, 
and played with it, till it came 
right” 

Waterfront was a watershed in 
postwar acting: the vindication of 
the Method in popular Did 

Steiger sense this at the time? 

"You never know you’re doing a 
revolution," he says. "If you do, 
you’re a pain in the ass. You cannot 
make love and criticise your perfor- 
mance at the time. 

"Let me tell you about the 
‘Method.’ The word was invented by 
journalists to describe the ideas 
that Lee Strasberg and Stella Adler 
brought back from a visit to Russia. 
In the old-style of acting you used 
conjecture to force an in 

from outside. With the Method the 
actor uses involvement to discover 
the Pmntinms in himself 

“So you find something in your 
own fife. If somebody tells me my 
daughter’s died, I cry.” Tears come 
into Steiger’s eyes on cue. (His 
daughter and only child is the open 
singer Anna Steiger.) “But I’m 
afraid of using that too much, in 
case I use it up. Another time. I’ll 
use something like I did in The Big 
Knife. I had to get angry in one 
scene, so I looked at the set and I 
had just seen - tins was after the 
war - photos of Auschwitz and Tre- 
Umka. So I said to myself, “These 
people bum this place!’ And that did 
it for me." Steiger exploded an cue. 
Look at the movie today and take 
shelter. 

But the Method has room for 
more lightweight techniques too. 
“The famous American actress Shir- 
ley Booth was rehearsing a scene on 
stage where she puts provisions 
she’s bought into the fridge. And 
the director said, ‘Shirley darling! 
We cant take this long!’ So she 
came in again and did the scene in 
a fifth of the time, without hurry- 
ing. He asked how she did it ‘Oh I 
have a taxi outside with the meter 
running,' fl h e said. 71 

Oc casionally the actor finds he 
has no techniques at all to hand. 


For The Pawnbroker Steiger had to 
"invent" a moment while the cam- 
era was running. "For the scene 
where I put my hand down on the 
spindle and the spike goes through, 
I had done a lot of rehearsal at 
home. But midway through the shot 
I thought to myself, ‘You son of a 
bitch. You forgot to practice taking 
the hand off 1 ’ So I couldn’t embar- 
rass myself by stopping the camera. 
I just remembered what 1 did when- 
ever 1 panicked, which was to hold 
my breath, and I took a deep lung- 
ful of air and then - phooh! - let it 
out." 

S teiger's greatest early 
roles were plain men 
yanked into extremity. 
But in the late 1960s his 
career took a startling 
turn. He began behaving like a 
one-man Madame Tussauds. Pope 
John XXIII. Mussolini, Rasputin, 
W.C. Fields. Real historical figures, 
tapped off by Napoleon in Waterloo. 

“Oh that’s a high!” he rhapso- 
dises. "If I could live for one tenth 
of a second at the exciting level of a 
great moment in history, because I 
somehow made myself believe it 
was happening to me, why not go 
far it?" 

So he bookwormed through the 
reference tomes. He had Napoleon's 
autopsy translated into English; he 
discovered that the man was riddled 
with diseases and drugs; he 
invented a scenario for the Water- 
loo defeat "I believe on the night 
before the battle he bombed himself 
out on laudanum.” 

The only thing Steiger refused to 
do was put his arm inside his coat 
Not even far a publicity shot 
"What's a cliche? It's a given 
truth that’s repeated so often that it 
becomes a bore, a joke. What makes 
a king or an emperor isn’t gestures 
or royal vowel sounds - ‘Men of 
Fraahnce!’ Hie man may stammer; 
he may have a high lisping voice. 
What makes a king is that when he 
says be is thirsty, fifty people come 
bringing water!” 

And what makes an actor, I ask; 
knowing the clock is ticking 
towards a football match Steiger 
wants to watch on television. 

"We're all of us actors. We act all 
day long. We act when we say no 
and we mean yes. We act when we 
say yes and we mean no. We act 
trying to seduce a woman. Acting 
bdongs to everyone on earth. 

"Why do we do it professionally? 
People ask me that You put your- 
self under the microscope of the 
world; there must be something 
wrong with you. Well, I know why I 
do it.” (pause) "Because 1 want 
respect" (Hint of red again in the 
eyes). “For me. For my famfly.” 

He lets the words sink into the 
silence. 

"And now get out (goodhu- 
mourecDy). I'm turning the TV on! 
Goodbye!" 


Theatre 

Sleeping 

Beauty 

A good pant online, like a 
good Christmas dinner, is 
a tricky thing to pull off. 
First you hare your list of 
ingredients: good dame, hissable 
baddic, plenty of slapstick, running 
gags, a songs heet. a chase sequence, 
a fight songs, plenty of glitter, a 
sprinkling of topicality, a pinch of 
blue (optional) and a pinch of cunp 
(not optional), and those little 
plums that have to pop out - “he's 
behind you”, "oh yes you will". 

Then you must mix your ingredi- 
ents well in the certain knowledge 
that if one thing is missing, it wU! 
be the one thing that everybody 
notices. Even then, when every- 
thing is compiled, it might not worit 
out: a little overcooked, a little 
undercooked, and the whole thing 
misfire s. 

The Theatre Royal, Stratford East 
usually servos up an excellent 
panto. Sad to relate, then, that 77 jc 
Sleeping Beauty, this year’s offer- 
ing, seems rather underdone. Most 
of the ingredients are there, and 
David Cregan’s script treads that 
difficult line between providing a 
proper story for the children and 
working in the traditional pantom- 
ine elements. The audience partici- 
pation is beautifully managed in 
Philip Hedley’s production: there is 
some nice topicality - the King and 
Queen are 1990s parents ("but wbat 
will people say if I don’t bring her 
up myself," wails the Queen, as a 
nanny is hired for the baby Beauty) 
- and the show is governed by an 
enjoyable dame in the shape of 
Michael Bertenshaw as a stout, 
stern, hatchet-faced nursemaid. 

But the struggle between good 
and evil is underplayed: the trio of 
fairy godmothers is not very fanny 
and the evil fairy appears too sel- 
dom to get the hissing up to full 
steam. The characterisation is a bit 
vague: the Queen and the King are 
both silly ninnies, while the Arch- 
bishop and Crispin. Princess Rose’s 
little playmate, have no characters 
at all to speak of. The songs are 
rather wishy-washy - with the 
exception of "Don’t Be Brave”, an 
excellent little number rubbishing 
fairytale heroics - and there are a 
couple of scenes that should have 
been left off the list of ingredients 
altogether a dream sequence and 
an overlong preamble for the sec- 
mid act. Tlake those away, add a bit 
more spice, slapstick and sheer sil- 
lyness, and the show might reach 
its comic potential 
We all know where the proof of 
the pudding lies, of course, and, to 
be fair, the children in the audience 
enjoyed it But 1 departed feeling 
rather undernourished; frustrating, 
sinoe this is a theatre that you so 
often leave fascinated, with your 
sides aching from over-indulgence. 

Sarah Hemming 

At Theatre Royal, Stratford East to 
January 28 (081-534-0310). 


itirmNATiomu 

‘U J • i mf n *1 «¥ 

_ ■ ■■ _ ■ ■ ■ 



pm; Dec 20, 23, 25, 28; Jan 1 
• DomrOschen: by Tchaikovsky. 
Conducted by States, . 
choreographed by Nureyev at 7 pm; 
Dec 26, 27 

■ FRANKFURT 


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.1- 


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• Berlin Philharmonic Orchestra: 
conducted by Sir Yehudi Menuhin, 

with soloist Leonid Gorokhov, plays 
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at 8 pm; Dec 19, 20, 21, 30, 31 
(5.15 pm) 

OPERA/BALLET 

Deutsche Oper Teh (030} 3 41 92 
4S 

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Friedrich at 5.30 pm; Dec 27 
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Schlm KunsthaDe Teh (069) 29 98 
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• Asger Jom - Retrospective: 167 
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artists^ -to Feb 12 : 


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Barbican Tel: (071) 638 8891 

• LSO New Year Viennese 
Concerts: conducted by John 
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1.2 . 

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Christmas concert with conductor 
Owain Arwel Hugjhes at 7.30 pm; 
Dec 20, 26 

Festival HaffTet (071) 928 8800 

• Johann Strauss Gala: the Johann 
Strauss O r chest r a with director John 
Bradbury, soprano Marilyn Hffl-Smlth 
and tin Johan Strauss Dancers 
plays a programme of music by 
Strauss. First pe rf or ma nce at 3.15 
pm, then at 7.30 pm; Jan 1 


Festival Hafi Teh (071) 928 8800. 

+ The Nutcracker: by Tchaikovsky. 
English National Ballet and Us 
Orchestra choreographed by Ben 
Stevenson at 7.30 pm; from Dec 21 
to Jan 2 (Not Sun) 


Royal Opera House Tet 071 340 
4000 

• dndereDa: music by Prokofiev. 
Created by Fredrick Ashton in 1948, 
this was the first fulWength ballet by 
an English choreogapher at 7.30 
pm; Dec 23 (2 pm), 26 (2 pm) , 27, 
30,31 

• La Traviata: by Verdi. A new 
production by Richard Eyra. Georg 
Solti conducts for the first five 
performances, then Phflflpe Auguin. 
In Italian with English surtitias at 
7,30 pm; Dec 19 

• The Sleeping Beauty: a new 
production of Tchaikovsky's ballet 
Produced by Anthony Dowell, set 
designed by Maria Bjomson at 7.30 
pm; Dec 20 (2 pm) , 21, 22. 28 
THEATRE 

Barbican Tet (071) 638 8891 

• New England: World premiere of 
Richard Netenn's new play. No 
performance 12- 15th Dec., . 

.otherwise at 7.15 pm; to Dec 29 
(Not Sun) 

National, Lyttelton Tel: (071) 928 
2252 

• Out of a House Walked a Man: 
by Danm Kharms. A Royal National 
Theatre and Theatre de Gompflcite 
co-production of a collection of 
musical scenes by the Russian 
absurdist writer at 7.30 pm; Dec 23, 
28,27 

• The ChBdren's Hour: by UIBan 
Heilman, directed by Howard Davies 
at 7.30 pm; Dec 19, 28, 29 (2.15 
pm) , 30, 31 (2.15 pm) ; Jan 2 
Queen EHzabeth HaB Tel: (071) 928 
8800 

• Cinderella: by Rossini. The Music 
Theatre London present this new 
translation by conductor and 
musical arranger Tony Britten, and 
director Nicholas Broadhurst at 7.15 
pm; from Dec 27 to Jan 3 (Not Sun) 


• Rossini's Cinderella: new 
translation by conductor Tony 
Britten and director Nicolas 
Broadhurst at 7.15 pm; Jan 2 (2.15 
pm) 

Royal Court Tel: (071) 730 1745/ 
2554 

• The Libertine: by Stephen 
Jeffreys, directed by Max 
Stafford-Clark. Comedy based on 
the works of the 2nd Ear! of 
Rochester at 7.30 pm; to Feb 4 

■ NEW YORK 


play by Terence McNally (of Kiss of 
the Spiderwoman fame), directed by 
Joe ManteRo. Sun. performance at 
7pm otherwise at 8 pm; to Jan 1 
(Not Mon) 

■ PARIS 


• Cranachs Itaflane: ballet In two 
parts based on work by Stendhal at 
7 pm; Dec 20, 21, 22,23 

■ WASHINGTON 


Whitney Museum 
• Franz KEne: Black and White 
1950-81: major Abstract 
E xpressionist works from the last 
decade of the artist’s Rfa; to Mar 12 


Grand Palais Tab (1) 44 13 17 17 

• Poussin: 400th anniversary 
retrospective: to Jan 2 
Louvre Tel: (1) 42 60 39 26 

• British Art in French Public 
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Lawrence and Turner. Closed Tue.; 
to Dec 19 


Metropolitan Tel: (212) 362 6000 

• Die Ftederrrtaus: by J. Strauss. 
Sung in German with English 
dialogue at 8 pm; Dec 22, 29, 31 

• Don Giovanni: by Mozart, sung in 
ttaflan at 8 pm; Dec 20, 24 (1-30 pm) 

• L* EBsir d* Amorce by Do n tzattL 
Produced by John Copely, 
conducted by Edoardo Mffller at 8 
pm; Jan 2 

• Madama Butterfly: by Puccini at 
8 pm; Dec 21, 27, 30 

• Peter Grimes: by Britten. Engfish 
at 8 pm; Dec 19, 23, 28, 31 

New York State Theater Tel: (212) 
870 5570 

• The Nutcracker by Tchaikovsky, 
performed by the NY City Ballet. 
Tue-Thu 6pm. Fri 8 pm. Ring for 
other limes and matinees; to Dec 31 
(Not Mofl) 

THEATRE 

Manhattan Theatre Otto Tet (212) 
581 1212 

• Lovei Valour! Compassion!: latest 


Chatefet Tet (1) 40 28 28 40 

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pm; from Dec 22 to Jai 7 
Champs Elysfes Tat (1)47 23 37 
21/47 20 08 24 

• La Fontaine de Bakchisarat ballet 

by the Kirov company, SL 
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performed by the Kirov ballet 
company, SL Petersberg at 8.30 
pm; Dec 22, 23. 25, 26, 27, 28, 29, 
30,31 

Op6ra National de Paris, BastHe 

Tel: (1) 47 42 57 50 

• Lb Lac des Cygnes: by 
Tchaikovsky. Choreographed and 
produced by Rudolf Nureyev. 
Conducted by Velio Pflhn/Ermanno 
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Kennedy Centre Teh (202) 467 
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conductor Peter Bay, soprano 
Janice Chandler and mezzo-soprano 
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Washington Opera Tet (202) 416 
7800 

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Conducted by Heinz Fricke. In 
English at 7 pm; Dec 31; Jan 2 
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classic fairytale, qfirected by Mark 
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12 


FINANCIAL TIMES MONDAY DECEMBER l» 19S4 


I i 


Samuel Brittan 


How to miss on the 
inflation target 



Last Thursday, 
another unno- 
ticed official 
report* was 
published, that 

of the Retail 
Prices Index 
Advisory Com* 
mi t tee (on 

which I sit) on the treatment of 
owner-occupier housing costs. 
Because of the government’s 
short-sighted policy of restrict- 
ing copies of such documents, 
most journalists have seen 
only the press release. This 
covered merely the majority 
report which favoured continu- 
ing to measure homeowners' 
costs in the RPI by mortgage 
interest payments, but with a 
slight modification to include 
an element of home deprecia- 
tion which makes hardly any 
difference. 

The origins of the report, 
over which the committee 
tolled for 2Vi years, was White- 
hall's concern that using mort- 
gage interest payments to mea- 
sure home ownership costs had 
a perverse effect on public per- 
ceptions of inflation, the con- 
duct of economic policy and 
the success of that policy. 

The mechanism, by which we 
shoot ourselves in the foot is 
straightforward. When govern- 
ments worry about inflation, 
they sanction interest rate 
increases which feed back into 
the RPL The result is worsen- 
ing inflationary expectations, 
reduced confidence and 
attempts at wage and price 
push by unions and employers. 
This leads to still greater infla- 
tionary worries, still more 
interest rate increases and still 
worse inflationary expecta- 
tions. The vicious circle can be, 
and has been, broken by suffi- 
ciently determined policy, but 
at an unnecessarily high cost 
in lost output and employment 

The committee majority 
believed that the job of the RPI 
was not merely to measure 
inflation but to provide an 
automatic adjustment for 
incomes, for instance In pay 
and benefits. In fact, the idea 
that everyone can contract out 
of the effects of a credit 
squeeze is sheer illusion, which 
simply postpones adjustments 
and makes their timing per- 
verse. 


The RPI and ndated Indices 

Psrcsntaga change ewe 12 months 

12 i_. 





87 


eo 


91 


02 03 


3Mc«; RPIAC Mport 


As the committee sat White- 
hall seemed to get cold feet 
about reforming the RPL Once 
it became clear that there was 
no one clear alternative mea- 
sure of inflation, only a battery 
of indicators, some officials 
took bight lest negotiators 
should always go for the high- 
est variant But the need for 
such a battery is just a fact of 
life. The phoney inflation peak 
of nearly 9 per cent in 1990. 
when the economy was already 
entering recession and which 
did so much damage, was due 
not only to mortgage interest 
rates, but also to poll tax 
effects and the impact of a tem- 
porary oil price explosion 
before the Gulf war. 

I am, however, inured to gov- 
ernments losing interest in 
their own original standpoint 
and I persevered with a minor- 
ity report 

The root of the problem Is 
that the previous method of 
estimating homeowners' costs 
by means of the equivalent 
rent for similar accommoda- 
tion has not been available 
since the collapse of the mar- 
ket in private letting. There is 
no one perfect alternative and 
my own proposals are designed 
to entrench and bufld on what 
has already been achieved in 
interpreting the RPL 

To start with: the underlying 
rate, or RPEX, should now be 
given equal prominence to the 
headline RPI in official pro- 
nouncements. As a consequence, 
the headline RPI should cease 
to be the sole legal definition of 
the index. This is, in any case, 
the way the world is going. 
Price indices being developed 


by the European Commission 
are certain to exclude home 
ownership costs as being too 
difficult to measure and com- 
pare between £U members. 

While the committee was 
going round in circles, the 
Bank of England had devel- 
oped further indices to help 
measure inflation. These 
include RPTY, which excludes 
some indirect taxes as well as 
mortgage interest payments. 
There Is also the housing 
adjusted index, HARP, which 
attempts to treat the purchase 
of houses like that of any other 
consumer durable. My recom- 
mendation is that the Bank of 
England should update every 
month the indicators m its 
quarterly Inflation Report and 
indeed publish them indepen- 
dently. The Bank could do this 
straightaway. But the CSO 
(Central Statistics Office), too. 
should get round to publishing 
a voider list of indicators 
attached to the RPI press notice, 
including the new comprehen- 
sive Inflation Index on which it 
is working. 

My final recommendation 
may be the most controversial. 
This is that the RPI Advisory 
Committee is an anachro nis m 
which should be placed into 
honourable retirement. Apart 
from it being a corporatist sur- 
vival, than is the baric fact 
that a price index cannot be 
devised by a varying selection 
from a group of 21 people sit- 
ting round a table every few 
weeks. The director of the CSO 
should have the same responsi- 
bility for the RPI that he has 
for other statistical series. 

*CM 2717, £10.66 


■ l" * * * \ 


M r Des Wilson, vet- 
eran campaigner 
for worthy 
causes, will this 
morning brave the ire of envi- 
ronmentalists by presenting 
the case for a fifth terminal at 
London’s Heathrow airport 
Mr Wilson, who earlier this 
year became public affairs 
director of BAA, the' airports 
group that owns Heathrow, 
will be backing up Sir John 
Egan, BAA's chief executive, 
and Sir Richard Rogers, the 
architect of the proposed 
£900m terminal. They will 
unveil at a press conference 
the detailed submission they 
intend to make to what Is 
expected to be one of the big- 
gest public inquiries in the 
south-east of England. 

The Department of the Envi- 
ronment says It has already 
received 5,000 letters about the 
proposed terminal, 95 per cent 
of which are hostile. As many 
as 3,000 of the objectors intend 
to address the inquiry when it 
starts next May. 

Hie Airports Policy Consor- 
tium, representing 30 south of 
England local authorities of all 
political persuasions, will 
argue that the terminal should 
not be built The objectors 
argue that Heathrow, which 
already handles 51m passen- 
gers a year, cannot grow any 
further without inflicting seri- 
ous damage on the enmmuni- 
ties that live around it The 
fifth terminal would increase 
the airport’s capacity to 80m. 

Mr Dermot Cox, a committee 
member of the Heathrow Asso- 
ciation for the Control of Air- 
port Noise, a pressure group, 
says: "Terminal Five sounds 
like just another te rminal. It 
isn't It’s a whole new airport” 
Given the strength of feeling 
against the proposed terminal, 
BAA’s recrui tme nt of the New 
Zealand-born Mr Wilson is a 
significant coup. The former 
campaign director of the UK 
Liberal Democrats founded 
Shelter, which champions the 
homeless, led the Campaign for 
Lead-Free Air, chaired the UK 
branch of the Friends of the 
Earth and is the author of 
books such as Pressure, the A 
to Z of Campaigning in Britain. 

He says he is entirely com- 
fortable in his new role. “Very 
few major projects involve as 
little environmental impact as 
this one, 1 * he says. 

The terminal wifi be built on 
land mostly occupied by a 
sludge works between Heath- 
row's two main runways. 
Access to the terminal will be 
via a new station connected to 
tiie London Underground net- 
work, the proposed Heathrow 
Express rail link and a spur 
road from the M25 motorway. 


j :V'_. 

i 'ML.. 1 . ..v - :r 


have a ,ot in c °mmon-^e 

both JtivnMtdritMT on a theme. / 
** ^ / 



Call 0800 700 444 to apply for the American Express Card. 


Michael 
plains for a 



The M25 anil not have to be 
widened to accommodate -the 
additional traffic, BAA says. 
With new rail links, it adds. 45 
per cent of travellers to and 
from Heathrow will use public 
transport by 2016, compared 
with 36 per cent today. 

BAA insists that there wifi 
be no increase in right flights 
if the new terminal is built 
Nor will the group need to 
build a third runway to handle 
the increased air traffic. With a 
rise in the average number of 
passengers per aircraft, BAA 
says Heathrow’s two existing 
runways can handle the 
increase In flights expected in 
future years. 

The company says it needs 
the terminal to maintain 
Heathrow’s position as the 
world’s leading international 
airport which in turn under- 
pins London’s position as one 
of the most important financial 
and business centres. 

BAA expects passenger 
demand at Heathrow to grow 
by 34 percent a year for the 
foreseeable future. If Heathrow 
fails to accommodate this 
growing demand, ambitious 
airports such as Frankfort, 
Charles de Gaulle in Paris and 
Amsterdam’s Schiphol will do 
so instead. 

The Airports Policy Consor- 
tium rejects these arguments. 
Miss Frances Rudd, its plan- 
ning officer, says: “With or 
without Terminal Five, Heath- 
row is still the world's leading 
international airport I remain 
unconvinced that if Heathrow 
doesn’t get Terminal Five, Lon- 
don will decline. " 

Instead of trying to accom- 
modate ever-increasing 
demand on the congested west 
ride of London, the consortium 
believes BAA should be promo- 
ting development to the east of 
the capital, which, it argues, is 
in Tints with government policy 
for regenerating the East 
Thames corridor. 

The consortium says that, 
instead of building Terminal 
Five, BAA should promote the 
development of Stansted air- 
port in Essex, which has good 
rail links to the City of Lon- 
don. In contrast to the bustle 
at Heathrow, Stansted appears 





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201S •- 

tete V; 
1878 - 




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’• " ’• • 


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k. 

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eerily empty, with only 82m 
passengers a year. 

For the anti-noise campaign^ 
Mr Cox, a market researcher 
who has lived near Heathrow 
rinoa he was a chfid, says that 
he does not see how the airport 
can operate the fifth terminal 
without a third runway. 

The existing runways are 
already heavily utilised. 
According to Mr Cox, BAA’s 
argument that it can handle 
the additional traffic using just 
two runways appears to be 
based on a firm conviction that 
larger aircraft will be built 
over the next few years. “Their 
case is that we are going to 
have these super Jumbos tak- 
ing 600 or 800 people. But they 
don't exist People are. touring 
about it but it is still very 
hazy,” he says. 

Mir Cox says that even with 


the current level of aircraft 
traffic, life is difficult for those 
who live near Heathrow. He 
concedes that, people who. 
choose to live near an interna-, 
tionai .airport must expect a 
certain amount of noise, hot be 
argues that they should not 
have to suffer bring woken at 
4am by overhead flights. 

Mr Cox. says walks in Kew 
Gardens; a favo uri te haunt of 
his, are ruined by the sound of 
aircraft. “Kew Gardens adver- 
tises ttseff as a haven of peace 
and tranquillity. If I wasn’t a 
friend of Kew Gardens, I would 
refer them to the Advertising 
Standards Authority,” he says. 
. Mr Wilson counters that 
making greater use of Stansted 
or London’s Gatwick airport 
would not reduce the need for 
Terminal Five. Even if Stan- 
sted and Gatwick were used to 


frill capacity, there would still 

hi nmvM tipmudd fiflOUtt axtiUHS’ 

waiting to fly into London. 
juiSny Sent. Mr Wilson * 
argues, & per cent of Heath- 
row's passengers' use the air- 
port to change to other air* 
craft.: If these transfer 
possengsrs were denied the use 
of Heathrow, many would not 
use Stansted. They would 
rfmwg w flight* jn Paris, Frank- 
fort or Amsterdam, he says. 
.However hard BAA markets 
Stansted or Gatwick. interna- 
tional air nassengsra. insist on 
using Heathrow. “Heathrow 
has a dunce of airlines, flights 
and destinations unmatched 
anywhere in the world. We are 
-simply reflecting what the 
industry wants,” he says. 

B AA also rejects the 
view that new, large 
aircraft are essential 
if Terminal Five is to 
operate without, a third run- 
way. Aircraft using Heathrow 
currently carry an average of 
126 passengers each and use 
the two runways to 82 per cent 
of their capacity. If by 2016. 
with Terminal Five built, the 
two runways are used to 92 per 
cent of their capacity, aircraft 
will have to carry 177 passen- 
gers per aircraft. A Boeing 
747-400 already carries 400. 

BAA says that the number of 
Heathrow neighbourhoods ~ 
affected by noise has been fall- 
ing because newer aircraft are 
quieter. In 1978. L5m people 
were affected by high levels of 
noise. Today, the figure is 
500,000. By 2016, the figure will 
fall to 225,000 if Terminal Five 
is not built, and 293.000 if it is. 

Today Mr Wilson will pres- 
ent an opinion poll showing 
that over half the residents 
near Heathrow support Termi- 
nal. Five and that they are 
more worried by. traffic, litter 
and crime than by aircraft 
noise. He says: “We will show 
that 73 per cent of people 
within a 5-mile radius of 
Heathrow haven't been woken 
once by aircraft noise in the 
past year" 

- The anti-Terminal Five cam- 
paigners wifi so doubt point 
out that BAA’s figures mean 
that more than one in four peo- 
ple firing near Heathrow have 
been woken by low-flying air- 
craft over the past year. 

...Mr. Wilson accepts that 
BAA's opponents have genuine 
concerns, to the end, however, 
the government will have to 
make a choice based on the 
interests of the UK and Lon- 
don, he says. "It’s a test of 
whether this country is-capa- 
: hie. of taking long-term deci- 
sions or whether short-term^ 
responses to a minority will 
prevail." 


LETTERS TO THE EDITOR 

Number One Southwark Bridge, London SE1 9HL 

Fax 071 873 5938. Letters transmitted should be dearly typed ana not hand written. Please set fax for finest resolution 


Favourable 
tax regime 

From Mr Torlach Dertihan. 

Sir, Your article, "Boost for 
Dublin’s tax haven" (December 
8), report in g the decision of the 
European Commission to 
extend the marketing deadline 
for Dublin’s International 
Financial Services Centra, 
refers to the centre as a “tax 
haven”. 

Such pejorative language is 
totally inapp ro pr i ate. T3ie rate 
of corporation tax on the prof- 
its of companies in the Interna- 
tional Financial Services Cen- 
tre is 10 per cent exactly, the 
same rate applicable to the 
profits of manufacturing com- 
panies in Ireland. 

Some 220,000 people are 
employed in manufacturing 
industry in Ireland, of whom 
some 90,000 are employees of 
foreignowned industrial enter- 
prises. These companies are 
attracted by a favourable cor- 
poration tax regime and the 
European Union’s youngest 
and best educated workforce. 
The same features attract com- 
panies to the centre. 

. Your correspondent should 
be aware that the European 
Commission is not in the busi- 
ness of approving tax havens 
and that its decision vindicates 
how the centre has evolved 
over the past seven years. 
Torlac h, Denihan, 
director. 

Financial Services Industry 
Association, 

34-86 Lower Baggot Street. 
Dublin 2, Ireland 


The right person to lead WTO 


From Mr Harry L Freeman. 

Sir, Your leader concerning 
choice of a leaderfor the World 
Trade Organisation (December 
14) is right on the mark. As 
important as the agreements 
reached in the Uruguay Round 
are to the . future of world 
trade, so is the choice of the 
first leader of tiie WTO and tiie 
launch of this new entity. For 
those of us who worked on the 
round for years, it would be 
frustrating to see all of the 
efforts made to reach a broad 
and strong agreement frus- 
trated by a poor leadership 
choke and/or an unproductive 
confrontation over the nature 
of the WTO at its outset 

You make a . very critical 
point in how governments I 


should make their choices as 
to the WTO head - namely, 
that each candidate should be 
judged (among other important 
criteria) on his ability to draw 
support beyond his natural 
constituency. Thus, your point 
that Mr Renato Ruggiero - 
Italian former, trade minister 
and the EITs official candidate 
- should be judged, among 
other criteria, on his support 
from such areas as Latin 
America and Aria. His support 
now is largely from the EU and 
countries closely tied to.lt. 
Shnfiariy, it would follow that 
Mr Carios Salinas, former Mex- 
ican president, must draw sig- 
nificant support from countries 
outside the western hemi- 
sphere; and that . Mr Kim 


Chul-su, South Korea trade 
minister, should be more than 
an Asian candidate. 

Your approach is meritorious 
and should help select a candi- 
date based on ability. My own 
favourite, Mr Salinas. 1 would 
concede, must draw significant 
support from such areas as 
Africa, the Asian sub-continent 
and Australasia, rather than 
being solely a western hemi- 
sphere candidate. 1 believe he 
can do so as, , at least to my 
judgment, the best candidate 
for this position at this time. 
Harry L Freeman, 
president. 

The Freeman Company, 

4708 Dorset Avenue, . 

Chevy Chase, - 
Maryland 20815, US 


Motorway toll rationale 


From Mr Andrew J Walker . . 

Sir, I agree that motorway 
tolls present a huge political 
problem for a government (Per- 
sonal View, December 14X but 
comparisons with motorway 
tolls in France are invalid. Dis- 
tances between French cities 
are such that switching to non- 
toll roads couH lengthen jour- 
ney times by many hours, if 
not days: in contrast, the use 
of motorways in principal 
French conurbations is free of 
tolls: on that same model, use 
of the M2S would remain free. 

- The French do have a viable 
alternative to motorways: the 
TGV, which Is Ideally suited to 


the long Inter-city distances in 
France. - 

If the UK government were 
serious about the environment, 
it would use the money raised 
in motorway tolls, fuel taxes, 
etc, to unrest - directly La an 
advanced, non-car transport 
infrastructure designed to 
meet Britain’s travel needs of 
the 21st century. Any other 
rationale for introducing 
motorway tolls would simply 
be another tax on people who 
need to get from A to B. 
Andrew J Walker, 

Mas de Mossier, 

88200 Vienne, 

France .... 


Perverse 


From Ms Fiona Brown. £ 

_Slr, Would you buy an adver- 
tising campaign for your com- 
pany from an advertising com- 
pany which did not understand 
the value of a company name 
(“Saatchi chairman forced to 
quit by US shareholders", 
December 17)? In 20 years Saat- 
chl has built . an enviable 
worldwide profile attractive to 
both clients and investors. 
-Anonymity would seem a 
rather perverse corporate 
move, but very attractive to 
the competition. 

Fiona Brown, 

Chatto, International House. 

59 Compton Road, London N1 


ceiling of target range for UK 


From Dr Peter Westauay. 

Sir. Your editorial, “A new 
target for Inflation 1 ’ (December 
13). suggested a number of 
modifications to the frame- 
work for monetary policy relat- 
ing in particular to the infla- 
tion target You rightly focus 
on the question of how to 
acquire the cr edibility for this 
target which, judging by pre- 
vailing interest rate expecta- . 
tiads and. most. inflation fore- 
casts. has not yet been folly 
achieved. • 

Since the RP1X Inflation rate 
is currently higher than that of 
the RPIY. r cannot believe that 
a move to a target which is 
now easier to hit is likely to 
enhance credibility', although 
eventually a move to the RPTY 
definition may be sensible. 


Given that marry forecasts, 
including our ' own at - the 
National Institute, would have 
inflation rising above 3 per 
cent in the next two years, it 
would seem unwise to advo- 
cate a lowering of the ceding of 
the target range to 3 per emit 
Even if the central forecast 
for inflation were to remain 
below this level, we live bran 
uncertain world where discre- 
tion needs to be the better part 
of valour. The tighter the infla- 
tion target, the more Hkely it is 
that some unexpected occur- 
rence may cause the target 
range to be violated. Or even 
for unacceptably high’ output 
costs to be paid to keep the 
target range intact In such cir- 
cunistanoeg. the actual Trea- 
sury-Bank strategy of "talking 


down" inflation into the lower 
half of the. range while main- 
taining the original range of 
1-4 per cent may actually be 
rather prudent 
Importantly, as you empha- 
sise; the question of any future 
administration’s commitment 
to an inflation target has a cru- 
cial bearing on the lbug-term 
credibility of anti-inflationary 
policy and can even Influence 
its current effectiveness. There 
now seems to be cross-party 
agreement on tiie role of mone- 
tary policy fr achieving low 
inflation- One possible area of 
conftiston may arise, however, 
with the Labour party’s stated 
intention, to a forget for 
growth.' If this means that 
monetary- policy' will be 
actively used to raise gross 


domestic product above its 
“natural lever, then inflation 

can indeed be expected to be 
higher. Alternatively, if the 
growth target means that sup- 
ply side policies will be 
adopted in an attempt to 
Increase the long-run growth 
rate endogenously, to use a 
much maligned but ultimately 
rather important expression, 
then the effects on Inflation 
are much, less certain and may 
even be beneficial 
I echo your call for clarity on 
all sides. 

Peter Westaway, 
senior research fellow. 

National Institute of Economic 
and Social Research, - - 
2 Dean Trench Street; . 

Smith Square, 

London SW1P 3HE 







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■ FINANCIAL TIM .KS MONPAY DECEMBER 19 1994 


FINANCIAL TIMES 

Number One Southwark Bridge, London SE1 9HL 
Tel* 071-873 3000 Telex: 922186 Fax: 071-407 5700 

Monday December 1 9 1994 

Evading U S 
fiscal reality 


US politicians have spent the federal budget deficit will begin to 
weeks since the congressional rise again in 1996, Interest pay- 
elections l ea rning the le sso n s" of meats and social benefits will, on 
the Republicans' victory. Most the basis erf currant 
now believe they must promise consume nearly three-quarters of 
the voters a dubious fiscal cocktail all federal revenues by 2003. and 
in. the years s hfiad. Tte US is not 100 per wnt 10 years later. By 
the only country in which eco- 2030. total federal expenditures are 
nomic realities seem increasingly projected to exceed 37 per cent of 
a t odds with political ones. Few. GDP, compared with just 22 per 
however, can boast such a power- cent today. If policies remain 
fill consensus in favour of ignor- unchanged, by then this year's 
ingthe first ^ modest $22 tm surplus of Social 

The post-November strategy Security tax rev en u es over outlays 
which Mr Clinton finally unveiled would have turned into an gn™«i 
last Thursday centres around mid- deficit of over S450bn. It should go 
dlectess tax cats and department without saying that this win not 

tal downsizing. He pledged to “be happen. The only question is 
straight with the American peo- when, and how, it will be stop ped , 
pie” about the real consequences 
of these budgetary decisions. On _ ' „ 
paper, at least, the plan does add Small steps 
up rather better than many of the Messrs Kerrey and Danforth 
competing proposals currently on proposed a few measures to stop 
offer on Capitol Hill. But none the rot, such as gradually raising 
paints an honest picture erf the the ret i r e ment, age from 65 to 70 
economic realities feeing the US in and means-testing some benefits, 
the short and medium term. fewer than a fifth of which go to 

Mr Clinton offered tax cuts for poor households. Mr n»ntnn was 
“mid dle-income" households not alone in finding thoao and 
worth about $60bn ova* five years, other measures unthinkable. None 
He observed the post-November of the other members of the com- 
T ujfls of the game by pr omising to mission on en titlement reform - 
offset these with cuts in discre- chaired by Mr Kerrey - could 
tionary government spending, stomach them either. It broke up 
rather than tampering with fed- agreeing on only the need for fun- 
eral benefits to individuals (“enti- flampntai reform, and some minor, 
tl aments”) or raising other tax though useful, nheng na in the pro- 
revenues. As many remarked, the cedure for aBawang the budget 
speech echoed many a latter-day Mr Clinton’s 1S93 deficit reduc- 
Republican t hem e as well as some tion package faring some very 
of his 1992 election campaign, small steps towards lowering ben- 
Characteristically, he aimed to efits for wealthy ho useho lds With 
please everyone and so, perhaps, the rec overy entering a buoyant 
pleased relatively few. Certainly fifth year of recovery, the 
there was little to prompt e it her short-term case for farther 
Republicans or Democrats to for- retrenchment is now even stron- 
sake their more ambitious tax-cut- ger. Meanwhile, the Republicans 
ting gambits when passing next claim that their corporate and 
year’s budget individual tax cuts would he 

accompanied by enough spending 

r» .j- t cuts to be consistent with farther 

Reform package deficit reduction. Yet they hope to 

It is to Mr Clinton's credit that reverse even Mr Clinton’s modest 
he merely echoed these proposals, 1963 changes to entitlements, 
many of which were on show last The president was right on 
week, rather than trying to out Thursday to admit; im plicitly at 
bid them. But a mare courageous least, that the budget would never 
president would have picked be balanced without benefit 
another model altogether for his changes at least as ambitious as 
efforts, namely the ambitious fis- the Kerrey-Danforth programme, 
cal reform package put forward a He may also be right in thinking 
few days earlier by Seamtors Rob- that endorsing the latter would be 
at Kerrey and John Danforth. - political suicide in the current US 
The Senators' plans are unique dimate. In the tang run, however. 
In admitting that nefthw tax cuts voters are unlikely to reward 
nor an unchanged system of anti- either Mr Cfintan or Congress far 
tlements is consistent with suggesting that this type of reform 
long-term US fiscal stability. The could painlessly be deferred. 

Tougher rules 
for pensions 


How much more secure will 
members of the UK’s occupational 
pension schemes be if the Pen- 
sions BQ1, published last Friday, is 
enacted as proposed? That is the 
test, given toe Mil’s origins in the 
report erf the Goode Co mmit t ee , 
which was set up in the immedi- 
ate aftermath of the Maxwell pen- 
sion scheme outrages. 

Many of the Goode recommen- 
dations have been adopted. For 
Instance, active scheme members 
will be entitled to appoint a third 
of the trustees; an Occupational 
Pensions Regulatory Authority, 
albeit of a rather passive kind, 
will be set up; and a new Pensions 
Compensation Board will he able 
to levy other gnhamea and com- 
pensate victims when a scheme 
fails to meet its lfawittiea due to 
misappropriation of assets and the 
bankruptcy of the employer. 

Bnt the minimum solvency 
requirement that formed an 
important part of the Goode pro- 
posals has been significantly 
watered down. Under pressure 
from companies, the valuation 
basis has been altered to permit a 
greater emphasis on the assumed 
higher returns on equities rather 
than g o v e r n ment bonds, and more 
time win be allowed for schemes 
to correct solvency crises. 

Moreover there is no sign yet 
that the government will Issue the 
special indexed securities which 
the Goode Committee requested 
should be made available to 
schemes winding up, so that they 
could economically secure their 
future pensions liabilities. 

Highlighted 

The problems were highlighted 
by the receivership of shipbuilder 
Swan Hunter. Although this £60m 
scheme was regarded as s olvent 
by its actuaries, and was suffi- 
ciently well-funded to have com- 
plied with the proposed minimum 
solvency requirement, the trustees 
announced in September that not 
all the pension benefits could be 
met, with some being reduced by 
as much as 40 per cent 

Essentially this kind of problem 
arises because smaller schemes 
cannot be run economically as 
closed funds when' the employer 
goes bankrupt, or for other rea- 
sons derides not to continue the 
scheme The assumed high long- 
term investment returns are 
replaced by much lower interest 


rates when liabilities are trans- 
ferred to life assurance companies. 

' Some in the actuarial profession 
are worried that a so-called mini- 
mum solvency test will prove seri- 
ously Tni steading, and will imply a 
degree of security for future pen- 
sion rights that in reality does not 
exist. It is also worth pointing out 
that Mirror Group pensioners 
would not have benefited from a 
compensation scheme of the type 
planned, because their employer 
continued to trade. 

Serious deficiency 

Other Maxwell companies did 
fell, of course, and their patston- 
ers would have been able to claim. 
Fraud is not always as dear-cut as 
in the Maxwell example, however. 
Many cases of serious deficiency 
arise because of imprudent invest- 
ment or a desire by the trustees bo 
help the sponsoring company 
through a crisis by deferring con- 
tributions or even by buying 
assets such as property. The pres- 
ence of member trustees with jobs 
at stake will not necessarily 
reduce these risks. 

The question is whether the 
other measures, such as the impo- 
sition of a duty on auditors and 
actuaries to inform the regulator 
about apparent irregularities, will 
make an important difference. 
Certainly there are powerful 
three fa of fines or imprisonment 
when trustees breach rules. 

In many cases these provisions 
HMrn Ekely to be effective. No (me 
can rule out the possibility of 
rogues misappropriating pension 
scheme assets In future, especially 
among companies, but at 

least a safety net will exist for 
these serious abuses. 

The bigger problem may wen be 
whether the reasonable expecta- 
tions of scheme members will be 
nut when the sponsoring compa- 
nies get Into trouble. To insist an 
complete security would be to 
impose much higher funding costs 
on all companies with final salary- 
linked schemes, for the sake of the 
small proportion, of future prob- 
lem cases. But should not scheme 
members be made aware that they 
are carrying a residua] risk? 

The Pensions BDl repre s e nts a 
dear improvement over what has 
applied before. But there is a dan- 
ger that it wQl generate an expec- 
tations gap that will haunt politi- 
cians in the future. 


j)J L r< w *> 


O ne of the world's lon- 
gest and tensest diplo- 
matic poker games is 
nearing a climax. As 
negotiators on China’s 
application to rejoin the General 
Agreement on Tariffs and Trade 
prepare to leave Geneva for the 
Chri st m as holidays at the end of 
this week, the time has come for 
bluffa to be cal le d. 

How the game is played out in the 
next few days may determine 
whether a formula can be found for 
China's orderly integration into the 
multilateral trade system - or 
whether Beijing carries out its 
repeated threats to walk away from 
the bargaining table and pursue go- 
it-alone economic policies. 

Either way, the stakes are 
momentous. With a quarter of the 
world’s population and one of its 
fastest growing economies, China is 
already a magnet to foreign export- 
ers and investors. On recent trends, 
it may overtake the US to become 
(he world's biggest economic power- 
house before the middle of the next 
century. 

China's erratic pace of reform, 
often chaotic business conditions 

and continued adherence to many 
of the practices of a command econ- 
omy wCl not be easy to align with 
multilateral trade rules and disci- 
plines. The task threatens to impose 
serious strains on the Gatt and its 
successor, the World Trade Organi- 
sation, which will be established at 
the start of next year. 

But it is widely accepted that 
keeping China out of the WTO 
would be even worse, end could 
turn the country into an interna- 
tional rogue eifephant. Paraphrasing 
former US President Lyndon John- 
son, one trade negotiator says: “The 
choice is between having China 
inside the tent spitting out, or out- 
side spitting in.” 

Talks on the resumption of Chi- 
na's Gatt membership, which it uni- 
laterally suspended after the com- 
munist revolution in 1949, have 
been under way sporadically for 
almost eight years. But Beijing has 
recently raised the stakes to new 
levels by setting a deadline for their 
completion. 

Mr Long Yong-tu, China ’s chief 
negotiator, has told Gatt members 
that unless a “substantive" agree- 
ment is reached by the end of the 
year, his government win offer no 
further concessions and will not 
seek to restart talks. Indeed, he is 
reported to have said that Beijing 
mig ht even start closing its market 
to western exporters. 

The heightened sense of urgency 
has encouraged Mr Piene-Loms (3r- 
ard, chairman of the Gatt working 
party dealing with China’s applica- 
tion, to order its members to pull 
out all the stops in an effort to have 
a formal accession protocol ready 
by the end of the year. 

However, by all accounts the 


High-risk strategy 
in global game 

Talks on China's application to rejoin Gatt are nearing 
a climax, write Guy de Jonquieres and Frances Williams 


talks are stQl proceeding at a snail's 
pace, and most negotiators see little 
chance of a last-minute break- 
through. 

“I’ve seen miracles happen in 
Geneva before,” says one. “But I 
don’t expect one this time. Than is 
just so much work left to do.” 

If that forecast proves correct, 
Beijing will confront a dilemma. 
Though it has not totally ruled out 
an extension of talks into next year, 
saying tt would be ready to discuss 
-technical" issues, it will be hard 
put to dress up results so for as the 
“substantive” deal in which It has 
invested so much political prestige. 

What China would do then is any- 
body’s guess. Some observers In 
Geneva fear it might succumb to 
pressure from hardliners to aban- 
don the membership talks, cm the 
grounds that foreign expor te r s and 
investors are so desperate to partici- 
pate in the country's economy that 
it has nothing to lose. 

Mr Booth Gardner, the US ambas- 
sador to Gatt, is more sanguine. “I 
don’t think China's threat to pull 
out is a bluff,” he says. “But as long 
as their negotiators can return to 
Beijing saying some progress is 
being made, they will stay in the 


Trade with China: much at stake 

1980-100 ' 

500 - 

_ Growth of Chinese and world exports 

400 _ 

—— China 
300 - «=» World 

.200 _ 



turn SI 82 


SO SI 


of governments have started to find 
fault with Beijing. 

One reason is China's demand 
that it join the WTO on terms more 
generous than those enjoyed by 
developing countries in the Gatt As 
well as angering many developing 
countries, there are fears that meet- 
ing this demand could set an unde- 
sirable precedent for the member- 
ship negotiations under way with 
Russia and other former communist 
states. 

Some industrialised countries 
would be ready to allow China to 
subscribe initially only to a set of 
core WTO obligations, and adopt 
the rest according to an agreed 
timetable, provided Beijing made 
reasonable bilateral offers on 
market access for their goods and 
services. 

However, western negotiators say 
Beijing's offers to date have been 
niggardly, lacking in clarity and 
hedged with restrictions. For 
Instance, it is said still to be balking 
at basic commitments on regula- 
tions governing imports and foreign 
exchange, and wants to limit for- 
eign banking rights to about 20 
cities. 


Stan 
so - 


eg - 


40 - 


20 - 


As a % of total Mporta 


Q 


81 82 


84 BS M 87 


W 81 K 


94 

_ 100 


_ so 


_ 60 


_ 40 


- 20 


S o unyielding has Beijing's 
position been that some 
Gatt members are starting 

to wonder whether it 
realty understands what 
is at stake in the negotiations. “We 
are like ships that pass in the 
night,” says a western diplomat 
A negotiator from a developing 
country puts the point more 
bluntly: "China seems to think it is 
dealing with the United Nations, 
where everything consists of grand 
political posturing. It has yet to 
recognise that Gatt is all about 
negotiating on detailed, specific and 
concrete issues.” 

On this view, Beijing needs to 
undergo a fundamental change in 
psychology. But even If the talks 
continue beyond the end of this 
month, it has little time left to do 
so. Many Gatt members say that, in 
the absence of any breakthroughs, 
it would be impractical to drag 
them out beyond next summer. 

However, they also admit pri- 
vately that whatever progress is 
achieved, the final decision on Chi- 
na’s admission to the WTO will 
come down to a political judgment. 
It will turn on an assessment of 
whether Beijing will live up to its 
commitments - or whether it will 
wreak havoc by blithely disregard- 
ing the rules. 

That is a question to which 
nobody in Geneva pretends to know 
the answer. Even those who argue 
strongly that China’s WTO admis- 
sion is essential for global economic 
reasons admit that it is a high-risk 
strategy. 

“The real nightmare,” says one, 
“would be to have China inside the 
tent, spitting In." 


— China’s trade with the US 


Mr Jeffrey Garten, US under-sec- 
retary of commerce for Interna- 
tional trade, believes Beijing's eco- 
nomic self-interest will prevail over 
political pique. China’s failure to 
enter the WTO, he argues, could 
damage international confidence in 
its economy and scare away much- 
needed foreign investment. “I am 
optimistic that in the end our differ- 
ences will be worked out,” he says. 

But even if breakdown is averted, 
stubborn obstacles remain. It is also 
not clear that the protagonists in 
the talks win eqjoy any Increased 
room for manoeuvre. 

China’s negotiating position is 
widely thought to be constrained by 
a looming leadership straggle, 
which has caused even economic 
reformers to take a hard line. Some 
western observers say China's nego- 
tiators in Geneva recognise they 
must offer more concessions, but 
they have failed to win the author- 
ity to do so. 

Beijing, in turn, blames the slow 
progress on unreasonable demands 
by Washington. The US, which has 


n imports 


87 88 88 


m e n m- 

• JWhSapt provUfcnO arty 


taken the lead in the negotiations, 
has said it wants China to join 
the WTO, but has made dear its 
determination to strike a hard bar- 
gain. 

The Clinton administration is 
under strong domestic pressure to 
stick to its guns. After a humiliat- 
ing retreat this year from its threat 
to deprive China's exports of Most 
Favoured Nation status over human 
rights, any further signs of weak- 
ness would provide powerful politi- 
cal ammunition to the new Republi- 
can-controlled Congress. 

US business leaders argue 
strongly that the WTO accession 


talks are the last chance to exact 
trade concessions from China, after 
the Chinese failure to fulfil prom- 
ises made in a bilateral memoran- 
dum of understanding on trade 
agreed with the US more than two 
years ago. US resolve has been 
further strengthened by a 27 per 
cent rise in its trade deficit with 
China to $21bn in the year to 
November. 

Many other Gatt members - par- 
ticularly developing countries - 
have in the past accused Washing- 
ton of excessive obduracy. But 
recently, the tide of opinion has 
begun to turn, as a growing number 


N othing better illustrates 
the shift in political 
power in Washington 
than Bill Clinton's 
address to the nation last week, 
instead of wresting the political ini- 
tiative from Republicans, Clinton in 
effect admitted that be had erred 
and promised to mend his ways. 
The defining features of the first 
two years of his presidency were 
dropped. Deficit reduction became a 
dead letter, as did fond hopes of 
expanding the government's role in 
healthcare and worker training. 
The new policy objectives are 
frankly Reaganesque: to reduce the 
burden of taxation and get govern- 
ment off people's backs. 

Clinton's “bill of rights” (an 
absurd misuse of language) consists 
of a ragbag of proposed tax breaks 
for "middle class" families (Ameri- 
can parlance for anybody who is 
neither poor nor affluent) estimated 
to cost $60bn over five years. It 
includes child tax credits, deduc- 
tions for college and vocational edu- 
cation, and concessions on retire- 
ment saving. The White House 
swears it will be paid for by cutting 
the federal bureaucracy and freez- 
ing domestic spending, but it has 
yet to produce the details. 

As tax policy, the Clinton pro- 
posal is little short of disastrous. 


Why Bill signed Newt’s contract 


The increased deductions for chil- 
dren championed by Republicans 
can perhaps be defended on the 
grounds that the tax system has 
become less generous toward chil- 
dren in recent decades. But the new 
element in the Clinton scheme - a 
tax break for post-secondary educa- 
tion - represents a damaging (and 
potentially expensive) retreat from 
fiscal neutrality. Instead of introdu- 
cing extra fiscal concessions, the US 
needs to build on the achievements 
of the bipartisan 1966 tax act by 
broadening the base further and 
cutting marginal rates. 

But close analysis of the Clinton 
plan is a waste of energy. The cru- 
cial point to remember is that Dem- 
ocrats no longer control the con- 
gressional budget machinery. 
Republicans will be as contemptu- 
ous of Clinton’s fiscal proposals as 
Democrats were of the Reagan and 
Bush budgets in the 1980s. 

Before Clinton spoke, senior 
Republicans were already calling 
for much l a rger tax cuts. Senator 
Phn Gramm of Texas, a likely presi- 
dential contender in 1996, wants to 
double the dependent exemption for 
children, a measure that would cost 
$124bm over five years. There is 
thus no point worrying whether the 
Clinton proposals would increase 
the deficit; the fiscally-relevant 



CA 


question is whether Republicans 
will cut spending sufficiently to off- 
set their proposed tax cuts. 

I am cautiously optimistic that 
they will, although I would not 
blame bond investors for remaining 
sceptical. To believe that tax cuts 
will mean higher deficits, just 
because they did in the 1580s, is to 
fail to grasp the changing nature of 
US politics. Tax cuts used to mean 
higher deficits largely because the 
Democrats who controlled the 
House of Representatives passion- 
ately opposed deep cuts in domestic 
spending. Reagan was thus forced 
to choose between no tax cuts or 
tax cuts plus large deficits. 

The mindset that created that 
impasse largely disappeared in last 
month’s political revolution. "Lib- 


eral” Democrats were vanquished 
on November & The incoming con- 
servatives relish the prospect of 
“downsizing” the federal govern- 
ment If they shy away from spend- 
ing cuts and allow the deficit to 
balloon, while simultaneously push- 
ing for a constitutional amendment 
requiring a balanced budget, they 
will lose all credibility with voters. 

The larger question is whether 
Clinton was wise to repackage him- 
self as a moderate conservative. I 
suspect he was. There are two possi- 
ble explanations for the Democrats' 
defeat last month that might be 
dubbed “disgruntled voters” and 
“ideological shift”. On the first 
view, voters (especially blue-collar 
white males) lashed out at the rul- 
ing Democrats primarily because 
they were feeling economically inse- 
cure. If congressional Republicans 
do not create genuine economic 
prosperity in the next two years, 
the argument runs, they too will 
feel the voters' wrath. 

There is obviously something in 
this argument The rapid productiv- 
ity growth oT the immediate post- 
war decades has not yet been re-es- 
tablished and real wages are 
consequently rising slowly for 
many groups. Yet tt was absurd of 
Clinton to talk of Americans “hurt- 
ing”, as though the economy were 


still mired in recession. More than 
5m jobs have been created since he 
took office. The unemployment rate 
is down to 5.6 per cent Gross pri- 
vate investment is up nearly 30 per 
cent Vehicle and new home sales 
are up about 20 per cent and run- 
ning close to the peak levels of the 
1980s. People who feel economically 
insecure do not spend this readily. 

The election results thus almost 
certainly reflect a deeper-seated 
ideological shift Times really are 
changing. A couple of generations 
after Franklin Roosevelt’s “New 
Deal”, Americans have finally lost 
confidence in the ability of govern- 
ment to solve problems. 

Think of the hardening of atti- 
tudes on welfare: the majority view 
now is that strict time limits should 
be placed on benefits. Think of the 
healthcare debate: as soon as the 
Clinton plan was perceived as a 
government takeover of private pro- 
vision, it was doomed. Think of the 
desire to curb politicians’ powers: 22 
states have passed legislation limit- 
ing the terms of elected representa- 
tives. Speaker-elect Newt Gingrich 
may be the bite noire of Washington 
intellectuals. But they, not he, are 
the aberration. Hence Clinton’s 
decision to risk an egregious 
flip-flop and dress himself in Repub- 

Item rlofrhTng 


Down but 
not out 

■ Standing for election to become a 
common councilman erf the City of 
London recently, PR man Peter 
Jexuotags made the mfata fce of 
suggesting be might like to become 
Lord Mayor one day. The powers 
that be recoiled in horror at such a 
bald statement of ambition. But the 
obscure and obsodlscreet system 
by which Lord Mayors have 
hitherto emerged is an the hue, 
judging by current shenanigans 
within the Court of Aldermen. 

Change was in the air earlier this 

year when Neil Young resigned. 

The court had reviewed the hatting 
order for mayoral office, and Young 
heard his name would not "go 
forward”. So Malcolm Matson, a 

businessman who has made his 

money in cable networks, was voted 
in by the Bread Street ward as his 
successor, but he failed to secure 
the approval of the aldermen 
themselves. Incensed at the 
blackballing - for which no reasons 
are given - Matson last Friday 
obtained an injunction stopping 
another election being called. As a 
result, a system that was last 
considered in detail In 1834 will be 
subject to judicial review. Matson 
says he has the financial res ou rces 
to “see justice prevails”. 


It could weC be that, 160 years an, 
the courts wiE be a good deal more 
sensitive to the exigencies of 
democracy. The proceedings 
promise a insig ht into 

the darker side of City politics. And 
there is also the embarrassing 
possibility that the aldermen will be 
forced in the end to accept Matson. 
At least he would provide some 
company for Tony Bull, who has 
been in a rather awkward position 
this year since he chose not to 
stand down, despite also being 
passed over as a future Lord Mayor. 


Acoustic couples 

■ Telephone users must be puzzled 
by the advertisements for Concert, 
British Telecom’s new joint venture 
with MCI, boasting of the 
“seamless” global network that will 
be created. For the illustration 
dearly depicts an American 
telephone socket into which a BT 
phone ping would never fit If only 
Britain did have compatible plugs, 
it would be a pace or two farther 
down the information 

superhighway. 


Wrong numbers 

■ Observer is also a trifle worried 
about ST’S inhouse maths 
expertise, if the specimen on show 




Tve stopped contributing to the 
Tory party* 

in the company’s latest report to 
shareholders is anything to go by. 

A sharp-eyed reader points out 
that BT, boasting about its price 
competitiveness, seems to think 
that, if it keeps its prices stable 
while retail prices rise by 50 per 
cent, it has achieved a 50 per cent 
reduction in real terms for its 
customers. Would that life were so 
simple. 

It is, however, the mistake that 
chairman Sir Iain Vallance makes 
when he boasts that, in the 10 years 
since the company was privatised. 


retail prices rose SI per cent in the 
UK, while a basket of BTs main 
services rose by “less than 9 per 
cent”. 

Thus “overall prices paid by 
customers have been virtually 
halved in those 10 years”. The 
maths whizzes at BT seem to have 
subtracted 9 per cent from 57 per 
cent to arrive at 48 per cent 

Observer's suggestion is that the 
answer is actually (4fr-l57)%, or a 
rather more modest 30.6 per cent 
decline, in real terms, in prices paid 
by tiie customer. 

Ah well. Just a word of warning 
to Vallance when he is next 
working out his salary. 


Low note 

■ One of the latest additions to 
London's National Portrait Gallery 
- a Nigel Boonhom sculpture of the 
English National Opera's former 
general director, Peter Jonas - 
doubtless looks very fine in the 
midst of its 20th century collection. 
But can that really have been its 

intended destination? 

Boonham, whose previous 
subjects include the Princess of 
Wales and Lord Runde, was 
commissioned by the ENO to do a 
bronze of Jonas when the latter 
departed in the summer of last year. 
All quite normal - Jonas bad been 
m situ for eight years, and had been 


widely regarded as a brilliant 
director. Before, that is, things 
tailed off towards the end. 

The sculpture had been finished 
for months before it mysteriously 
popped up at the NPG just recently. 
Hope Jonas, now installed at the 
Bavarian State Opera, won't act 
prima donna-ish about this minor 
shift of key... 


On the line 

■ Inclining to the view that 
Internet bores deserve anything 
that comes their way. Observer was 
delighted with the following 

diverting tale from one hapless 
surfer in cyberspace. 

Wishing to travel from London 
Waterloo to bijou Barnes, 20 
minutes down the line in a south- 
westerly direction, he consulted 
Internet's railway timetable. 

The system quickly found the 
route. Travel from Waterloo on the 
2L39 to Brussels on Eurosiar. 
Return to Ostend, take a ferry to 
Ramsgate, a train to Waterloo and a 
train to Barnes, where you will 
arrive at 7J9 the following 
morning. 


Comparative 

■ What word can you make shorter 
by adding two letters? Short 


. . r 


■ * 


i 













brother 



FINANCIAL TIMES 


p RUE HA UP 

T R A I L ^ 


Monday December 19 1994 


Carrying the 
nation's goods- 



For inf 


China refuses to take on i Confidence 


state companies’ debts 


vote likely 


By Tony Walker in Beijing 


Chinese officials sought 
yesterday to distance the coun- 
try's government from responsi- 
bility for debts incurred by state- 
owned companies. 

They also warned investors 
from other countries that they 
should not assume that the gov- 
ernment would bail out projects 
that had gone sour. Their com- 
ments followed reports in the 
international m edia about diffi- 
culties over payments. 

Beijing also hit back at nega- 
tive foreign repents about China’s 
investment climate. Strong offi- 
cial criticism of recent western 
reporting indicates growing sen- 
sitivity to stories that affect Chi- 
na’s credit rating arid confidence 
in the country as a safe invest- 
ment area. 

Mr Liu Zhiben, director-general 
of the investment division of the 
Foreign Trade and Economic 
Co-operation Ministry (Moftec), 
said the "flimsy linkage of corpo- 
rate disputes to the government's 


credibility is a thinly veiled 
attempt to mar the image of 
China as an investment magnet". 

Mr Liu told Business Weekly 
newspaper: “Some investors are 
fond of the idea that doing busi- 
ness with Chinese state-owned 


companies means gaining a 
secure link with the Chinese gov- 
ernment - a Imk that could come 
in handy, if the state-owned Chi- 
nese investment partner suffers 
losses. 

“But the reality of the arrange- 
ment is different For many 
years, Chinese enterprises, 
whether state, oollecttvely ar pri- 
vately-owned, have had to sink or 
swim on their own. The days of 
rigid central planning and 
responsibility for state firms has 
gone. It’s not strange to see con- 
tractual conflicts. However, these 
cannot be regarded as anything 
relating to government action." 

In the past few weeks, China's 
reputation as a reliable business 
partner has been, buffeted by 
three highrpruflls cases. 

These involve a dispute with 


Lehman Brothers, the US broker 
age house, involving prominent 
state corporations, about losses 
or (loom on currency trading; an 
argument with the London Metal 
Exchange over $30 to $40m In 
trading losses incurred by the 
China International Trust and 
Investment Corporation (Citic); 
and the non-payment by state 
enterprises of $500 to $60Qm to 
joint-venture leasing companies. 

Western banks and credit agen- 
cies have increased monitoring of 
the credit performance of Chi- 
nese organisations. Concern 
about the ability of Chinese 
enterprises to meet their obliga- 
tions to foreign creditors is lead- 
ing to an increase in borrowing 
costs for Chinese institutions. 

China's foreign debt is expec- 
ted to reach $l00bn this year. 
This will mean a debt-service 
ratio of around 12 per cent 
About two-thirds of China's debt 
is government-guaranteed. 


to topple 


Berlusconi 


government 


B|y Robert Graham in Rome 


Scramble in Shanghai, Page 4 
High-risk strategy, Page 13 


Tory funds i Organised crime 


Continued from Page 1 


in donations but reports from the 
councils, used by small, privately 
held groups to ch ann el cash to 
the party, suggest some may 
raise no more than half their 
fond raising targets. 

Lord Laing, former chairman of 
food company United Biscuits 
and former joint treasurer of the 
Conserv a tiv e s, said the 10 coun- 
cils accounted for between 30 per 
cent and 50 per cent of total cen- 
tral office donations. The party 
has never published details of the 
councils, arguing they are pri- 
vate. 

But the councils are known to 
indude such industrialists as Mr 
Gareth Davies, chairman of Glyn- 
wed, the engineering company; 
Sir Michael Bishop, chairman of 
British Midland airlines; Mr 
Colin Hope, chairman of the T&N 
materials group: and Mr Jim 
Miller, chairman of the Wassail 
industrial conglomerate. 

Of the 10 councils, the most 
important is the London-based 
City and Industrial Liaison Coun- 
cil, which in recent years has 
accounted for donations of up to 
£L5m a year. 

Midlands Industrial Council, 
based in Birmingham and cover- 
ing the west Midlands, is believed 
to have a fund-raising target for 
this year of about £800,000. 

It is thought unlikely to raise 
more than about half this 
amount 

Mr Colin MacLeod, chairman of 
Newark-based Caledonian MiTring 
and ehairman of the East Mid- 
lands Industrial Council, based in 
Grantham, Lincolnshire, said: 
“This year is bloody hellish. 
Everybody hates me [when I ask 
for money]." 

Mr Tim Collins, director of 
communications at the Conserva- 
tive party, said: “We prefer not to 
go into the detail of how we raise 
money- We make dear the princi- 
ples but we don’t think it's sensi- 
ble for us to go any further.” 


forecast to become 


top business worry 


By Jimmy Bums in London 


The threat of organised crime 
will become a top item on board- 
room agendas next year, accord- 
ing to a report published today 
by Control Risks, the London- 
based international corporate 
security and intelligence consul- 

i - _ i _ 

E 3 T 1 TK- 

The report identities four main 
reasons why financial crime and 
fraud will replace terrorism as 
the most pressing security con- 
cern for international business: 

• Increasing sophistication by 
criminal groups in the use of 
hanking instruments and exploi- 
tation of recentiy-opened borders 
to trade and investment. “The 
globalisation of legitimate busi- 
ness is matched by the globalisa- 
tion of organised 01206,” says the 
report. 

• Involvement of “demobilised” 
and “jobless” terrorists in racke- 
teering. 

• Int en s if ying social dislocation 
caused by urban migration and 
growing economic disparities. 

• Absence of predominant ideol- 
ogies: “In the 1990s the emphasis 
is on personal enrich- 
ment . . . disenchanted youths 
who might once have turned to 
radical politics now are more 
likely to model themselves on 
successful entrepreneurs, includ- 
ing those who operate on the 
wrong side of the law ” 

The report includes the results 
of a British companies' security 
outlook s ur vey which singles out 
Russia, China. Nigeria and Egypt 
as the perceived areas of highest 
risk for doing business. 

The survey was conducted 
among a representative sample of 


more than 100 top UK companies. 

Heading the list is Nigeria, 
which Control Risks describes as 
a country in which business has 
been “caught up in opposition 
strikes and protests, crime and 
c orrupti on". In Russia, the report 
notes, “extortion and racketeer- 
ing are currently the major 
threats posed by organised 
crime . . . but foreign business 
also faces the threat of kidnap- 
ping and violent crime." 

China is described as the 
world's largest emerging market, 
but is said to be fraught with 
difficulties fix- foreign business. 
The main problem is an “archaic 
and communist-iDspire d legal 
system” which cannot cape with 
business disputes. “Large legal 
loopholes leave ample scope for 
institutionalised corruption,” -the 
report states. 

While agreeing with the sur- 
veyed UK companies about the 
extent of the risks in Russia, 
Nigeria and China, Control Risks 
claims that the threat in Egypt is 
overestimated. It notes a “more 
stable security env ironm ent” 

Control Risks describes Algeria 
as the “most dangerous country 
in the world for foreign busi- 
ness”, predicting growing politi- 
cal instability provoked by vio- 
lence between Tslamte extr emis ts 
and the security forces. “Only a 
miracle will save Algeria from 
descending into civil war in 
1995," the report states. 

Business Security Outlook 1995, 
Control Risks Group: CRG, 83 Vic- 
toria Street, London SW1H OHW, 
£145 


Bootleggers threaten pub 
landlords, Page 5 


! The government of Mr Silvio 
! Berlusconi, Italy's prime minis- 
: ter, will almost certainly be 
i defeated in a no-confidence vote 
on Wednesday. A fata] blow was 
dealt on Saturday when Mr 
Umberto Bossi, leader of the pop- 
ulist Northern League, 
announced that his party would 
quit the rightwing coalition and 
support the no-confidence 
motion. 

The fall of the eighbrnontbold 
government would initiate a 
highly unstable period of political 
bargaining. AH the options for 
forming a new govern m ent are 
beset by serious unresolved prob- 
lems. In the absence of a new 
parliamentary majority, elections 
could be called for next spring. 

The league's withdrawal came 
after weeks of mounting dissen- 
sion between Mr Berlusconi and 
Mr Bossi, who said he would 
back the no-confidence motion to 
be proposed jointly with Mr 
Rocoo Battigbane’s Popular party 
(FPI). The PPI is the heir of the 
Christian. Democrats who domi- 
nated Italy’s postwar politics 
until discredited by corruption 
scandals. 

Mr Bossi played down sugges- 
tions that his break with the gov- 
ernment would split the league 
and leave him as head of a small 
rump of the movement. Up to 50 
of the 163 league members in 
both houses have talked of stay- 
ing with Mr Berlusconi. 

But Mr Boss! has proved an 
astute politician, and it is signifi- 
cant that the league has not 
directly associated itself with two 
other no-confidence motions also 
being presented on Wednesday. 
One has been tabled by the Dem- 
ocratic Left (PDS), the former 
Communist party " and now the 
main opposition force - with 
which Mr Bossi has been in dose 
contact 

An open, alliance with the PDS 
is stffi rejected by many in the 
league because of the former's 
communist past and its ambigu- 
ous relationship with Recon- 
structed Communism, which rep- 
resents the famrtitna core of the 
old Italian Communist party. 

Reconstructed Communism has 
tabled a third motion of no-confi- 
dence. These motions will allow 
at least one trial run to test the 
league vote and the scale of oppo- 
sition to Mr Berlusconi. 

At the same time the three 
votes allow the league and the 
FPI to signal their distance from 
the left 

Even if the league split, it 
would be surprising if the antt 
government bloc failed to muster 
the 316 votes necessary to bring 
down Mr Berlusconi. 

The present coalition consists 
of Mr Berlusconi's Forza Italia 
movement, the league, the neo- 
fascist MSI/National Alliance, 
and two minor partners, the 
Christian Democratic Centre and 
the Radicals. 


FT WEATHER GUIDE 


Europe today 


1010 


Wintry conditions wifl persist over eastern 
Europe with t emperatures in European 
Russia below -15C in places. The south- 
east of the continent will also be cold, with 
snow showers falling In Tiskey. Further 
west, a frontal zone over Scandinavia and 
central Europe wll cause snow in Sweden 
end Finland and mostly wet snow and nan 
in Germany. 

A deep low pressure system between 
Scotland and Norway w9l draw (n cold and 
unsettled air. 

The Low Countries, France and the UK will 
be vary showery with thunder and haD. 
Over water, winds will Increase to near 
gale or gale force at times. 

The Mediterranean wH be increasingly 
unsettled with showers over Italy. 


1000 


LOW, 


'980 


ipa 


*«rv*^Sv« 


■ Aer-r ^ 


1020 


000 


tf ML fk 


1030 


si 


■EE* JWPS « t 

C: S' ■ s 1/r / tf 




Br 'if sL'vd 


r ■ ■# ■ — ' 


ir ■■'V 




HIGH 


2; 


r "• w i 


The Mediterranean win have heavy rain and 
widespread thunder for the next two days. 
Italy, Greece and the eastern 
Mediterranean wfll have lots of rain. France 
and the Low Countries w9l also have rain 
at times, whfle the Alps wll receive fresh 
snow. European Russia wiH remain very 
cold. 


f mm ■■■ JTZ 




mm 

mx 




m 




;i oi o' 


. T< « -. - sx -v, 

iSifftr w> ■ f % .*■■■ : - • 1 .. 


vs:r 






eye 

*1 








CoM front 




TODAY’S 




StoaSonst 72 GMT. Tmpet atu nsma&mm for tty. Fotoco&tyhkto Consult cf the N&frerionds 


Maximum Begins 


Ur -2 Caracas 

shower 4 Cardiff 


Abu Dhabi eun 28 Bdgrafe 

Accra far 33 Baffin 

AIgtare shower 16 Bermuda 

Amsterdam shower 7 Bogota 

Athens fair 9 Bombay 

Atlanta fair 13 Brussels 

B. Aires doudy 24 Budapest 

RJum fair 6 CJiagm 

Bangkok Ur 34 Cam 


wor 2 Chicago 
fair 23 Cologne 
Mr 21 Dakar 
am 33 Dailu 
«er 6 Delhi 
fair *1 Dubai 


*s 


30 Faro 
7 Frankfurt 


shower 

fair 

sun 

sun 

sin 


fair 6 CAagerr shower 4 DubBn 

Ur 34 Cm cloudy 15 Dubravr* 


fair 12 Cape Town fair 25 Edinburgh 


Our service starts long before take-off 


Lufthansa 


17 Geneva 

4 Gferaltar 

5 Glasgow 

27 Hambud 

18 HeHnM 
23 Hong Kong 

28 HonoUu 
0 Istanbul 

11 Jalorta 
5 Jassy 
Karachi 
Kuwait 
[_ Angeles 
Las Palmas 
Lima 
Lisbon 
London 
Luxittug 
Lyon 
Madeira 


rain 

her 

shower 


anow 

shower 

fat 


shower 

shower 


Shower 


cloudy 


16 Madrid 
4 Majorca 

4 Malta 

17 Manchester 

5 Manfla 

6 Md bo umo 
-6 MextooCBy 

21 Mtaml 

28 Man 

i*m ru ora 

31 Moscow 
11 Munich 

29 Nairobi 

18 N^iw 

24 Nassau 

22 New Yak 

25 Nies 
14 Nicosia 

8 Osfo 
3 Parts 
3 Path 
20 Rague 


“a 


shower 

cloudy 

fair 

fair 

Ur 

fair 


8 Rangoon 
15 Ffaykfavtk 

17 no 
6 R o me 
30 S.RtiC0 


do 3 


shower 

fair 

shower 

fair 

cloudy 


Shower 

Mr 

doutfy 


22 Singapore 
27 Stockholm 
4 Sbaaboiig 
-3 Sydney 
-14 Ttangler 
0 TdAvtv 

25 Tokyo 

13 Toronto 

26 Vancouver 
7 Venice 

12 Vienna 

14 Warn 

3 Washhgton 
6 WflMngton 
33 Winnipeg 
-2 Zurich 


““Sf 

doudy 

shower 

fair 

Ur 

rain 

Mr 

ClOudy 

fair 
rain 
ttund 
fa k 
cloudy 
rafci 
Mr 
tak 
doudy 
fak- 
fair 


snow 

rain 


THE LEX COLUMN 


Saatchi isn’t working 


Shareholders in Saatchi & Saatchi 
have not merely deposed an advertis- 
ing farm; they have introduced a stri- 
king new ahwansim to corporate gov- 
ernance in the UK. It is common in 
the US, but rare in Britain, for minor- 
ifcy shareholders to band together in 
p u rs uit of limi ted but specific changes 
- as the y didin this case to seek the 
scrapping of Mr Maurice Saatchi 's 
options package. 

But such moves are a less dumsy 
mechanism for effecti n g change or 
correcting poor performance than hos- 
tile takeovers. All too often UK insti- 
tutional shareholders berate manage- 
ment performance in private, while 
doing ft™* m ying nothing in public. 
Fund manag ers' generally lfiy-hvered 
stance on executive pay - PosTel 
excepted - is but arte example, creat- 
ing the suspicion that institutions will 
go out of their way not to offend the 
directors who dote out lucra t i ve asset 


Hong Kang 


Hang Seng Indwc 
13^00 — 


tries. The IASC need not B 

set the standards to whtoh otiwre 

aspire. 


124)00 


TlflBO 


16,000 


9J000 



8,000 — — — 


This year concern over 

mmkinMi with doom? political ana 


7.000 




Mr Saatcfafs departure, the by-prod- 
uct hot not the objective of the share- 
holder pre ss ur e, shook! not be regret- 
ted if the group ends up bring better 
managed. The risk remains, of course, 
that, by removing a personality who 
not only gave the business its name 
but also commanded fierce personal 
loyalty from same Mg clients, Harris 
Associates, M & G and their allies 
have seriously wounded the company 
they were trying to improve. 

An advertising agency is a more 
fragile organism than scone underper- 
forming industrial conglomerate. Nev- 
ertheless, it is also arguable that the 
more austere advertising market of 
the 1990s needs ungla morons profes- 
sional TrMmflgpmflTrt more than a Cult 
of personality. 


International accounts 


Could the common international 
accounting standard be an idea whose 
time has finally come? Sir Bryan Care- 
berg's move next year to become sec- 
retary-general of the International 
Accounting Standards Committee, 
which draws up model financial 
rep ortin g rules, CT1 Eg p * 8 ^r it may. If Sir 
Biyan displays the same vigour and 
independence in his new job as he has 
in his present position as the UK's 
director-general of fair trading, the 
cause of common accounting stan- 
dards could receive a big push. 

The rationale for common account- 
ing rules is to that far any 

lingua franca: a babble of standards 
prevents investors making meaningful 
cross-border comparison of price/eam- 


ings ratios and other valuation yard- 
sticks. With, companies Increa si n gl y 
raising funds outside their home 
markets and investors keen to build 
diversified global portfolios, this 
incomprehension creates undesirable 
impe dimen ts to the free flow of 
capital. 

The concept of common standards is 
fino bat produced by IASC have 
yet to make an impact mi capital 
markets. Scares af countries use them 
as a model for their own local stan- 
tiards. But the rules are not recognised 
by the world’s main stock markets - 
New York. London and Tokyo. Unsur- 
prisingly, if a multinational like 
Daimler-Benz wishes to approach 
international shareholders, it adopts 
US rather than international account- 
jpg s tandard s. 

The IASC is keen for its standards to 
be recognised by the big stock 
frrrhgrhgpg, and indeed the New York 
Stock ffrahang i* may in make 
such a move as a way of encouraging 
a greater number of foreign companies 
to list in the US. Fair enough. But 
official recognition on its own wfll not 
lead to widespread endorsement by 
investors. Too often the IASC derides 
on rules by picking the lowest com- 
mon denominator among its large 
membership. That leads to soggy stan- 
dards; and investors will always prefer 
firm US rules to soggy international 


stock-market earnings deriving from 
p roperty and finance, the outlook to 
dispiriting: property developers wifi 
see profits growth mare than halved 
from the 5B per cent achieved In 1998. 
The banks fane suffered because of 
slower growth in their - mortgage 
books. Much rtf the rest of c o r p o r a te 
Hong Song has ateo beat hit due to to 
tendency to dabble in the property 


The alternative is for the IASC to 
improve Its standards by stogle-mind- 
edly putting investors' int&ests first - 
for example, by embracing greeter dis- 
closure and rooting out “creative” 
accounting techniques. Even rela- 
tively investor-friendly standards bod- 
ies such as the UK’s Accounting Stan- 
dards Board sometimes have to 
compromise their principles in the 
face of pressure from company fob- 


If the interest rate eyrie- has stified 
one source of Bqufcfity, -CMna's eco- 
nomic mandarins have -removed 
another. The problem is not so much 
China's austerity measures, wbdtehwiB 
have limited direct impact on Hoag 
Kong co r po ra te earnings. The issue is 
rather the cash which last year flowed 
out of China and pushed up shares 
and property prices in the colony. 
More rigid fliwnriaf controls have put 
a stop to that They have also soured 
Hang Kong's attractions fa fond man- 
agere as a China ptey. ... 

Hong Kong is a highly geared option 
on the US interest rate eyrie. So It is 
bud to that the wont is over 

for the market until that eyrie form, 
despite last week's 5 per cent rally. 
Increased capital flows 'from China 
would spur a r ev iva l, but Beijing can 
hardly relax fiscal restrictions haw. 
Volatility wDl remain, but the. market 
trend te likely, to be downwards. 


The leading edge in Asia Pacific 


ThbamumunEitt appean aa nxaaer of mmd only. 


Sampo Corporation 


(taU'TnftftcrfoMCOvivaiBfijntB^ AefHabficgfChtew} 


US$50,000,000 


2.625 percent. Bonds due 2001 


S-G.Warburg Securities 


ABN AMRO Bank N.V. 


Capital Securities (Hong Kong) 


utitnexsG'Co., Limited 
Central Tmst of China 


Morgan Stanleys' Co. 


UBS Limited 


Yamaichi International ([Europe) Limited 


PkuniclalAdviBcr to the Company in dutRDC 


Jardine Fleming Securities Ltd. 
TteL- (852) 843-8888 
Fax: (852^810-3558 


Jardine Fleming Taiwan Securities Limited 
Tel: (8882) 75SS788 
Fax:(8882)702-4679 


Robert Fleming fir Co. Limbed 
Thl:(«*71)B3BS858 
Fax.- (44-71 )ja2 841 4 


l^^^^baTjleimng ft Cg. Limkad. a member of The iMdon Stack Etchuri#; and The ,rfftg jnj 


Awhorin, tjinilet 




*ls ■ 




Hong Kong ^ 

Man v commentators hoped ■. tfa* . 
weight of global money that OwW- 
Hong Kong test year wouM eafin jg 
notorious volatility. They tow Um. 
disappointed. The colony's Htng&ng; 

index rose 30 per cent lastpeceiBlfot: 


combined with gloomy political «d 

economic news ftwn Chta» 

the market plummeting 3L per ceofr : 

The problem Is not so much plifcsi 
uncertainty: the colony has tod W 
years to come to tenns. with t&ffc; 
feet. Chinese Intransigence i$ WS#. 
rather more predfcteble than US tefete ' 
est rate movements, which tone fafe 
Hong Kong directly throat its 
reocy peg to ti» US dollar. . 

The two-year bull market was fedeu. 
interest rates for below the rat* of 
inflation, which encouraged capltri. 
flows into stories and pr operty, ffes 
year, interest rates exceeded toftttiob 
tor the first time rince 1391 - and «**; 
result the liquidity bubble has buret 

With 60 per cent of the Song Boag. 




















15 



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FINANCIAL TIMES 


David Rnjersntn 



COMPANIES & MARKETS 


©THE FINANCIAL TIMES LIMITED 1994 


Mercedes Rental 


A Mercedes from 
only £38.40 per day? 
It must be Christmas 




Ask for M details of (Ms special 
offer from your nearest dealer today 



Monday December 19 1994 


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MARKETS 


THIS WEEK 


TONY JACKSON: 

GLOBAL INVESTOR 
Next month, Republicans wffl seek 
to amend the US constitution to 
make it UJegai for the government 
to borrow money. What would a 
world without Treasury bonds 
actually look like? 

Page 18 


MARTIN WOLFs 

ECONOMIC EYE 
Do you expect future generations 
to pay you a good pension over 
decades of secure retirement? if 
you do, you must also believe in 
Father Christmas. It would be 
better to start saving more Instead. 
Page 18 


BONDS; 

For Investors in the Nordic government bond 
markets, this has been a year of uncertainties. 
Meanwhile, November was a bad month for junk 
bonds, which tost more than 2 per cent of their 
value. Page 20 



Rolls-Royce in BMW supply deal 


By John Griffiths In London 

Rolls-Royce Motor Cars, Vickers’ Luxury 
cars subsidiary, will thi« morning 
announce an agreement under which 
BMW of Germany win supply components 
and technology to help cut the cost to 
BoQs-Soyce of producing its next genera- 
tion of models. - 

Rolls-Royce last night declined to give 
details of what has been agreed after 
nearly a year of negotiations with BMW 
and Mercedes. However, it is understood 
that BMW will supply Rolls-Royce with 


one of the most fundamental of its needs - 
a modem V12 engine to replace Rolls- 
Royce’s V8 power unit 
Mercedes and BMW produce these units 
and have been anxious to supply them to 
Rolls-Royce because of the increased econ- 
omies of scale. Neither Mercedes nor BMW 
produce more than 10,000 of these engines 
a year. Rolls-Royce's current annual car 
output is below 2,000 as a result of reces- 
sion. bn some of its main markets; but 
production hr the past has exceeded 3,000 a 
year. With BMW’s help, Rolls-Royce plans 
to introduce new saloon cars and broaden 


its model range, including the launch of a 
coupe codenamed Java. 

There has been persistent media specu- 
lation of a "race" between Mercedes and 
BMW to become Rolls-Royce’s long-term 
partner, with joint car development and a 
possible equity stoke - or even outright 
purchase - touted as the Intended out- 
come. 

However Mr Peter Ward, Rolls-Royce 
chairman and chief executive, has Said 
that the company is seeking only compo- 
nents and technical collaboration and that 
there is no reason why Rolls would not 


seek si mil ar deals with other potential 
suppliers, including Mercedes. 

BMW, which bought the UK's Rover 
group at the beginning of this year, 
already has a relationship with 
Rolls-Royce because it supplies several 
electronic systems, and through Rover, 
body panels. Exploratory talks with Vick- 
ers two years ago about the possible pur- 
chase of Rolls-Royce were discontinued 

and Sir Colin Chandler, Vickers' chief 
executive, has recently stated that 
Rolls-Royce is not for sale In the foresee- 
able future. 


jn New York, the market has zig-zagged as 
Investors tried to guess whether the Federal 
Reserve would raise interest rales again In 
December. However, the news of merger talks 
between S. G. Warburg and Morgan Stanley aid 
that Trafalgar House was considering a bid tor 
Northern Becfric, plus widespread expectations of 
other big bids in the market, dispelled much of the 
recent gloom in UK equities. Page 19 

EMERGING MARKETS: 

New share issues, privatisations, the arrival of 
foreign Investment funds, and the reform of the 
bourse’s organisation have transformed the 
Casablanca stock exchange in less then two years. 
Page 19 


Meetings of the Federal Open Market Committee 
tomorrow, and the Bundesbank council on 
Thursday, offer foreign exchanges their best 
possibility of excitement in the final days of 1994. - 
Page 19 

COMMODITIES: 

Seasonal spirit among the world’s gold traders 
coutef fatter this week by an “arithmetical sword of 
Damocles’ hanging over their market Page 18 

INTERNATIONAL COMPANIES:. - 

The board of Credito Flo magneto (Roto), the 
Bologna-based commercial bank, has accepted the 
U,300bn ($2bn) overture from its new suitor, the 
consortium led by Cariplo, Italy's biggest savings 
bank. Page 17 

UK COMPARES , 

With less than 24 hours before its banking fadfities 
expire, Stanhope; the property developer, was last 
night making tost ditch efforts to stave off 
receivership. Page 16 1 


STATISTICS 


Base lendng rates . 
Company tneettigs 

Dividend payments 


23 


10 

.10 


FT-A World ikScbs 17 

FT Guide to currencies — 17 

23 


London recent Issues 23 

London share service .26-27 

Managed funds 24-25 

Money markets — 23 

New IN bond Issues 20 

New York shares 28-29 

World stock mkt InrSoes — 22 


T o suggest to Sir David 
Scholey, chairman of 
S.G. Warburg, that near 
the end of a 30-year career with 
the UK’s leading investment 
bank, be has been taken for a 
Tide by a US rival is to be met 
with a sflent stare. "No," be says, 
pausing for emphasis before 
repeating the word quietly. “No.” 

It is an understandably sensi- 
tive point for Sir David and Lard 
Cairns, the bank’s chief execu- 
tive. After the collapse of their 
proposed merger with Morgan 
Stanley last week, they picked up 
the Financial Times to read a 
brisk dismissal fry an executive 
of the US fiim of their reason for 


Warburg attempts 
to rebuild character 


Stanley 


Mr Stephen Waters, co-manag- 
ing director of Morgan Stanley 
Europe, said that Mercury Asset 
Management, the flmd manage- 
ment company 75 par cent owned 
by Warburg was “the reason for 
us to do this deal”. There was no 
mention of creating a global 
investment bank at a single 
stroke. 

It was not what Sir David 
wanted to read, amid criticism 
from outside Warburg - and pri- 
vately from within - over the 
handling of the affair. By Friday, 
he and Lord Calms faced sugges- 
tions that they had acted naively, 
and that Warburg no longer had 
credibility as an independent 
firm. 

Sir David does .not mince his 
worifr over Mr Waters' remarks, 
calling them “a subjective and 
selective alibi”, and signing that 
Mr Waters has “a bell of a con- 
tainment job to do” in re-estab- 
lishing the confidence of Morgan 
Stanley’s 2J300 European staff. 

The tension between Morgan 
Stanley's European employees 
and Warburg over how European 
operations would have been run 
in a. merged firm, and which firm 
would bear the brunt of job cuts, 
spfQed out at the aid. Warburg 
faces its own containment job in 
the «™ihng weeks. 

The bluntest view, expressed 
by some rivals and even same of 
Warburg’s employees, is that 
Lord Cairns should resign, 
because he is so closely identified 



Sir David Scholey (left) and Lord Cairns, chief executive, must restore Warburg's credibility 

*We think we were right to pursue the opportunity of a 
merger in a way that was constructive, imaginative and 
responsible. It was not born out of dire need 9 

Sir David Scholey, chairman of S.G. Warburg 


with the failed merger. Sir David 
insists fhat »n the firm’s direc- 
tors were involved, and no such 
sacrifice is called far. 

“We think we were entirely 
right to pursue the opportunity 
of a merger in a way that was 
con str uctive, imaginative, and 
thoroughly responsible. It was 
not a move that was bom out of 
dire need,” he says. Hie talks of 
the inevitable risk of trying to do 
something “radical and bold”. 

The attempt broke down 
within days of the news leaking, 
and the two banks having to 
issue a statement that they wore 


in talks. Warburg has been 
blamed for the disclosure, but Sir 
David says that executives 
wanted to involve as many 
employees as possible, even at 
the risk of a leak. 

“We took a very positive view 
that we were not going to do this 
the Salomon Brothers/Phillips 
Brothers way [when the U$ 
investment banks merged] - ask- 
ing everyone to a country club an 
Saturday and locking them up 
until they accepted that it was 
going to happen on Sunday.” 

But the collapse leaves War- 
burg's management with several 


challenges: the need to restore 
the confidence of staff, to con- 
vince outsiders that Warburg can 
continue as an independent insti- 
tution, and fa ensure that it can 
re-establish a harmonious rela- 
tionship with MAM. 

Sir David accepts that staff are 
bound to question what went 
wrong. “Could the management 
have handled it better? That is 
the question they are asking, and 
how we all respond and react to 
that in the hours and days and 
weeks ahead will be an important 
test for us.” He insists that there 
is no need for Warburg to panic. 


about whether it can survive 
independently, arguing that “any 
suggestion that this puts the firm 
up for sale, puts it on the Use, or 
hangs it out to dry, or whatever, 
is dealer-speak rather than a 
reflective management view”. 

The problem will be to con- 
vince staff and outsiders that the 
bank can return to its strategy of 
Independent expansion. Sir David 
talks of a strategy “fundamen- 
tally based an our pre-discussion 
strategy, but with adaptations 
and variations" and of adding "a 
new dynamism”. 

Yet he and Lord Cairns will not 
specify what this means, insist- 
ing that staff will be the first to 
be told. Warburg appears to be 
caught at a crossroads, with poor 
first-half profits suggesting the 
need for cuts, but the merger fail- 
ure suggesting the need far more 
rapid growth. 

Unless Warburg can make its 
case, it will find it hard to resist 
an approach horn an outsider. 
The logic of linking up with any 
other institution is dismissed, 
with Lord Cairns talking of an 
“uncanny” fit with Morgan Stan- 
ley not found in rumoured preda- 
tors such as HSBC Holdings. 

There is also the question of 
whether Warburg's relations 
with MAM will be damaged by 
the affair. It was MAM’S demand 
for operational independence as 
well as a premium offer for 
minority shareholders that con- 
vinced Morgan Stanley there was 
no point in proceeding. 

Sir David says MAM’s board 
“acted entirely professionally and 
properly, and in accord with how 
we would expect them to act”. He 
says MAM’s independence 
remains vital but admitted that 
Warburg win have to “communi- 
cate and re-affirm the continuing 
relationship" with MAM. 

He talks of the merger collapse 
being “very edifying and stimu- 
lating, and if we react in the 
right way, as one's grandfather 
might say, it wtQ be character- 
building”. But convincing War- 
blog's employees and observers 
that it can carry an alone will 
take all of Sir David’s grandfa- 
therly qualities. 


Trafalgar 
may bid 
for power 
group today 

By Michael Smith In London 


Trafalgar House executives were 
meeting advisers last night amid 
expectations that the UK con- 
glomerate will launch a bid this 
week, possibly today, today for 
Northern Electric, the UK 

regional power company. 

However with a final decision 
still to be taken late in the even- 
ing, it was still possible that the 
conglomerate would watt until 
the New Year to hid. 

Any takeover attempt will be 
fiercely contested by Northern 
Electric and will probably face a 
forceful political lobby in the 
north-east of England where the 
company is based. 

If the attempt goes ahead 
today, Trafalgar Is expected to 
pitch Its opening offer at a rela- 
tively low premium to the 985p 
share price at the dose of busi- 
ness on Friday, when the com- 
pany was valued at about El.lbn 
ttLStm). 

It Is likely that Trafalgar will 
leave the publication of a formal 
offer document and the opening 
price until the new year. 

Last week the government said 
it would not waive Its “golden 
share" in each of the 12 regional 
electricity companies before the 
end of March. This effectively 
ruled out the completion of a 
deal before then. 

Trafalgar Is likely to offer 
Northern shareholders either 
cash or convertible preference 
shares. Hongkong Land, the Jar* 
dine Mafheson arm which owns 
25 per cait of Trafalgar, Is likely 
to underwrite some of the Issue. 

Trafalgar last week reported a 
pre-tax profit of £45. 6m for 
1993-94, against a loss of £34 7m 
the previous year. Northern on 
Monday announced a 20.5 per 
cent rise in interim pre-tax prof- 
its to £S3.4m. 

The 30 per cent dividend 
increase was one of the highest 
reported by regional electricity 
companies in the current results 


Trafalgar is thought to be 
undecided about the fate of 
Northern's management should 
its takeover attempt succeed. 
Trafalgar's potential bid has 
intensified speculation that the 
structure of the electricity 
industry will be transformed in 
the next few years either by 
more takeovers or friendly mere* 


l 


It is also possible that other 
companies will enter the fray for 
Northern. Hanson and Tomkins 
have been suggested as candi- 
dates. 



This week and next: Company news 


BULL 

France outlines 
final stage of 
sale process 

The French govearunent wffl this week 
inform those companies that have made 
preliminary bids for a stoke in Groups 
Boll whether they can go on to examine 
the books of the stote-cootxoDed 
computer company to mak e a final offer 
by mid-February. 

The industry ministry has said that it 
has been decided after all not to 
announce a shortlist by Christmas of 
companies “pre-selected” for the final 
stage of the operation. It Indicated that 
som e rrvyn pan-fee bad wanted to keep 
their interest in Boll confidential, and 
the go vernment would respect this. 

By contrast, Quadral, a French - 
electronics company, has said it made a 
bid, which is reported to be in the form 
of a joint offer with AT&T of the US, 
while NBC of Japan has shown interest 
in increasing its easting 434 per cent 
stake in BuIL 

The industry ministry said that from 
now 'Tnffi mid-February it would be up 
to the companies cancomed to reveal 
their interest in Bull if they wanted to. 
According to same' sources, the Bull 
privatisation has drawn interest from 
several non-Japanese Asian groups 
Such as Samsung of South Korea and 
Acer of Taiwan. 

The g o vern m ent wants to reduce its 
7S per cent stake in Bull, beaded by 
phan-man -fran -Mar ie DeSCarpentrifiS 
(pictured above right), to a minority 
holding by next spring. But, gives that 
Bun fastib losing money ~ though on a 
reduced scale - tbs government is 
seeking privatisation through the 
formation of industrial partnerships 
rather than a public offer for 

fthaB&aiditlakxd^ 
majority shareholder or. several 
Important shareholders each taking at 
least 10 per cent of the capital It has 
equally raid that new partners could 
subscribe new capital, so diluting the 
the state's stake, or they could buy 
shares off the state. 


jpescarpentries of Gronpe BuD 
OTHER COMPANIES 

High noon for IRI 
on New Year’s Eve 


IRI, the Italian state holding company, 

h as until midnig ht on December 31 to 

complete the privatisation erf Italy's 

state-owned steel industry, in ltne with. 

a deal struck by EU industry ministers 

in December 1993. The most difficult 

sale is likely to be that of Ova Laminati 

Hand, the flat steels company, far 

which two rival consortia have tabled 

offers. IRTs directors decided last week 

to pursue their examination of the bids 

and are certain to have anntfier 

meeting before Christmas to discuss the 

situatiorL ff IRI fails to sell ILP, the 

European Commission could demand 

the repayment of nearly L5,ooobn 

(j£Ll£bn) of state subsidies which Ova 

was set to receive. 

■ 

■ East Midlands Electricity; The utility 
wffl today bring the UK power results 
season to a close when it anno unces 
profits ami dividends for the half-year 
to September 30. Last .October the 
comp any announced it was to give back 

£L86m (J305m) to shareholders as a 
special dividend, or 85? per share. It 
chose this route rather than buying 
back shares. The interim dividend may 
therefore be less generous than other 
regional electricity companies have 1 
been able to provide. Nonetheless, at 
feast 15 per cent is expected and profits 
are likely to be wefi ahead. 


' *•* v ‘ ’.f ' . ' 

. ■/”. n r- ■ ’ •’ ■* " 



•'••96 si-’ -aa 


process control equipment supplier has 
performed well in recent years by 
cut ting cos ts and improving 
productivity. Now investors are looking 
for evidence that the management 
under Mr Haltip^n, tibdfif 

e xe c u tiv e , can boost sales. 

Confirmation that order book strength 
has been translated into higher sales 
could come when Eurotherm reports its 
results tomorrow for the 12 months fa 
October 3L These should show pre-tax 
profits up from £20.1m to about £26m 
($42£4) and earnings of around iflp- 

■ Wessex Water: One of the smallest of 
the lfl big privatised water and 
sewerage groups in England Wales, 
should tomorrow report a profits rise of 
more than 10 per cent to £5Sm-£SQm 
($95m-$98.4m) (previous, £f&4m) 
pre-tax, while the dividend is forecast to 
go cqi by a similar m a r g in to <t5p (4p). 
Investors will be waiting for a progress 

report on the comp a ny's ambitious 




IT-SSA Water bKftut 



This year, we have again decided to make a donation to charity 

instead of sending Christmas cards 


W'-’W: 98 ■ a*.-. 04 




* ■■ 


waste management joint venture with 
the UK aim of WMX. the US-based 
world leader in waste. 

■ NFC: Sir. Christopher Bland, who 
officially takes up his new postion 
today as chairman of the UK-based 
transport and logistics group, has a 
tough job on his hands. A fanner 
phaTrman ofLWT, Sir Christopher has 
the task of restoring the City of 
London’s confidence in the group. But 
before that he must solve the more 
pressing problem of finding a new chief 
executive. 

The group has said an announcement 
will be made in the next few weeks. 
NFC’s problems are not limited to 
personnel Operating profits foil last 
year to finite ($187to) from £ii6.7m 
and the shares have dropped from 243p 
at the beginning 1 of the year to 18Stp an 
Friday. 

The grom? says it intends to 
accelerate ite cost-cutting programme. 


Companies In fills Is s ue 


Eurulke r m : The UK industrial 


l 


BAA 

BAT 

BMW 

Banken Inv Tiust 
Bflrisftud M 

CIC 

Garipto 

Cheroex In te rnatio na l 
CrwffiD ItaBano 
Crwfito Romagnoto 


3 

12 

S 

IS 

18 

18 

17 

17 

18 
17 
17 


Deutsche Waggonbau 
Qytex 

Bflctra Inv Trust 
GAN 

Galenas Predate 
General Bactrie 


Iberia 

Morgan Stanley 
Nine West 
Northern Sedrte 


17 

17 

16 

17 

17 

17 

18 
3 

16 

17 

15 


Qfiflflflfo 

Rwenfx Tinder 
Queens Moat Houses 


Royal Bank of Scot 
S.G. Wbrburg 
Stanhope 
Thom EMI 
Trafalgar House 
US Shoe 
Welcome 


16 

16 

18 

15 

18 

15 

16 
16 

15 
17 

16 


(imT) 

n a aii/ /I i I 


BANK (LUX) S. A 


IMI Bank (Lux) S.A. 

would therefore like to take this opportunity 

to send seasons greetings to all its 

■ 

clients, suppliers and colleagues 
and to wish them 
a very Happy Christmas 
and a prosperous year in 1995. 


S Avenue de la Liberie L-1 930 Luxembourg 
Telephone: 40 45 751 Fax: 49 36 22 




r ^ 













p q ff wdflffQ crtuo saK's ' < a ►’so.**} i *o trjo a.p c* Ka^a p i 




:★ 


WNANC. At TIMES MONDAY DECEMBER,!* IIH 



- vr 


COMPANIES AND FINANCE 


Receivership looms unless a deal can be agreed with its lenders 


Last ditch efforts at Stanhope in talks 


Berisford I Rebel shareholders 


f 


tl<> 




By Simon London 
Property Correspondent 


With less than 24 hours to go 
before Its banking facilities 
expire. Stanhope, the property 
developer ran by Ur Stuart 
L ip to n, was last night making 
last ditch efforts to stave off 
receivership. 

Since the last formal mapping 
of Stanhope's 16 lenders last 
Tuesday, intensive discussions 
have taken place between the 
company, its banks and poten- 
tial rescuers. 

The banks, led by Barclays, 


must either extend their 
£140m loans beyond today's 
repayment deadline or force 
the company into receiver- 
ship. 

The two main rescue propos- 
als have come from Postal, the 
post and telecommunications 
pension fund run by Ur Alas- 
tazr Boss Goo bey, and British 
Land, the property investment 
company headed by Mr John 
RitbLat 

While both rescue packages 
have been refined to offer Stan- 
hope’s lenders better terms, 
the banks would still have to 


write off up to 20p in the 
pound on their loans. 

Alternatively, Stanhope 
believes it has found an inves- 
tor wfllmg to provide working 
capital in return for an equity 
stake in the company, if the 
banks agree to a debt standstill 
of up to three years. 

The company hopes that the 
value of its main asset - a SO 
per cent stake in Broadgate 
Properties, which owns much 
of the Broadgate and Lu dgate 
developments in the City of 
London - would rise suffi- 
ciently during the standstill 


period to give the banks frdl 
repayment 

However, the banking syndi- 
cate has been unable to agree 
on a course of action. Some of 
Stanhope's banks also made 
loans to Broadgate Properties 
and Rosahaugh, which owns 
the other half of Broadgate and 
Is already in receivership. 

EPMG Peat Marwick would 
be favourite to be appointed 
receiver at Stanhope. It already 
acts for the banks at Rose- 
haugh and could therefore han- 
dle the disposal of Broadgate 
Properties as a single entity. 


for US 


reject QMH proposals 



purchase 


By Tim Burt 


By Simon London 


Oceonics in the red as 
finance director leaves 


Royal Bank lifts stake in 
motor insurance venture 


Oceonics Group, the 
lossmaking marine survey 
company, announced the 
departure of its finance direc- 
tor and cuts in executive sala- 
ries after s lidin g into file red 
with losses of £L69m in the 
half year to September 30. 

It said Mr Mike Hutchison 
would be leaving the group at 
the end of the current finan- 
cial year, in which it has cut 
131 jobs - 20 per cent of the 
workforce - amid weak 
demand and over-capacity in 


the offshore oil industry. 

The company said Mr David 
Arnold, the newly appointed 
group commercial director, 
would take over as finance 
director from Mr Hutchison. 
The costs associated with Mr 
Arnold's appointment were 
being matched with voluntary 
cuts in director compensation. 

The loss, against pre-tax 
profits of £222,000 last tone. 
was on turnover down from 
£13 2m to £8.19m. Losses per 
share were 12p (02p). 


By Ralph AUdns, 
Insurance Correspondent 


The Royal Bank of Scotland 
increased by £Sm its invest- 
ment in a new motor insurance 
company set up with Mr Peter 
Wood of Direct Line after dis- 
cussions with (he Department 
of Trade and Industry, the 
bank’s annual report revealed 
on Friday. 

The bank announced last 
year that it intended to invest 
£24m In Privilege, which is 


aimed at “nonrstandard” risk 

drivers, but it increased its 
stake to £29m in May after 
talks with the DTI, which Is 
responsible tor regulating the 
insurance industry. 

Privilege began trading in 
the autumn. 

Royal Bank of Scotland's 
decision increased the prefer- 
ence shares it owns in Privi- 
lege to 27.5m from 22.5m. The 
bank also owns L5m ordinary 
shares and Mr Wood owns a 
farther lm. 


NEWS DIGEST 


Phoenix 


recovers to 


Earnings per share emerged 
at 0.55p, against losses of 
L94p. 


£173,000 


Electra Inv Trust 


Phoenix Timber Group swung 
back Into the black at the mid- 
term stage as the Essex-based 
flooring company built upon 
the improvement shown in last 
year’s second half 

Turnover from continuing 
operations amounted to £&58m 
(£&33m) in the six months to 
September 30, including £54,000 
from acquisitions. After a 
reduced Interest burden, pre- 
tax profits were £173, (MO, 
against losses of £525,000. 

The company stressed, how- 
ever, that the improvement 
mainly reflected cost cutting; 
the market for its main 
operations remains weak, 
although trading in the last 
three months has shown some 
“encouraging signs". 


Fully diluted net asset value 
per share at Electra Invest- 
ment Trust stood at 38024p at 
end-September, against 341 2p 
a year earlier. This represented 
a rise of IL4 per cent, while 
the FT-SE-A All-Share Index 
rose by 0.3 per cent in the 
period. 

Net revenue for the year was 
£14. 7m (£14. Im), with earnings 
Of 7.5p (7-54p). A proposed final 
dividend of 3.7p (3.55p) gives a 
total of 725p (7p). 


The primary task, according 
to Mr Andrew Priestly, chair- 
man, had been to restructure 
operations and establish an 
international sales and distri- 
bution network. 

Turnover was £212,000, com- 
pared with £1.12m which 
included an exclusive distribu- 
tor’s inventory, most of which 
was repurchased or returned 
as part of the termination 
agreement 

The company's priority 
remained to market its System 
350 blood transfusion device, 
Mr Priestly said. 

Losses per share were i0£p 
(HUp). 


to September 30 grew to £LS9m 
(£L33m) and the pretax out- 
come was struck after net 
interest payable of £3,141 com- 
pared with income of £2237. 

Earnings emerged at 0.33p 
(0.03p losses) and the company 
is introducing dividend pay- 
ments with a O.lp distribution 
for the year. 

It also said it intended to 
apply far a fall listing. 


Bankas Inv Trust 


Haemocell 


Chemex Inti 


In a year of “consolidation and 
change”, Haemocell, the 
USM-quoted medical equip- 
ment maker, incurred 
increased pre-tax losses of 
£2. 35m against £2.I3m for the 
12 months to August 31. 


Chemex International, the 
OSM-traded nheminai analysis 
company, continued its recov- 
ery into the second half, end- 
ing the year with a pre-tax 
profit of £135,534, against a def- 
icit of £12,361 last tone. 

Turnover for the 12 months 


The Bankers Investment Trust 
saw net asset value per share 
decline 13 per cent from 183J>p 
to 17R3p in the year to October 
31. The FT-SE-A All-Share 
Index fen by 1.S per cent over 
the period. 

Net revenue edged ahead to 
£6.66m (£ 6 . 61 m), with earnings 
at 4J26p (423p) per share. A 
fourth interim dividend of 
Q.99p gives a total of 3£p for 
the year, up from 3.68p. A total 
of not less than 4.l2p is fore- 
cast for the current year. 


Berisford International, the 
former property and commodi- 
ties group which earlier fids 
year bought Magnet kitchens, 
is in negotiations which could 
lead to the acquisition of a US 
kitchen equipment maker for 
about SSOQm (£305m)L 

While talks could be con- 
cluded this week, Berisford 
has yet to agree terms with 
Welbilt Corporation, which 
manufactures commercial 
kitchen equipment for tost 
food chains such as McDonalds 
and Burger King. - 

If the deal goes ahead. Bests- 
ford will finance the deal 
through a rights issue. 

On December 6, WribQt said 
that it had received an 
approach which could lead to 
the sale of the company and 
had appointed Donaldson Luf- 
kin Jenrett, the US investment 
bank, as adviser. 

Welbilt is 47 per cent owned 
by Mr Jerome Kohlberg, a 
founder of Kohlberg Kravis 
Roberts, the leveraged buy-out 
company. A secondary offering 
of shares held by Mr Kohlberg 
was withdrawn when Beris- 
ford made its approach. 

In 1093 WdbHUs net income 
before extraordinary charges 
was 39m. on turnover of 3426m. 

The acquisition would allow 
Ber isfo r d to utilise some of its 
accumulated US tax losses 
arising from activities in com- 
mercial property in the 1980s. 

The deal would be Beris- 
fonf s second large acquisition 
since Mr Alan Bowkett took 
over as chief executive in 1392. 
In January It paid £56m for 
Magnet, also financed through 
a righto issue. 

Last year, its £L8Qm bid for 
C&J Clark, the privately 
owned shoe company, was 
rejected. 


Rebel shareholders at Queens 
Moat Houses yesterday 
refected a £I-3bn rescue plan 
for debt-burdened hotels 
group, claiming tt was unfair 
to existing investors. 

The Queens Moat Houses 
Shareholders Action Group, 
which claims to represent 4,000 
Investors controlling 10 per 
cent of the equity, said the 
plan — involving a £200m .debt 
for equity swap and revised 
borrowing terms - was "quite 
unacceptable' 1 . 

Mr Denis Woodhams, secre- 
tary of the group, said bidders 
of ordinary shares were dis- 
mayed by moves to dilute their 
Interests from 81 per cent of 
the company to 24 per cent. 

"These proposals are a mani- 
festation of the board's lack of 
confidence in its own ability to 


produce even an Industry aver- 
age profit performance/ he 
added 

The dissident group has pro- 
posed an alternative rescue 
righto issue drawn up by Mr 
Peter Eyles, former ma nagin g 
director of Norfolk Capital 
Group, the luxury hotel com- 
pany acquired by Queens Moat 
in 1990. 

It is likely, however, to 
encounter strong opposition 
from the Queens Moat board 

Mr Andrew Cop pci, chief 
executive, warned last week 
that the group would have to 

reap a t rading if it felled to take 
up the debt-for-equity and 
financial reconstruction pro- 


posals. 

Claims, meanwhile, that the 
rebel group would receive 
widespread support at this 
week’s annual meeting have 
been rejected by the company. 


-The institutions were can- 
vassed In advance of Mr 
[reconstruction] scheme and 

are supportbre of U." Queans 
Moat said. 

The company also- qua* 
donad the number of sham 
controlled by the action group.: 
adding that It would not have 
an opportunity to challenge 
tite rescue plan until an 
extraordinary meeting was 
called in the new year- . 

Nevertheless, a solicitor act- 
ing for Mr John Bairstow,- 
Queens Moat’s former chair- 
man, is expected to seek an 
adjournment of Wednesday's 
annual meeting. Mr Alah Reed. 
who manages several share- 
holding trusts, wants the re- • 
election of directors delayed- 
imtU shareholders have consid- 
ered the refinancing proposals. 

The company dismissed such 
action as "nuisance making 1 *, 


.. ilk* 



■'1 riMI 


* 



-i.V5-.3W 


L.into' 1 

!l - _ «■» 




»>•** 


Poll taken at Wellcome AGM 


By Daniel Green 


A revolt by small shareholders 
at Wellcome's annual meeting 
forced the company to hold a 
poD on a special resolution. 

The results of the poll 
showed a big majority in 
favour of the resolution, 
thflnfca to the weight of Institu- 
tional shareholdings. 


The shareholders rebelled 
against a plan to renew the 
company’s right to issue new 
shares - up to 5 per cent of the 
issued capital - for cash, with- 
out offering all shareholders 
the opportunity to avoid dilu- 
tion by buying some of the 
newly issued stock. 

Such resolutions are not 
uncommon. They allow man- 


agement some flexibility in 
corporate deals; tor example to 
offer shares to a prospective 
business partner. 

Two shareholders spoke, 
against the motion and enough 
voted against it to make it 
unclear whether the required 
75 per cent majority bad been 
secured. A poll resulted to a 
9337 per coot vote in favour. ■ 





j; 




► • • : ' -Tl 




CUB) 


SG Warburg (UK) 


Banking 


MvgirMs 


BNOfis noaffn udv 


Joint Venture 


I- I < 


ect 0609m Further xaetor 
rstfructwinQ 


ltta (US) 


Canstw (Canada) 


Sporting goods £2S3m - - Teem equipment 




UnSt of Mactaan Hunter 

{Canada} 


PltteNng 


fiOQm 


OamkwMW 
Europe buy 


'■*-1 




CWB Partners 
(UKAtermany) 


bo (Sweden) 


Textile 


E53m 


Handei-och 
taduetif sale 


* 


Thorn EMI sale 


ASH HokSngs (UK) 


SAM (France) 


Steel 


SBlm 


ASW aooks 
oram iThm 


Thorn EMI has sold its Thom 
Automation engineering busi- 
ness to its management for 
about £&25m. The consider- 
ation, plus £7m of funding, lm 
been provided by 3i and senior 
debt and hanking facilities by 
Royal Bank of Scotland. 


Union Carbide (US) 


Unit of Cl (UK) 


£40m 


Meed* OFT 
approval 


Fairey Group (UK) 


Randomat (US) 


£9701 


Further sector 
expansion 




(US) 


Servfca Bank 
(Gemnny) 


financial 


E31m 


fina nc e moo 


(UK) 


SodtafMK (Franca)/ 
Interplas (Switzerland) 


Industrial 

equipment 


£1&3m 


Cash +. debt deal 



WINDSOR 


This announcement appears as a maocr of record only. 


PROFITS GROWTH 


56 % INCREASE TO 



MAKE SERE YOU 
UNDERSTAND THE CHANGES 
AND OPPORTUNITIES IN 
EASTERN EUROPE 


£1.1 MILLION 


Nampak Limited 


Read the following publications from the Financial Times. 

East European Markets 


including ‘Moscow Bulletin’ and The Changing Union* 


(incorporated with limited liability in the Republic of South Africa) 


Windsor PLC, the specialist Lloyd's broker, announces its unaudited res ults for the 
year ended 30th September 1994. 


Finance East Europe 


East European Business Law 


Operating profi ts up 56 per c 
before exceptional expenses). 


cent to £1.1 miffion (1993 £706,000 


• Resumption of dividend payment - the board proposes the payment 

of a final dividend of 0.5p (a half pence) per share. 


Offering of 

4,408,060 European Depositary Receipts 
representing 13,224,180 Shares 


East European Insurance Report 


East European Energy Report 


For a Free sample copy 





Earnings per share - adjusted to exdude exceptional items . 
Increased by 99 per cent to 2.65p (1993 l.33p adjusted). 


Operating income (including acquisitions) i 
to £9.3 million (1993 £7.8 mOfion). 


increased by 19 per cent 


Please coniacc Simi Bansal, 

Financial Times Newsletters, 

Marketing Department. Third Flow, 
Number One Southwark Bridge, 

London SEI 9HL, England 
Tel: (+ 44 7 1 ) S73 3795 Fox: (+ 44 71.) S73 3935. 


Acquisitions - PS Mossfi & Partners limited business contributing 
good profits: recent acquisition of ROM Associates (Insurance 
Brokers) Limited will boost brokerage income and strengthen 
Windsor’s presence in motor sport i n sura n ce market. 


Issue Price of UJS. $7.94 per 
European Depositary Receipt 


*P»e iilunwuuttywipwivhlc will be IKM by IA abj may NiMilhidiyicJnl 

polity ma|ain fir ramfim: taj puyoex 



FINANCIAL TIMES 

Newsletters 


Investment property now 50 per cent let and balance of space 
under negotiation. 


H LM Rqpocnd Office thnto Ok. SsutUKaV Bmtae. Lnakn SfcJ H >U_ 

Rep 4 aalNu.HUW 6 .VATIhgbMiaaNa.GB 2 nS.l 7 l 31 


Commenting on the results the Chairman, Stuart McDonald said, “It is dear that there 
is a growing need for the specialist broker and there are opportunities for Windsor to 
expand its business in profitable niche sectors. We will continue to grow our provincial 
businesses and expect to make further acquisitions in complementary specialist areas. 
1 look forward with optimism to the coming year." 


WEST MERCHANT BANK LIMITED 


BUSINESSES FOR SALE 


STANDARD BANK LONDON LIMITED 



October. 1994 


Appear in the Financial Times 
on Tuesdays, Fridays and Saturdays. 

For further information or to advertise 
in this section please contact 

Kail Loynton on +44 71 873 4780 or 

Lesley Sumner on +44 71.873 3308 


Windsor PLC, Lyon Boose, 160-166 Bonngh (Ugh Street, London. SEI UR. 


U'S. $150,000,000 



In accordance with th« T«rm« and Conditions of the Notts, 
not lea la hereby Ohran that the new interest rates and periods in 
respect of tfw subject Notes are as follows:- 


SavftA b; 
EmB M 
same Mr 


Rre% ftyw M 
tie 8se SemD sac 


tfN-afijtaytiB Mi StofaaF 14fc 


us 


By: CKBMrtt NA timer Stnrfeat) 
OM*r4r 7ft ISM London 


'CmBAPKG 




ROYAL BANK 
OF CANADA 


FINANCIAL TIMES 


£75.0001000 


+ ® A & -k fL 


Mortgage Bached Boating Hate 
Notes duo OeoemtMr 2018 


The People’s Construction Bank of China 

(Estatti&ml under ttm lews of the Pooph's Republic of China) 


For the Interest Period from Dec- 
ember IS, 1994 V} March 15. 1995 
the Note Hate has been dMomUned 
at 6.64219% per annum. Ilia 
ost payable on the relevant internet 


Routing Rate Notes due 1997 


payment date, March 16 , idd$ w 9 H 
be £ 615.91 per £ 36 . 506. 49 ncvnirtaJ 



VfirjtaHoiin 
125 Findxay taemant, 
Londoo EC2A m 
TtL 071*4179720 
Fac 071*417 9719 


FUTURES £, CPTICNS 


be £615.91 per £36.506.49 nominal 
Bmoum. 

By: Ilw C Mw M rt a tta i W JL 


T: 0 \ cmy c RC.v 


$32 


Qecmnt»rW,tB94 


In acooidwicu with foe provisions of foe Notes, notice Is hereby 
given that tor foe Interest Period fram December IS. 1994 to June 19, 
1995 foe Notes wH cany an Interest Rate ot 7.4875% per annum. 
The interest paysbto on the relevant interest payment date. June 19, 
1995 Will be U£. *37.85 per U S. *1,000 Note and U.S. $0,463.37 
per U.S. $250,000 Note. 


Dividend No, 430 

NOTICE IS HEREBY dvo* 
THAT a dMdend 29 certs 
per share upon the paid up 
Common Shares oMhfe Bank 
has been dedarep payable for 
fee current quarter at foe Bank 
and its branches on and after 
February 24, 1895 to share- 
holders discord at cktte of 
business on Januay 25, 1995 . 


By: The Chase Manhattan Bank, Ha. 
London, Agent Bank 

December 19. 1994 




By Order at the Board 

Jane E Lawson 
® Bn farWc»Awfcf9nr*Swetey 

Mo'ereat. December 8, 1994 





EUROraAN INVESTMENT RANK 
ESP 23.000^000,000 - 

Capped FknUsB ttat Notts 
Due 1999 

The notes win bear ieiereSt at IMSft 
per anmun for kueicat period 15 
Oeeoater 1994 (indudol) * IS 
kw* 1995 (cxdodcd) . . 


tnteirat payabto on 15 Much 1995 
win emoBdt to ESP 2.U3 per wt 

BANCO CENTRAL lUSRUtO 
Paying and caicaladon agent 


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► at 


mWANCIAI TIMES MONDAY DECEMBER. 19 1994 




COMPANIES AND FINANCE 


Rolo board accepts Cariplo bid 


By Robert Graham in Rom? 

The board of Credito 
Bomagnoto (Rolo), the Baity 
gna-based commercial hnn^ 
has accepted the L3,300bn 
($2bn) overture from its new 
suitor, the consortium led by 
Cariplo, Italy's biggest savings 

bgpic. 

Board approval following 
weekend meetings was widely 
expected following: the Cariplo 
consortium’s unexpectedly 
generous offer last week The 
consortium offered L21*500 per 
share for TO per cent of Rolo’s 
stock. 

T2zis was not only LI ,500 
more per share than the 
Improved offer made by the 


recently privatised Credito Ital- 
iano (Credit) but also e*t«nriprf 
to 70 per cent of the shares 
instead of the 63.5 per cent pro- 
posed to shareholders by 
Credit. 

Rolo declined to comment 
formally on the meeting; but 
the board was apparently 
unanimous in deciding that tha 
Cariplo offer was more advan- 
tageous. 

The Credit bid. first 
Launched in October, has 
always been regarded by the 
bulk of the board as hostile. 

The Cariplo bid was first 

m o unted in conjunction with 
Carisbo. the main savings 
institution in Rwiilia Romagna 
and IMI. the treasury -con- 


trolled hank. But this trio has 
now been joined by Reale 
Mntua, the insurance group. 

The next step will be for the 
Bank of Italy to pronounce 
upon, the counteroffer, having 
already given the green light 
to Credit. The Bank of Italy is 
likely to have already been 
sounded out informally, not 
least because behind-thosceues 
discussions between Rolo and 
Milan-based Cariplo have 
taken place at intervals for 
much of the year. 

The Bank of Italy may not be 
entirely happy at the prospect 
of Rolo. one of the healthiest 
private commercial banks, 
being controlled by haTiWTi p 
institutions which have yet to 


is 


be privatised. But this 
unlikely to halt the deaL 
Only when approval has 
been given can the counter-bid 
be formalised. Given the 
Christmas break, this could 
mean a delay until the second 
week in January. The main 
imponderable now is whether 
Credit will accept defeat with- 
out a farther fight 
Credit’s bid would cost the 
bank I£8Q0bn and most ana- 
lysts have ruled out its raising 
the stakes without help. Over 
the weekend there were press 
reports that Credit might be 
enlisting the support of Alli- 
anz, its leading German share- 
bidder, as well as Banca Com- 
mercials Italiano. 


Listing for 

Deutsche 

Waggonbau 

By Judy Dempsey in Berlin 

Deutsche Waggonbau, eastern 
Germany's railway carriage 
manufacturer, which is one of 
the last remaining enterprises 
in the hands of the Treuhand 
privatisation agency, will be 
listed on the stock exchange, 
according to agency nfficiaK 

The listing will be made 
after Advent Internationa] Cor- 
poration, a Bostonbased ven- 
ture capital company, and Sie- 
mens, Germany’s electrical and 
electronics group, which have 
teamed up to buy DWA, have 
completed a modernisation and 
investment programme. The 
purchase contract should be 
signed next month. 

Although the Trenhand 
would not confirm the price, 
officials from IG Metall, the 
steel and engineering union, 
said Advent and Siemens will 
pay about DM 1 20tm ($76m) for 
DWA which has subsidiaries 
throughout eastern Germany. 
The consortium will also guar- 
antee 3,000 jobs. Before unifica- 
tion, DWA employed more 
than 24^300 people. 

However, the state govern- 
ment of Saxony, where two 
DWA plants are located, has 
already protested against the 
deal, on the grounds that the 
Trenhand and the ministry of 
finance had pledged to keep all 
the DWA plants operating as 
part of retaining a small Indus- 
trial and manufacturing base 
in the east German states. 


Galerias seeks protection 


By Tom Bums In Madrid 

Galerias Preciados, Spain’s 
second biggest department 
store chain which was for- 
merly owned by the UK’s 
Mountleigh property group, 
applied for protection from its 
creditors over the weekend, cit- 
ing liabilities of Pta54J}bn 
($40 Lm). 

A decision to place Galerias 
In receivership would be likely 
to lead to its break-up the 
dispersal of the chain’s 29- 
strong nationwide network of 
prime rite stores, five of them 
in Madrid, among domestic 
and foreign buyers. 


Marks & Spencer of the UK, 
which already operates five 
stores in Spain and plans to 
open a further 10, said last 
month that it was in talks with 
Galerias with a view to talcing 
over some of its properties. 

Among the retail chain’s 
chief creditors are suppliers, 
which are owed some Pta28hn, 
audits chief financial backers, 
Lloyds Bank, Citibank and 
Barclays, which are under- 
stood to be calling in bank 
loans totalling an estimated 
Ptalfltm. 

Galerias, which has more 
than 7,000 employees, was 
acquired from Mountleigh by a 


group of Spanish investors for 
Pta21.2bn two years ago. 

This year, the company’s 
turnover is forecast to drop 
from PtaBObn to Fta72bn and 
its losses are likely to he in the 
region of PtalObn. 

Weakened by a succession of 
owners In the past IS years, 
Galerias was part of the con- 
troversial Rumasa private 
holding of financier Jos6 Maria 
Ruiz Mateos between 1981 and 
1883. R was bought by Vene- 
zuela’s Cisneros group in 1984 
after the government expropri- 
ated Rumasa to avert the hold- 
ing's bankruptcy and sold it to 
Mbuntleigh in 1987 for Pta30bn. 


Poslums lose control of Dylex 


By Robert Gibbons fen Montreal 

The Poehtm family bag finally 
lost control of Dylex, the finan- 
cially troubled Canadian fash- 
ion chain. River Road (Can- 
ada), tiie Canadian arm of the 
US investment fund, becomes 
Dylex's biggest investor with 
about 13 per cent of the stock 
cm a fully diluted basis. 

The Dylex board decided last 
week to omit dividends on the 
A stock for the eighth consecu- 
tive quarter.Under the compa- 
ny’s by-laws this automatically 
gave the vote to 68m A shares 
outstanding, far outweighing 
the Poslmn family’s control 
though the voting B shares. 

. River Road holds 5m A 
shares and also convertible 
debentures. Assuming conver- 


sion it would hold a 13% vot- 
ing interest against the fami- 
ly's 6 per cent 

The board will have a major- 
ity of outside directors after 
being reduced in number from 
18 to 12, Innlnrfrnp tWO River 
Road representatives. River 
Road had fought for emitting 
dividends, saying Dylex could 
not afford any pay-out 

Mr Robert Poile, a River 
Road managing partner who 
will become a directin', said: 
"Dylex is open to takeover but 
we want to get it functioning 
properly and realising its 
potential.” 

Dylex reputed a third-quar- 
ter net loss of C$ll0m 
(US$79.lm) or C$L55 a share, 
including C$116m of special 
charges, against a loss of 


C$2J>m or 4 cents a year ago. 
Sales fall 2 per cent to C$43fan. 

The nine-month loss was 
C$132m or C$L87 a share, 
against a loss of C$9.5m or 16 
cents on sales of C$l-2bn 
against C$L3bn. 

Dylex A shares have fallen 
from a 1989 high of C$12 to 61 
cents because of heavy losses 
from over-expansion and the 
long recession. The Posluns 
came under strong criticism 
for their operating policies. 

"The fundamentals and a 
weak balance sheet have 
forced their hands as much as 
River Road,” said Mr David 
Brodie, analyst with Wood 
Gundy. 

River Road’s parent is Pal- 
ntmfl Group, a large US invest- 
ment fimd. ■' 


Nine West 
claims to 
have US 
Shoe deal 

By RSchaxd Tonddns 
In New York 

Nine West, the US footwear 
group that made a $425m 
unwanted bid approach for US 
Shoe’s footwear business ear- 
lier fats year, said it had won 
agreement to boy the division 
for 9600m. 

The claim was made after 
the stock market closed on Fri- 
day. US Shoe confirmed that it 
had conducted confidential 
discussions with Nino West, 
but denied that an agreement 
had been reached. 

US Shoe is a specialty 
retailer of women's clothi n g, 
optical goods and footwear 
with about 2^00 stores and 
animal sales of about <2.7bn. 
Its lacklustre earnings record 
has put tt under pressure to 
improve its performance. 

Nine West, a rival of US 
Shoe, designs and sells wom- 
en’s fashion shoes and has 
animal sales of about 6550m. 

It first approached US Shoe 
in Ally with a proposal that 
US Shoe should spin off its 
clothing and optical busi- 
nesses and merge its footwear 
business with Nine West’s. 
However, IIS Shoe’s board 
rejected the idea. 

Soon afterwards. Nine West 
publicised details of the 
approach in what appeared to 
be an attempt to generate sup- 
port for the plan from US 
Shoe's shareholders, so put- 
ting pressure on the compa- 
ny's board to reconsider. 

On Friday, Nine West said tt 
was offering 6600m in cash for 
US Shoe’s footwear business 
plus warrants to purchase 
1.85m Nine West shares at an 
exercise price of $35.50 a 
share. The warrants would 
have a term of seven years and 
one warrant would be issued 
for every 25 Issued US Shoe 
sha re s* 

Mr Vincent Canrato, co- 
chairman and president of 
Nine West, said US Shoe would 
provide a “terrific” fit and the 
acquisition wonld benefit Nine 
West shareholders from the 
outset. 

US Shoe said It would not 
make any further comments 
on the negotiations until such 
tune as a definitive agreement 
h»d been reached. 


FT GUIDE TO YJORLD CURRENCIES 


ITwUta.tMkttglvM th* latest raBabta 

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9131947 Gonnany 091151107 Japan 



an is now IO" further away 
^ht times are not affected.) 

We've increased our Executive Class seat pitch to 50 inches 
for flights from London and Paris to Tokyo. 



Japan Airlines 

A WORLD OF COMFORT 


Cash-rich corporates put 
own stock top of buy lists 


US companies are flush with 
cash - and some are finding 
more ways to return it to their 
shareholders. 

On Friday, General Electric 
said it would buy $8bn worth 
of its shares in Che market over 
the next two years. That took 
to a record $65tm the value of 
stock buy-backs announced so 
far this year, topping the $82bn 
readied in 1989. according to 
Securities Data. 

Does this mean, as US chief 
executives have been saying, 
that shares are cheap? Or Is it 
a signal that the US stock mar- 
ket is past its prime, and due 
for a farther correction? 

This year's buy-backs are. 
first and foremost, a sign of the 
strength of US corporate cash- 
flow. The last big wave of buy- 
backs came at the end of the 
1980s, before the US recession. 

Now, after the faltering early 
years of the recovery, the US 
economy has surged and a big- 
ger flow of cash into corporate 
cofliers has been one result 

Some companies have given 
up tins cash willingly, while 
others have been strong-armed 
by shareholders into unlocking 
their war-chests. Chrysler was 
pressured by its biggest share- 
holder, Mr Kirk Kerkorian, 
into amunmning a $lbn buy- 
back at the end erf November. 
And the biggest programme of 
the year - a $6bn plan by 
Philip Morris announced in 
August - came alter a manage- 
ment upheaval prompted by 
gharehnlA»r dissatisfaction. 

Many companies are combin- 
ing buy-backs with higher divi- 
dends to distribute their sur- 
plus cash. Chiysler’s 60 per 
cent dividend rise lifted the 
yield on its stock from a mea- 
gre 2 per cent or so to over 3 
per cent, ahead of the market 
average. GE’s announcement 
also included a 14 per cent divi- 
dend increase, the latest in a 
long string of higher cash pay- 
outs by the industrial giant. 


USobaro buybacks 

Value {ton) 

TO — : — 



1 

I 



Number o! deals 
1J0OO'— — 



100687 88 88 SO 0102 88 94 


In spite of announcements 
such as these, the overall divi- 
dend yield on the broad-based 
S&P index of US companies 
remains below 3 per cent. ‘’Div- 
idends ore generally below tra- 
ditional levels,” says Mr Byron 
Wien, a strategist at Morgan 
Stanley in New York. There is 
still room tor some big divi- 
dend Increases as “some com- 
panies continue to catch up”, 
he says. 

To the companies buying in 
their shares, the rational is 
simple: they are cheap. “GE 
stock today makes the best 
investment we can make,” Mr 
Jack Welch, GE chief execu- 
tive, said on Friday. 

This is in part just another 
version of the standard rheto- 
ric of company bosses: that the 
stock market does not value 
their shares highly enough. 
But it also indicates that com- 
panies such as GE have 


reviewed all the ways or using 
their cash - through higher 
capital investment or buying 
other companies, for instance 
- and decided that none offers 
a better alternative. That sug- 
gests a cautious view of future 
growth following the series of 
US interest rate rises this year. 

One result could be a farther 
slowdown in the takeover mar- 
ket, which has been cooling 
since a surge of activity over 
the spring and summer. GE 
itself had planned to use more 
than $2bn of cash to buy 
Kemper, a financial services 
group, tills year - but it has 
shown no sign of returning to 
the fray now that a rival bid 
for Kemper has collapsed 

(although GE says it could eas- 
ily suspend its buy-back pro- 
gramme to make acquisitions!. 

Many of the buy-backs are 
direct responses to slowing 
earnings growth. The banking 
sector remains the clearest 
example. Replete with capital 
and facing modest revenue 
growth at best, many banks 
have embarked on share repur- 
chases to maintain doubled! git 
growth In earnings a shore - 
reducing the number of shares 
outstanding is the most direct 
route available to a company 
to do this. 

Are companies simply 
looking for ways to support 
their share prices ns the surge 
in profits passes? Most US ana- 
lysts predict that the earnings 
cycle Is not over yet, and that 
1995 profits will mark a further 
steady rise from this year. 

But after the round of inter- 
est rate increases and the 
chance of another, perhaps as 
earl; as tomorrow, the pros- 
pects for 1996 are getting hazy. 
That weakens one of the 
underpinnings for shore prices 
at their current levels - what- 
ever companies do to buy in 
their own stock. 

Richard Waters 


GAN may sell FFrlbn of bank shares 


Groupe des Assurances 
Nationales (GAN), the state- 
controlled French Insurance 
company, might put on the 
market next year shares in 
Crfidit Industrie! et Commer- 
cial worth, around FFrlbn, 
writes David Buchan in Paris. 


The capital injection is to 
take the torn of a transfer to 
GAN of the state’s 7.1 per cent 
stake in the bank, in which 
GAN already holds 85.5 per 
cent GAN said it needed the 
extra capital following its 
FFrS46m loss in the first half of 


this year because of heavy 
damage insurance chums, poor 
returns on property invest- 
ments and lower bond values. 

The move will raise GAN’S 
stake in CIC to 92,6 per cent 
giving it also all the voting 
rights in the bank. 


This announcement appears as a matter of record only 
New Issue 12th December, 1994 





THE EXPORT-IMPORT BANK OF JAPAN 

(Incorporated under The Export-Import Bank of Japan Law ) 


U.S.$300,000,000 


8% per cent. Guaranteed Bonds Due 2004 

Unconditionally and 'irrevocably guaranteed os to payment of principal and interest by 


Japan 


Issue Price: 99.46 per cent 


CS First Boston 

Datan Europe Limited 
Nomura International 

HSBC Markets limited 
Lehman Brothers 
JJP. Morgan Securities Ltd* 
NUo Europe Pic 
Sms Bade Corporation 


Bank of Tokyo Capital Markets Limited 

Goldman Sachs international Paribas Capital Markets 

MerriD l^rnch International Limited 

UBS Limited 

IRJ International pic 
LTCB International Limited 
Morgan Stanle y & Co. 
Salomon Brothers Inter n ation a l Limited 
S.G. Warburg Securities 


Mortgage Securities 
(No.Z)PtC 

£250,000,000 
Mortgage backed floating 
rate notes due 2028 

For the interest period 15 
December JSgfc to 15 March 
1995 the notes wilt bear 
Interest at 6J863% per annum. 
Interest payable on 15 March 
1995 wIB amount to SI. 624.02 
per 5100,000 note. 

Agent: Morgan Guaranty 
Trust Company 

JP Morgan 


NOTICE OF PAYMENT 
To the Holders of 

Nafin Finance Trust II 

U.S4 129,880,000 
Floating Rato Notes due 1999 

Fur the Interest FcrfmJ S ept e m b er 10. 1994 Jmtuuy \ 1995, the Tmal Kiff^iYtnciu 
Aim Hint of the Nitien » USD? 2.4 10.000-00 nr I S. 14007 308 16^ nf the current 
ouratrfctinj: principal jdkwitf. Pnnrlftil m the .aunim tf iJSWTiM per U5TO.12l.22 
aggregate prtiiapnl amuunr i4 Note* will he [\iphlc on January 1, 1995. After Jnnutty 
(9ft. Intense un the pumurt of the Nines so rcpatJ will ccac fa .vliw- ( liilcn ot fc.irvr 
Note* mutt deliver the d jy w pniiB Inicmx coupon in .i Paping Aertir i4ii%ak »4 the 
Uni red Snuca ui receive irpiyiranr on *uch Nine*. 

NAFIN FINANCE TRUST 11 




Byt finfarf Trim Company, 
ib Trustee 


Dual; December 10, 1994 


. . 

2,*. *; 


yi 
















































SCffWHOffPO'fflO Sl «1 3 m o. wj l tJ*f» 3.K t 1 Pi fS > fi S l 



FINANCIAL TIMES 


MAR KETS 


Best Emerging 
Markets Bflnk 


TNG Ai) BANK 


THIS WEEK 


HI ii f i.ukitfM hv » '™* v - 




. r-r • 

*•- /* 




Next month. 
Am erica ' s 
newly trium- 
phant Republi- 
cans will seek 
to amend the 
US constitution 
to make it ille- 
gal for the gov- 
ernment to borrow money. The 
permanently balanced budget 
is an old dream of the right in 
more countries than the US, 
and few give this latest 
attempt even a fighting 
chance. But these are strange 
times, and it pays to allow for 
contingencies. From an inves- 
tor's paint of view, what would 
a world without Treasury 
bonds actually look like? 

To begin with, it would not 
happen all at once. The Repub- 
licans’ plana are still impre- 
cise. but the general notion 
seems to be a steady reduction 
of the budget deficit to zero 
over the next decade or so. 
Further borrowing would then 
be outlawed, and any occa- 
sional surpluses would be used 
to pay off the backlog. This 
would presumably take several 
decades again. 

At present, the total of US 
Treasury bonds outstanding is 
about $3 ,500b jo. Annual issu- 
ance. net of redemptions, is 
about $i75bn. These numbers, 
big as they are, need to be put 
in context US Treasuries are 
the classic international invest- 
ment, and global savings run 


Global Investor / Tony Jackson in New York 


A world without Treasury bonds 


at about $3,000bn a year. The 
annual supply of T-bonds, in 
fact, soaks up only a small part 
of the cash looking for a home. 

All the same, $3j500bn is a 
lot of money. If T-bonds did 
disappear, the market would 
require them to be replaced by 
same other instrument as like 
them as possible. A number of 
financial institutions have 
long-term cash liabilities which 
they need to match with 
long-term, fixed-rate assets. 

The obvious candidates to 
fill the gap are corporations. At 
present, most companies use 
equity and bank finance more 
often than they would like; log- 
ically, fixed-rate bands would 
make their long-range plan- 
ning a Jot simpler. Rut they 
tend to be crowded out by gov- 
ernments, which can command 
lower yields. Take the govern- 
ment out of the equation, and 
the yields on corporate bonds 
would decline to the level at 
which long-term savers could 
persuade corporate borro wer s 
to provide an alternative home 
for their money. 

Much of this would presum- 
ably represent new capital for 


US governmtintdeficit 


• i ■ 

Total return fai keel c a rren cy to 46/13/04 


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022 035 
085 IJS 

-552 -054 


125 -008 


07S 

-7.15 


-1.11 

-082 

-070 


038- 

1.18 

-051 


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Week 

Month 

Year 


-IJS 

-1.7 

'0.7 


-1.3 

-+2 

-03 


rl.7 

-2.1 

-7.7. 


-07 

-08 

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90 03 


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by n* 


Tknas UKtXL 


companies, rather than a 
replacement for old. After all, 
investors would still demand 
equities as before, and banks 
would stQl need to lend. As Mr 
John Upsky, Salomon's chief 
economist, suggests, the result 
would be a sharp rise in capital 
expenditure by corporations, 
accompanied by a lowering of 
their required rates of return 
on investment to reflect the 
changed cost of capital 


The" resulting Investment 
landscape might look familiar 
to the historian of the late 19th 
century. Mr David Hale of 
Kemper Financial points out 
that in the decades following 
the Civil War, the US govern- 
ment punctiliously repaid Its 
borrowings. By the 1890s there 
was no US public debt left so 
British savers, for instance, 
had to resort to financing US 
railroads and factories instead. 


with sometimes patchy results. 

How corporations wonld 
spend their money this time 
round is an open question. It 
seems fair to assume, though, 
that faced with an abundance 
of capital, they would continue 
to substitute capital tor labour. 
There have been huge 
advances in manufacturing 
productivity in recent years. 
Much remains to be done in. 
the service sector. 


The next obvious question is 
bow many c i the people whose 
labour is replaced can be use- 
fully re-employed. At this 
point, what might otherwise 
seem a wholly benign process 
turns potentially ugly. 

One need not be a Republi- 
can hawk to concede that tor 
global savings to be allocated 
by Adam Smith’s invisible 
hand, rather than by civil ser- 
vants, is likely to improve eco- 


nomic efficiency. But corpora- 
tions are not in toe business of 
providing safety nets. What 
happens if the invisible hand 
throws people out of work, 
while at the same time dvil 
servants are deprived of the 
hinds to help the unemployed? 

There are other pressures in 
the rama direction. As Mr Up* 
sky argues, governments - 
*b!k» Tfaiy as an example - will 
eventually have to face the fact 
flint their unfunded liabilities 
in pensions and other benefits 
represent an unsustainable 
burden on future generations. 

The obvious answer is to pri- 
vatise those liabilities, so that 
people take upon themselves 
the whole responsibility for 
their pensions or healthcare. 
The result of that would be a 
sharp rise in personal savings 
and a corresponding drop in 
government 'borrowing. 

Mr Hale takes the argument 
a step further. The whole idea 
of balancing the budget 
through a constitutional 
amendment, he argues, has a 
sub-plot One of the biggest 
burdens on the Federal budget 
is the vast panoply of tax 


breaks and subsidies enjoyed 
by middle class America.' 

Give the balanced budget 
constitutional teeth, says Mr 
Hale, and you have the means 
to enforce the revolutionary 
next step: ti» means testing of 
social security. Here again, the 
result is the same: higher sav- 
ing, less government spending 
and more money for invest- 
ment by the corporate sector. 

If America moved any dis- 
tance to this direction, it would 
not move alone. The natural 
result of a systemic shift of 
funds away from government 
towards corporate investment 
would be higher productivity 
and increased competitiveness. 
In a world of weakening trade 
barriers, this competi tiveness 
would translate into- pressure 
on America's trading partners 
to follow suit , - 

One need not regard the 
objectives of the Republican 
right as plausible, or even' 
desirable, to find the trends 
they represent thought -provok- 
ing. Even a move in the direc- 
tion of a balanced budget, after 
all. would bare sizeable ImpU- 
cations. One final Investment 
tip from Mr Hate three-quar- 
ters of the business on the Chi- 
cago futures exchanges is is 
Treasury bond futures. So if 


you think the Republicans art 
going to have their wicked 
way, go short of seats on the 
Chicago Board of Trade. 


COMMODITIES 


Richard .Mooney I 


‘Death cross’ looms for gold 


Seasonal spirit among the 
world's gold traders could be 
damp ened this week by what 
an analyst describes as an 
"arithmetical sword of Damo- 
cles” hanging over their 
market 

Mr Andy Smith, of the Union 
Bank of Switzerland, warns 
that the market seeds to rally 
soon to avoid being caught in a 
"death cross”, which, accord- 
ing to technical theory, could 
signal a sharp price fall 

This would occur, he says, if 
the 200-day moving average 
was crossed by the 50-day mov- 


ing average while both wore 

foiling , 

A similar sltnatkm in the sit 
ver market in late November 
augured a sudden 15 per cent 
fell in that market 

In New York, meanwhile, 
most gold analysts are espect- 
,ing the market to remain dull 
next year, flmngh they say an 
improving supply-and-demand 
outlook should sustain the 
modest firming trend of the 
past two years. 

"The market has been in a 
better balance this year, and 
we are looking for growing 


supply deficits in the years to 
come," Mr George MflHngKan- 
ley, lahman Brothers analyst, 
told the Reuters news agency 
last week. “This scenario 
should be supportive of gradu- 
ally rising prices.” 

Throughout 1994, the spot 
price of gold languished within 
a thin $30 band from $368 to 
$398 an ounce, far narrower 
than 1993's $80 range.. 

• De Beers, the South African 
group whose London-based 
Central Selling Organisation 
accounts for at least 80 per 
cent of world trade in rough 


(uncut) diamonds, on Tuesday 
gives details of CSO diamond 
sales this year. Although it had 
record first half sales of 
$2L58bn, analysts suggest that 
the CSO eased back sales in 
the second half, so the 1994 
total is not expected to be very 
different from last year’s 
$4866bn. 

Today marks the formal 
opening of the London Metal 
Exchange’s new headquarters 
and trading ring at which Mr 
Kenneth Clarke, UK Chancel- 
lor of the Exchequer, will do 
the honours. 




Notice to Bondholders 


& 


KOLON INDUSTRIES. INC. 


IkittjauM to Ar Apdfe qf Am intfi 

(the "Company”) 


U.S. $50,000,000 


0.25% Convertible Bonds due 2004 

(trie ■Bonds') 


Pursuant to the Trust Deed dated February 22, 1994, notice Is hereby 
given as ibBows: 

The Board of Directors of the Company resolved on December 16, 1994 
that an agendum to r the dedaration of stock cfivklend be submitted to the 
general shareholders meeting scheduled to be held in March 1995 as 
fotows: 

1. Record Date: December 31. 1994. 

2. Details of Stock Dividend: 0.02 of a Common Share per Common 
Share or Non-voting Share outstanding on the Record Data. 

A further nodes will be given to Sondtntders with respect to the actuated 
Conversion Price as a result of the stock dividend promptly after toe 
declaration of the Stock Dividend at the gener al meeting of shareholders. 


Of BM 


m until 


oafUJUi 




BLOT 
46L90 
4Sj9U 
4&£0 
3221 
32-21 
3 221 
U1 
SLQ9 
*92 


13.15 

13.15 

13.16 
*38 
530 
lift 
&ia 
LOB 
&0B 

ejoa 

aoB 


The Chase Manhattan Bank, NJL 
as Principal Paying Agent and Convareton Agent 


December 19, 1994 




Yasuda lYust and Banking 
(Laxemboms)SA 

USSSQjmjNO 
Floating Rate 

Guaranteed Notes Due 2000 
with Fixed Rate Option 
Guamneedby 

The YasudaTm* and Banking 
Company. Limited 

In accordance with ibe provision 
of the Notes, notice is hereby given 
that the rale of interest for the 
interest period I9ih December 

1994 to 19th June 1995 has been 
fixed at 7-275% pJL The coupon 
amount payable on I9lb June 

1995 will be USS IB3-90 per 
USSWKMNtae, 


1000 

1030 

1100 

113Q 

1200 

1330 

1300 

1330 

1400 

1430 

1600 

1630 

1000 

1630 

1700 

1730 

1600 

1830 

1900 

1930 

2000 

2030 

2100 

2130 

2200 


830 

aso 

am 

am 

0170 

2&40 

30.79 

36.79 
36JB 
46.71 

46.71 

40.71 
S3L77 
3168 


2737 

18.10 

28.18 

41.12 

4730 

47.00 

41.12 


am 

806 

(LOB 

&12 

aio 

921 

WJBO 

3132 

2210 

3212 

4&07 


son 

4ur 

3231 



1032 

1006 

5430 

9431 

4930 

4830 

4739 


Corporation 

US$50,000,000 

G uarantee d Floating Rate 
Notes due 1995 
Notice Is hereby given that, in 
accordance with the provisions 
of the above me nt ioned Floating 
Rate Notes, the rate at interest 
for the six months period from 
December 19, 1994 to June 19, 
1995 (182 days) has been fixed 
at 7,175% per annum. 

The Merest payable on June 19, 
1995 w» be US $18,136.81 In 
respect of each US S50QL00Q 
Note. 


2300 

2330 

2400 


3243 

3843 

3430 

3430 
3233 

3431 
3233 

&15 

939 

939 


2433 

2433 

932 

flw 

2521 

4734 

47-34 

4734 

3033 

3633 

3320 

2571 

33.12 

2521 

25.11 


2738 


922 

29116 


6126 

5129 

5128 


37.15 
3039 
3737 

29.15 


1333 

1330 


9.19 9.W 


1430 

1600 

1530 

1600 

1380 

1700 

1730 

1600 

1830 

1900 

1830 

2000 

2030 

2100 

2130 

2200 

2230 

2800 

2830 

2400 


34.04 

35.11 

4139 

63.10 

19540 

361.71 

337.49 


6004 

5731 

4200 

3139 

41-00 

3139 

3136 

8136 

8136 

1130 

11X6 


3243 

3243 

3243 

3234 

6332 

9507 

10537 

9532 

64.10 

4833 

42.13 


3338 


7084 

10930 

12045 

10563 

7036 

5827 


3840 

3576 

3570 

2574 

31.74 

524 

520 

939 


42.79 

4130 


8324 

3624 

634 

920 

939 


mm fti 


period- flrfcaa at ti 


gi pod 


* “• je 




Hm Pod 


Motto** 


1 Do yo u expect 

future genera- 
tions to pay 
you a good 
pension over 
decades of 
secure retire- 
ment? Do you 
also believe in 
, Father Christmas? 

In no area of public policy is 
there a greater need for 
clear-sighted policy-making, 
since decisions taken today 
will have effects half a oat 
tory or more in the future. 
But lie warned. Nowhere is 
there a greater temptation for 
governments (and employers) 
to make deceitful promises for 
short-term advantage. 

In the UK, the government 
has just announced a bin to 
make occupational pensions 
safer, but has failed to address 
the conflicts of interest inher- 
ent in definedhenefit occupa- 
tional pension grfognwR , In the 
US, a bi-partisan commission 
has failed to agree cm how to 
contain the burgeoning cost of 
entitlement programmes. In 
Italy, the fiscal programme of 
Mr Silvio Berlusconi has been 
undermined by the constitu- 
tional COUlt’S instetencp that 
it pay arrears on certain pen- 
sions. going back to 1983. 

As a superb, but under-re- 
ported World Bank study, 
published earlier this autumn, 
shows, all these are but differ- 
ent aspects of the world’s 
rapid ageing.* Nor is this 
mainly a problem for indus- 
trial countries. The number of 
people over 60 is forecast to 
rise from half a billion, in 1990 
to L4hn by 203a Some 29 per 
cent of that increase is to be 
in China alone; another 29 per 
cent in the rest of Asia; and 28 
per cent in other developing 
and transitional countries. 
Only 14 per cent will be in 
industrial countries. 

The burden of public pen- 
sions is set to rise sharply (as 
is shown in the chart, on the 
assumption that the c ur ra n t 
relationship between demog- 
raphy and spending an pen- 
sions continues). Today the 
Italian state is tottering under 
the burden of paying just over 


Economic Eye / Martin Wolf 


Confronting the 


old age crisis 


The loo mi ng public pension burden 


Pa n s ta n spending u % of GOP, by region 

20 . . . - - - 



to - j 



“TT North Attn; 


042 

1W 


Mint 




14 per cent of gross domestic 
product in pensions, but the 
average burden of industrial 
countries is set to be higher 
than this by 2030. The 
Increased costs will be still 
mere difficult to bear in poor 
developing countries, such as 
China. Health spending is also 
correlated with ageing: in 
Australia, for example, public 
health spending per head on 
people over 65 is six times 
that on children under 15. 

Ageing is. In fact, the 
world’s most important eco- 
nomic rfm»gnge_ Pension and 
health spending on the old 
either is already - or will 
become - the largest item of 
public spending virtually 
everywhere: in Austria and 
Sweden, it is already dose to 
20 per cent of GDP. In OECD 
countries, implicit pension 
debt exceeds reported public 
debt by large amounts: in the 
UK, for example, the ratio of 
public debt to GDP in 1990 
was 35 per cent, while the 
implicit pension debt was over 
150 per cent of GDP. Italian 
implicit pension debt was 
almost 250 per cent of GDP, 
dwarfing the explicit debt 
ratio of over 100 per cent 

Ageing is important for 


equality between the sexes, 
since women are much more 
likely to be old and poor than 
men. Meanwhile, heavy pay- 
roll taxes, largely to cover 
pensions, represent an impor- 
tant cause of high levels of 
unemployment, notably in 
Europe. In the UK, for exam- 
ple, the payroll tax rate was 
dose to 20 per cent in 1990. In 
Poland, it was 30 per cent 
Pension systems also have 
implications for savings, while 
private pension funds have 
become massive players in 
capital markets. In 1991, pen- 
sion firnd assets were two 
thirds of GDP in the US, 70 
per cent in Switzerland, 73 per 
cent in the UK and 76 per cent 
in the Netherlands. 

If any area of public policy 
requires long-term planning, 
it is pensions. Unfortunately, 
governments have set up pub- 
lic pension schemes that gen- 
erated hugely positive real 
returns to the first cohorts of 
beneficiaries, but negative 
real returns as they mature. 
In the case of the US, for 
example, the real return to 
those retiring 25 years after 
the establishment of social 
security was 9 per cent, but 
this fell to below 4 per «*nt for 


those retiring 45 years after. 
Things will get still worse in 
the future. One indication of 
this is the increases In Quote 
as a share of GW that will be 
needed to meet pay-as-you-go 
pension obligations, in Raly, 
the worst example, the 
required tax increase will be 
llB per cent of GDP, 

Governments are absolutely 
certain to dafeutt on their pen- 
sion obligations, probably by. a 
mixture of higher pension 
ages, reduced indexation and 
means testing. The notion 
that the state can be trusted is 
just one of several myths 
punctured by U» Bank. It also 
notes that the anti-poverty 
case for focusing aid an the 
old is weak, because families 
with small children are usu- 
ally poorest of all; that social 
security for the old rarely 
redistributes income to the 
poor, partly because the rich 
live longer; and that govern- 
ments focus quite as much on 
the short term as individuals, 
one example being the use of 
early retirement programmes 
as a false cure for unemploy- 
ment, another being how pay- 
as-you-go programmes concen- 
trated benefits on voters who 
were mature at the time they 
were established. 

The Bank study argues that 
there should be three distinct 
policy objectives: redistribu- 
tion to the poor: smoothing of 
consumption; ami provision of 
insurance. It also recommends 
a multi-pillar system, with the 
public pillar providing a basic 
minimum income, to alleviate 
poverty ha old age and insure 
citizens against a multitude of 
risks. But relying an the pub- 
lic sector alone is mky. Thus, 
it also recommends a private- 
ly-managed, funded and man- 
datory system, alongside 
purely voluntary savings. 

It is impossible to do justice 
to this rich study in one- 
article. But it has a clear les- 
son: stop believing In Father 
Christmas and start saving 
now. 

*Avertmg the Old Age Crisis 
(New York 7 Oxford (JnxoersH^ 
Press for the World Bank. 
1990. 


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FT- ACTUARIES WORLD INDICES 






The Yftsuda Trim and 


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Jofamy conpiM by The Fkmctal Tknes Ud* Goldman. Sachs 5 Co. and Na tt W aa t Securities 
NATIONAL AND 

REGIONAL MARKETS FTOAY PBCSWBft TO 1W 

Figure* ta pmnthMs US tfchg Pound Load Loai K 

show muter Dnai Dollar since Staring Yen DM Cunencydhg tom 

<* 3toCk Indtac 31/12/93 index Inde x Index Mac 31/12/03 


Uri_ En contention wtih the institute of Actuate and the faculty of Actuaries 


Dlv. 

Yield 


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US Pound 
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London Agent Bank 


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T l: G 5 3 S S EXSBv 

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res ;! 

Residential Property | 

Securities No.) PLC 


C950DQUDOO 
AX Notes 

Mortgage Backed Floating 

Rale Notes due 2025 


Nn?hi‘ h IwtvNi pirn tKg ihtTi uj|| k' 
a pm^ul RpainM uf Ul.nt |*r 
IN, Vi* 1 pUNuwd hi Itnm-e (3)) fj 
tin' an dir pnatof iUr 

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meant utoMmibif oi HUa IXturinr 

|*M niUtfarfrfcrrk- 1 iJjSjto ya Nifc. 


TOYO 

CONSTRUCTION LTD. 

US. $100,000,000 
Guam teed floating Rote 
Notes Dne 1998 
(Coupon No. 3} 

In aeeonhto c e vith the cowfitins 
of the Notes, notice is hereby given 
that for the aormonth period foam 
ah DemIHrMt w Eth June B95 
OBI dqn) the Notes wffl carry on 
toertit rate of 7 2E35* ill Relevant 
interest payWabiwH be aa Mows: 

Nairn OTU& tMXKMXM 
US. S3M63J9p«rcoapoa. 0fa.S> 

THE SANWA BANK. LIMITED 
Agent Bank 


Env ir o nm ental liaMity Report 
prov i des vital news and analysis of 
e n vironmental liability issues from 
around the worid 


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Australia (38) 

Austria 03 

BalgkOTt (35) 

M Ip® 

CaraKtaftOS) 

Datanafc (33) 

Rnlandt 24 

Franco (log — , 
Q*mwypfq 

Hong Kong (561 

treted (14) 

toly (30) 

JflpBi (468) — 

Malaysia (97) 

Modoofl 8) 

Nemariand (is) 

Haw Zealand (14) 

Nonvay (Z3J 

Shgapom (44) 

Scum Mite (9Q 

Spain (06) 

Otaodpnpg} 

9 afa te Hff| 

Thatandm 

Unted Kingdom (204) 
USA (514) 


—17TJ00 

-170-32 

~106£6 

—17836 

—12734 


23 

-4.7 

Z2 


.17538 

.163,78 


JZ7.14 

—19636 

—70.78 

^15138 

-464.19 

.188934 

^21036 

—7138 


13735 

re22517 

16033 

10432 

— ^19129 
187-73 


-ao 

-33 

423 

-83 

-13 

-33.1 

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33 

16.7 

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-204 

63 

5j4 

123 

-03 

223 

-1,1 

163 

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16220 

16735 

157.71 
16026 
12137 

fl 5 

16832 

15534 

131.72 
31082 
18833 

67,14 

14434 

44031 

1802.10 

20011 

0730 

19132 

34533 

30930 

13076 

216j43 

182.65 

14010 

1B135 

17007 


10025 

11132 

10535 

11839 

8030 

18080 

11130 

10037 

0731 

207.10 

12439 

4431 

9013 


1202.71 

13335 

4531 

12638 

23 06 7 

20082 

8737 

14435 

10138 

0731 

121.10 

11835 


13070 

14435 

18533 

14830 

10437 

194,60 

14330 

133.79 

11044 

26730 

16031 

5732 

124.06 

37933 

1552.07 

17235 

68.48 

16539 

29742 

26890 

112.62 

18841 

13147 

12833 

15638 

153J3T 


14863 

14433 

13230 

279.16 

12838 

19932 

17831 

139.10 

11844 

32530 

180.45 
8848 
9813 

46843 

719131 

10832 

3847 

18036 

24531 

28813 

137-78 

25859 

13883 

15814 

181.45 
187.73 


« 151994 — • — DOLLAR M 

Local 

DM CtOTsncy 58 week 52 waste 
tettte tote High Um 


-103 

-13j6 

-87 


333 

1.13 

4,17 

874 


-13 

-123 

193 

-187 

-104 

-333 

-23 

-13 

87 

-113 

-81 

-7*7 

Z7 

-83 

153 

-87 

81 

-181 


149 

078 

336 

133 
331 
334 
132 
880 

134 
142 
341 


-11-7 

-1-1 


814 

137 

134 

245 

825 

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17133 

17538 

16823 

17024 

12734 

83937 

17637 

15816 

13739 

32936 

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6935 

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INFORMATION; Bnaifier Valdl 


, • M . . ' • , , 
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TeL +44 (ttl 71 8*24083 


FINANCIAL TIMES 


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DO YOU WAPJT TO KNOW A SECRET? 

lbs LDA (Sam Seminar wf show you how tie mathto REALLY work. The amazing 
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Technical Analysis Software 


Americas (66® 

Europe (TOGO - — 

Node (11<9 

Padflc Mn (7W 

Euro-fteme (1601) 

Norih terete (917) _ 
Ewop e Be. UK (50^^- 
Padflc Ex. Japan (32S) 
Worid El US 0706} _ 
WoridEfcUKpOie}^ 
Wortd Ex. Japan (17S5) 


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.165l65 

31734 

.16035 

.16231 

.1B431 

.14636 


16037 

16037 

15063 

18038 


16236 

166.71 
15068 
16733 
12139 
22734 

167.45 
15636 
13032 
31239 

15071 

66.13' 

14334 

441.63 

1542.16 

199.71 
67.62 

181.45 
344.14 
307.75 
13037 
21856 
158.74 
142.77 
17009 
17636 


.16336 

.166.75 

.15231 


-L7 

187 

100 

85 

-13 

05 

—17.7 

43 

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166.17 

157,13 

206.16 

15135 

15338 

17854 

14064 

22332 

15643 

150.07 

17021 


11090 

10438 

13739 

10131 

10236 

11649 

9336 

14938 

10073 

10633 

1153Q 


143.12 
13532 
17735 
13036 
13236 
15032 

121.12 
182.77 
13337 
13736 
14016 


10076 

11133 

10877 

111.75 

8037 

152.16 

11133 

10809 

87.43 

20002 

12803 

4817 

96.12 

29893 

123026 

13337 

45.16 

12736 

22063 

20538 

6737 

14863 

10230 

0536 

119.00 

118.18 


14017 

14345 

13002 

14801 

104.22 

19839 

14812 

13814 

11237 


145.75 

14534 

20739 

10018 

12046 

16335 

129.43 

206J9 

126.08 

14134 

173.73 


15934 

5632 

12338 

380.10 

168649 

17139 

5830 

16875 

296.19 

26857 

11231 

18639 

131.46 

12238 

164*14 

15231 


14639 

14340 

131.75 

27541 

12830 

201.17 

15051 

13935 

11237 

327.49 

17934 

54.97 

85.12 

45936 


189.15 

19539 

17734 


15738 15734 
16748 17831 

15034 15034 


-83 

23 

-06 

-1.7 

- 1.1 

-83 

-223 

-43 

-2-3 

-63 


236 

3L15 

143 

1.16 

2.03 

233 
230 
622 

234 
015 
238 


INDEXIA 


TTwWorid Index (2225 


.170.74 


iffijfl mere 12049 144 J 0 


174UJ5 

19447 
217.74 
16038 
161.42 
182.73 
147 SO 
238.47 
16029 
100.10 
181^0 


1«L84 

58.85 

187.71 

245.03 

288.13 

137J9 

2SL67 

laajn 

14059 

179.09 

18038 


145J1 

275.70 

201.41 

185J7 

150.40 

50656 

216.60 

97.78 

170.10 

621.63 

2647 JOB 
233J0 
7759 
211.74 
401J8 
34250 
. 15679 
2*251 
17658 


12054 

23*09 

11904 

16904 

12637 

aw.98 

17758 


127.16 

430.71 


19156 

62.08 

171.06 


20858 

13251 

18756 

14091 


132.17 

9SS.TT. 

1180* 

169.41 

13S44 

mso 

18252 

6739 

13808 

W8.1S 

2211.70 

«4.« 

6459 

171,05 

3465Q 

34457 

1385* 

W.8& 

1H51 


16025 

1S3.16 

200.73 

15153 

15355 

17350 

14053 

22452 

15&03 

15950 

172® 


214,96 

196L04 


11056 
10459 
13806 
10106 
10255 
11 £57 
83.72 
1465* 
10354 
10659 
11308 


14223 
134.40 
17753 
13025 
13150 
14032 
1 20.7B 
19304 
13043 
13708 
14851 


1Bl.1t «904 
17358 mae 


Tv! f0442) 573015 ♦ Fq< (0442) 575G0. 


OopteSe Tte Fkmte! IMS LMKi Go 

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teri, Hii3m and Amiteti Oct 31. IN* 

rib a Mv MM of 039 NMdi 

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16952 16153 107.7* 138jK 


14450 
14759 
207® 
1 05.19 
122.12 
18257 
129.07 
20704 
12S.7! 
140.78 
172.72 


17658 

233.91 

17686 

175.14 

192.73 

158,12 

29651 

17668 

176® 

16550 


1600 
181.44 
14104 
16352 
17B 67 
146® 
224.17 
15826 
16256 
17034 


16458 

tt144 

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154.41 

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14853 


18810 

152.73 

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19 



F^ANCIAI, TIMES MONDAY DECEMBER 19 1994 


EQUITY MARKETS: This Week 



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HEW YORK 


» 

Chances look 

■ 

better for a 
holiday rally 

Ever dace the Federal Reserve last 
raised interest rates in November the 
market has zig-zagged as investors tried 
to guess whether the it would raise 
rates agata in. December. Tins week 
feey siioaid produce an answer after 
the Fed’s open Tnartgf commit tee 
meeting holds its final maptbi g of the 
year tomorrow. 

It was not lmffl tha ce n tral bank 
boosted interest rates by 76 basis points 
an November 25 that tbs market woke 
r® to the reality that the Fled chairman, 
Mr Alan Greenspan meant business 

• 1. _ __ __ _1 mm m • m — 


Lisa Bransten 


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pressures ont of the econo my . 

The toUowing week, stocks took a 
nosedive as strong economic data 
suggested to market players that 
wmrinys might be battered hy enntlior 
rate increase by the year-end. Also i-h^f 

werft, the yidd curve representing the 
spread between two-year note; ami the 
tong band began to flattop indicating - 

that band market players expected an 

economic slowdown. 

Last week, however, sentiment began 
to shift as relatively tame increases In 
copsotner and producer price indices 
suggested that the Fed might wait to 
see the fall effects of this year’s she 
increases before undertaking mere 
tightening. The yield curve, which had 
tightened to 13 basis points, spread 
back out to 28 points by the end of the 
week and the Dow recovered 3 per cent 
of Its value. 

Stocks typically get a boost at the end 
of the year, but until last week analysts 
were sceptical about whether the 
market could stage its traditional 
holiday rally. 


IB 


Now investors win be watching to see 
if the market’s recovery was due to 
ftmdar nenta l Changes in santtmpnt . or 
t echnic al factors snir ouii ding Last 
Friday’s “triple-witching horzr”, when 
options and fixtures on stock indices 
expired together in 60 m tan tes of 
trading; 

Mr David Shniman, chief equity 
strategist at Salomon Brothers, believes 
it was a bit of both. 44 The consumer arid 

producer price data were good and we 
got put into overdrive by options, ** be 


Data on November durable goods 
orders due out on Friday should give 
investors an indication of Fed policy for 
the coming year, but reaction may be 
muted as Friday is the last day of 
trading before Christmas anil volumes 
are expected to be low. A consensus of 
economists expects orders to increase 
by about L4 per cent after a LO per cent 
decrease in October. 

On Thursday, the fli wnma wa 
Department will release its final GDP 
figure for the third quarter, but the 
number is not expected to have much of 
an e ffect as investors have already seen 
twoprehnimary figures. At the end of 
November, third-quarter GDP growth 
was estimated to be 33 per cent, and 
analysts do not expect any significant 


LONDON 


Merger talk 
brings cheer 
for Christmas 

Until last Thursday afterno on it se emed 
that the festive season had turned into 
the open season. At least, that is. as far 
as the merchant banks and regional 
electricity stocks were concerned. 

Just as the institutions and the 
market’s big trading houses began to 
wind down fur the Christmas break, 
with no signs of the expected and 
traditional year-end rally, up popped 
news of merger talks between 
S. G. Warburg and Morgan Stanley, 
closely followed by news that Trafalgar 
House was considering a bid for 
Northern Electric. 

Those two pieces of news, plus 
widespread expectations that there 
could well be other big bids in the 

market, dispelled much of the recent 

gloom in UK equities. • 

With the FP-SB 100 index having 
fallen below 3^00 - it reached its lowest 
level for five months early last week - 
the general consensus around the City's 
trading d ps ltp* now is tiint the Tuerife vt 
can make same progress as we move 
into 1995 

And in spite of the surprisingly 
abrupt termtnatipn of the merger talks 
between Warburg and Morgan, which 
drove Warburg shares back to their 
pre-merger talks level, there Is a 
much better feeling to the equity 
market. 

Activity this week will inevitably 
slacken as the winding down process 
really gets under way and there are no 
really big results scheduled outside the 
utilities area. 

But as a broker at one of the City's 
blue-blooded securities houses put it 
last week, the big corporate finance 


Steve ihomson 


fMM JUK-Shm tadvac 


1,500 



DscemberiBM 


Portuguese privatisation 


Lisbon to take global path 
for rest of programme 


departments in London’s merchant 
banks and stockbraking firms are bring 
put on “red alert” for the new year, 
which many expect to bring a burst of 
takeover activity. 

It is the utilities area of the market 
that strategists see as attracting much 
of the corporate activity. With the 
government's golden shares in each of 
file water stocks privatised in 1989 due 
to disappear at the end of this month 
and those of the electricity companies, 

privatised in 1990. due to expire 
at the end of March 1395, the two 
sectors are the market’s prime 
candidates to attract the attentions of 
predators. 

Analysts have long suggested that 
the powerful US utility companies have 
been eyeing the cash generative 
electricity companies. Strategic mergers 
among various water and electricity 
stocks are also said to be on the 
cards. 

There are. however, two 
not-insignifleant hurdles for the market 
to negotiate this week; Tuesday’s 
Federal Reserve Open Market 
Committee meeting; which win ponder 
US monetary policy, and Thursday’s 
Bundesbank Council meeting. The 
markets are betting on both institutions 
leaving their interest rates unchanged. 
But you never know. 


OTHER MARKETS 


MILAN 

The market is bracing itself for 
further fi rework s this week 
when Mr Silvio Berlusconi, the 
prime minister, faces a 
confidence vote, probably cat 
Wednesday, that could topple 
him from, power. The market 
rose above the political fray 
towards the end of last week, 
recouping the sharp losses of 
Monday and the 

index to do6e flat om the week. 

Dealers also reported that - 
foreign investors were 
returning as buyers, 
apparently heeding the advice 
of a growing bank of 
strategists that the time is 
right for the market to turn 
after falls in recent months. 


FRANKFURT 

The Bundesbank council holds 
its last meeting of the year on 
Thursday, but few analysts 
expect any news of a change in 
interest rates. 

James Capel says that in 
spite of still weak retail sales, 
the strength of tbiidquaxter 
GDP data and rising capacity 
Utilisati on ^ rill mitigate 
against an interest rate cut 

Capel stm expects the next 
move in rates to be up, and the 
most likely time to be the 
second quarter of next year. 
The broker notes that the 
Bundesbank will also 
announce its monetary targets 
for next year, but does not 
expect any change from the 
current 4-6 per cent range. 


The coming week will also 
be a busy one for economic 
statistics, with data coming on 
November producer prices, 

consumer prices and October's 

.1 ■■ - 


ZURICH 

Ri sing interest rates and the 
consequent Ukehhood of 
reductions in economic growth 
forecasts by the markets urge 
caution, says UBS. 
Nevertheless, in global terms, 
struct ur al and economic 
factora point to a relatively 
good performance for Swiss 
equities. 

UBS says its recent contacts 
with companies have 
confirmed the strong 
momentum of a arwmgg. 


“Profits of the largest 
cyclical Industrial firms will 
rise from S FKL9bn in 1990 to 
SEi&0bn in 1996k* tt saysL 
Aggregate profits of Swiss 
quoted companies would 
probably grow at a double-digit 
rate in Swiss ftanc terms this 
year, in 1995 and in 1996, UBS 

The high share of profits 
generated in Europe and the 
Asia Pacific constituted a high 
degree rf resistance to the 
negative impact of any US 
policy tightraring, said UBS. 

“The defensive character of 
the equity market, which 
amounted to a disadvantage 
amid the growth euphoria of 
the first half of this year win 
have an increasing positive 
impact in 1995.” 


COPENHAGEN 

In a week largely bereft of 
results elsewhere, Denmark 
will have half-year results 
today from Danisco, the food 
and beverages, food 
rn grprtiente anil parVag-rng 

conglomerate, and Radiometer, 
the hi«Hh» 1 mpBt iirl ng 

equipment maker. 

Daiwa Europe notes that 
Danish shares dropped in 
November for the fourth 
month running, but nearly 
reached stability after more 
pronounced weakness earlier. 
"These declines, combined 
with an upward revision of our 
gamings projects, bring 
Denmark into the reasonable 
range of multiple valuations 
for 1995 and 1966,” Daiwa said. 


Portugal is preparing to tap 
international markets with its 
first global equity issues as the 
privatisation programme that 
has raised more than Es936bn 
($5.8bn) over the past five 
years move beyond the capac- 
ity tit domestic investors. 

A simultaneous offer of 25 
per cent of Portugal Telecom 
in New York, London and Lis- 
bon next May, raising an 
expected Es240hn, will be the 
centrepiece of several Portu- 
guese equity issues in 1995 that 
will test the government’s 

adroitness in approaching 
international markets. 

Global offers of substantial 
holdings in Cimpor, one of 
Europe's top 10 cement compa- 
nies, an d Compa nhia Portu- 
guese de Prodra-fio de Electric- 
idade, a power production 
utility, are also in the pipeline. 
But only the Cimpor issue is 
likely to be completed before a 
general election due in October 
1995 at the latest 

The move into international 
markets is attracting global 
banks to a privatisation pro- 
gramme that stimulated little 
Interest when it was limited to 
domestic issues. Merrill Lynch, 
the US investment bank, win 
lead the global issuing consor- 
tium for Portugal Telecom. 
Morgan Stanley is advising on 
the structure of Cimpor's offer. 

Sale of a first tranche of 20 
per cent of Cimpor in July pro- 


TOKYO 

In a week shortened by a 
national holiday on Friday to 
mark the birthday of Emperor 
Alrihi to. the market is awaiting 
today's announcement of the 
government’s economic growth 
target for the fiscal year to 
March 31 1996, writes Robert 
Patton. 

And at the same time, Mr 
Yasuo Matsushita, who was 
installed as governor of tiie 
Bazik of Japan on Saturday, 
will hold bis first news 
conference. Some analysts note 
that given his background, 
there is some speculation that 
Bfr Matsushita may be more 
inch'ned to assist the financial 
system than his predecessor. 

Thmonow, the Ministry of 


vided some important lessons 
that the Portuguese authorities 
appear to be assimilating. 
Although a domestic issue, 
Cimpor had hoped to attract 
strong interest from overseas. 
But foreign investors acquired 
only a disappointing 32 per 
cent - although foreign institu- 
tions underwrote 47 per cent - 
in an operation that raised 
Es39.6lbn. 

The most damaging draw- 
back was the fixing of the issue 
price by government decree 
almost two months before the 
sale. The market dropped 16 
per cent in the interim and 
investors shied away. The 
authorities are committed to 
eliminating this risk from 
future offers by setting only a 
price range by decree and dele- 
gating the exact fixing for a 
few days before the operation. 

Guaranteeing flexibility for 
the PT Issue, Mr Eurico Cabral 
da Fonseca, chairman of 
Comunicapdes Nadonals, the 
state holding company for the 
telecommunications sector, 
said; “The global offer will be 
subject to the principle of open 
pricing, giving priority to the 
level of demand and to estab- 
lishing an equilibrium price as 
a trading reference for second- 
ary markets.” 

Criticisms were also levelled 
at the government for failing 
to give a sufficiently authorita- 
tive mandate to Cimpor's 


Finance will present a drafl 
budget for other ministries and 
agencies for the next fiscal 
year. 

HONG KONG 

Share prices are expected to 
move higher this week, after 
the Hang Seng index’s climb 
through the 8.000-point level 
last week, torifes Louise Lucas. 

The index picked up 443 per 
cent last week and dosed on 
Friday at 8J.66.39, although 
turnover remained thin. 
However, the index is unlikely 
to breach S4>00 because of the 
negative view being taken of 
the property market, which 
claims an exposure of some 40 
per cent on the index. 

The sector was not 


underwriting banks - led by 
state-owned Banco Fomento e 
Exterior in Portugal and over- 
seas by Baring Brothers - to 
organise the issue efficiently. 
“Potential investors were being 
called up by 10 or 12 different 
banks without any co-ordina- 
tion," said a London dealer. 

This was another valuable 
lesson. Portugal is now count- 
ing on leading global banks to 
mount efficient book-building 
systems and coordinate com- 
plex operations over several 
markets. 

The PT operation is an ambi- 
tious first step. One tranche, 
expected to raise about EsSObu. 
is he sold in PortugaL An offer 
of American Depositary 
Receipts will be made simulta- 
neously in New York, together 
with an issue in London 
including separate UK and 
international tranches. 

A farther 25 per cent of Cim- 
por originally due to be issued 
in New York is now expected 
to be postponed, “Cimpor 
would have to be offered by the 
first week of March to avoid 
draining liquidity from the 
market before the FT opera- 
tion," said an analyst in Lon- 
don. "But the company is 
unlikely to have its 1994 
results and financial holdings 
sufficiently clarified to be 
ready by then.” 

Peter 


encouraged by last week's 
withdrawal of a building plot 
at auction in the face of no 
bids, while fears over China's 
spiralling inflation have also 
taken a toil. 

Late last week, the market 
took heart from gains on Wall 
Street, and a belief that the US 
Federal Open Market 
Committee may not raise 
interest rates tomorrow, but 
instead wait until the new 
year. 

The bargain hunting and 
short-covering sparked by last 
Thursday's recovery are likely 
to recur if interest rates are 
not lifted, although brokers 
continue to warn against 
seeing any bounce as a 
convincing recovery. 

Compiled by Michael Morgan 


COMPANY NEWS: UK 


The Emer ging Investor / Francis Ghiles 

Casablanca puts itself on the map 


New share issues, privatisa- 
tions, the arrival of foreign 
investment funds, and the 
reform of the bourse’s organi- 
sation have completely trans- 
formed the Casablanca stock 
exchange tn less than two 
years. As a result the stock 
market has established itself as 
the second largest on the Afri- 
can continent, excluding South 
Africa, with a market capitalis- 
ation of about $5bn. 

For Moroccan and foreign 
investors, last month’s sale of 
the state’s 66.64 per cent stake 
in the Sod€t& Nationals dTn- 
vestissement marked a water- 
shed in the kingdom's private 
sation programme. 

The sale, for which Pallas 
Stem, a subsidiary of Swiss 
Bank Corporation, acted as 
adviser, netted an estimated 
Dh2.03bn (5222m), twice the 
amount raised in July 1993 
when the state sold SI per cent 
of the CIOR cement company 
to a French subsidiary of the 
Swiss Holderbank group. 

The increasing involvement 
of US, UK and French portfolio 
managers in the Casablanca 
market reflects an improved 
perception of the Moroccan 
economy, now that- the IMF- 
backed adjustment of the 1980s 
has been completed and the 
country has resumed repaying 
its debts after a series of 
rescheduling agreements. 

Over the past 1 2 months, 
some $20Qm of foreign money 
has come onto the market, 
about 40 per cent of total vol- 
ume, according - to Mr Adil 


CURRENCIES 


Douiri, co-founder of Casa- 
blanca Finance Group, a finan- 
cial intermediary company set 
up in 1992. He expects sack 
inflows to reach $500m next 


According to Upline Securi- 
ties, a stockbroker which alone 
in Morocco provides market 
research in corporate firmur-e, 
the total volume of foreign 
investment in Morocco, includ- 
ing the aforementioned $20Qm, 
is set to top $lbn this year. 

Trading volume so far in 
1994 has reached DhThn, which 
amounts to a 97 per cent 
increase against the first U 
months of 1993. The overall 
share index has shown a 30 per 
cent rise so far, while the CFG 
25 share index has risen by 36 
per cent However, the bourse 
does have some very illiquid 
shares, making the market 
more a ttractive for wealthy 
individuals or funds ti«n indi- 
vidual inves t ors. 

The reform of the bourse, 
a p p r oved in September 1993, is 
stm in the process of being 
implemented, and is based on 
the French model It involves 
converting the market into a 
Umitpci company in which the 
stockbrokers are shareholders. 

Ite aims include better com- 
pany information - up to now 
a very opaque area as most 
companies are family owned 
and operated and accounts are 
seldom audited' by interna- 
tional auditing firms; more 
protection for Investors, and a 
broader range of financial 


Ten best performing stocks 

Stock 

canty 

Mtoy KMc oa Ml 

1Wt2M S 

EttttBf 

Huaton TeQnan 

Taiwan 

1.2912 

02937 

29.44 

Tbtnfama 

Brazil 

0.0430 

0.0053 

13AO 

Fhance One 

ThaRand 

14*4137 

1.6872 

13.08 

Phflfppine National Bank 

PhOpptnas 

14.0156 

1.8199 

13.07 

BarftD Pacific Tknber 

Indonesia 

13428 

01498 

1075 

HM Sanpoema 

Indonesia 

4.7541 

0.4381 

1015 

Advanced Info Services 

TTlnllnrtH 

InSnSnu 

13.8563 

1-2891 

ions 

Technology noaouroo Industries 

Malaysia 

33732 ■ 

102824 

9.49 

Bangkok Bank 

TTtafland 

7.8439 

0.6740 

040 

SM Prime Hokfings 

PhHppines 

03281 

00281 

9.38 


The reforms have pro m pt e d 
the emergence of investment 
funds. The largest include the 
£S9m Morocco Fund, jointly 
owned by ONA, the kingdom's 
largest company, and Salomon 
Brothers; the £15m Interfina 
Fund, jointly owned by three 
Moroccan banks, the Intema- 
tional Finance Corporation and 
Spains’s Banco Exterior; a 
330m. fund set up by Framthng- 
ton, a subsidiary- of Credit 
Commercial de France and the 
International Finance Corpora- 
tion; and another by Morgan 
Stanley Africa Investment 
Fund. 

ONA has further contributed 
to the modernisation of the 
financial system by a capital 
increase last May which took 
the form of the largest share 
issue ever in the country, 
worth $220m. ONA allowed for- 
eign investors to buy into its 
capital, one third of which is 
now owned by Morgan Stanley, 
Lehman Brothers, Paribas, 
BSN Danone and Assurances 
G£n£rales de France. George 


Soros's Quantum ' Emerging 
Growth Fund bought a 2 per 
cent stake, for 540m, last April 

The reasons for the interest 
Morocco provokes abroad are 
easy to see. Mr Pierre Lasserre 
who runs Finacor, the largest 
money broker in Paris, last 
year bought a 47.5 per cent 
stake in Upline Securities, 
which has just gained a seat on 
the Casablanca stock 
exchange. Mr Lasserre sees 
“many opportunities in 
Morocco”' and was keen to 
“back a group of energetic and 
enterprising young Moroc- 
cans”. 

All however is not plain sail- 
ing, as the minister for privati- 
sation, Mr Abderrahmane 
Saaidi, publicly acknowledged 
after the privatisation of SNL 
Demand for the shares of SNL 
a holding company whose 
Interests include cement, 
drinks and the nrmTirfai sector, 
was very strong; hut the man- 
ner in which share; was allo- 
cated has left a sour taste in 
the mouths of some investors. 


One fifth of all the shares on 
offer was floated on the Casa- 
blanca stock exchange during 
the first week in November at 
DhSOQ a share and was eight 
times subscribed. This came as 
tittle surprise to bankers in 
Casablanca as SM shares were 
trading at Dh425 when they 
were suspended a few days 
before the offering, but bad the 
advantage, from the govern- 
ment’s point of view, of 
encouraging institutional 
investors to offer a higher 
price for the shares. 

The authorities allowed the 
trading of SNI shares to 
resume before they had com- 
pleted the sale of the two other 
tranches, which went to Insti- 
tutional investors. This encour- 
aged people to borrow money 
and make a quick killing. How- 
ever, fills reinforced critics in 
their view that the process of 
privatisation was turning into 
“something of a casino". 

Of the two institutional 
tranches, 35 per cent was sold 
to Moroccan institutions, 
which cannot ansefi the shares 
for five years, and a further 16 
per cent went to Moroccan and 
foreign institutions. The com- 
mission which overseas priva- 
tisation operations set the min- 
imum price per share for the 
two institutional tranches at 
Dh325, but successful bidders 
bought the shares at Dh425. 

SNI shares have since fallen 
back to Dh400 as many individ- 
ual buyers who bought than 
on borrowed money have been 
forced to realise their gains to 


pay their creditors back. Fur- 
ther criticism focused an the 
rote of the agent bank for the 
sale, Banque Populatre, whose 
back room operations were 
described by one City institu- 
tion as a "shambles of red 
tape". 

Faster progress in the 
broader aim of liberalising the 
management of Morocco's 

fi run-trial wtnr te hanrtirapptfd 
by three factors: the absence of 
money and foreign exchange 
markets and hence the impos- 
sibility of currency hedging 
and the absence of market 
driven interest rates, for which 
the IMF has been pressing for 
two years. 

The Banque al Maghrib, the 
central bank, and leading 
Moroccan banks are according 
to observers, dragging their 
feet because they are comfort- 
ably set in their old ways and 
fearfhl of change. 

For decades, the unwritten 
contract between the central 
hank and the banks was that 
the latter would finance laige 
government deficits and leave 
the banks to make comfortable 
margins on their other busi- 
ness. With an estimated 3500 to 
$600m deficit in government 
financing- written into next 
year’s finance bill, the banks 
have good reason to continue 
in their old ways. 


News round-up 



Strategy 


Mr Michael Howell, of Baring 
Securities, has forecast that 
the current bear market will be 
in retreat by the middle of next 
year, but warns that equities 
worldwide could fall by an 
additional 10 to 15 per cent 
over the next few weeks. 

There could be two increases 
in US rates of 50 basis points a 
time early in the new year, but 
thereafter a slowdown in the 
growth of the US economy 
would underpin sentiment 
He recommends taking an 
overweight position in 

southern and eastern Europe, 
the Indian sub-continent and 
sub-Saharan Africa. 

■ Kenya 

The head of the Nairobi 
bourse, the largest in east 
Africa, has tuged the 
government to accelerate the . 
sale of companies and broaden 
the range of stocks available to 
investors, agencies report 
The Nairobi stock exchange 
currently has a capitalisation 


of $2.2bn and is to be opened to 
foreign investment from 
January. 

■ Bahamas 

The Bahamas aims to launch a 
stock exchange in 1995 with 
assistance from the 
Inter-American Development 
Bark, Reuter reports. 

The IADB said that the 
long-term intention was to 
harmonise the existing four 
Caribbean stock exchanges, 
and nine others in Central 
America. The Bahamas 
exchange would join ones 
already operating in Jamaica, 
Barbados, Trinidad and the 
Dominican Republic. 

Some 10 to 12 government 
enterprises are expected to be 
privatised in the coming 
months in the Bahamas. The 
former British colony is one of 
the world’s largest offshore 
banking centres. 

• Edited by John Pitt Further 
coverage of emerging markets 
appears daily on the World 
Stock Markets page. 


Philip Gawith : 


Markets watch F ed and Buba 


-• K - 
■- 1. "■ 

■i 

. *• 


Meetings of the Federal Open 
Market Committee tomorrow, 
and tiie Bundesbank council 
on Thursday, offer foreign 
exchanges their best possibility 
of excitement in the final days 
of 1994. 

The only other country that 
might provide some pre-Christ- 
mas indigestion is ltaly, where 
the lira remains vulnerable to 
farther setbacks. The 

government 'faces possible 
defeat in a no-confidence vote 
this week. 

The dollar is probably vul- 
nerable to a decision from the 
Fed to keep rates on hold into 


the new year. It has risen 
about 5.5 per cent against the 
D-Mark, and 3.5 per cent 
against the yen* since late 
October. 

To some extent, this afgned- 
ation has been bnflt around the 
expectation of the Fed moving 
aggressively to curb inflation- 
ary pressures. 

Following weaker than 
expected inflation data last 
week, however, expectations 
of '• the Fed sanctioning 
higher rates tomorrow have 
receded. Some observers, 
however, believe the odds 
on a move are 5050, citing evi- 


dence of strong consumer 
spending as a countervailing 
argument. 

In Germany the balance of 
opinion overwhelmingly 
favours the Bundesbank leav- 
ing rates wnrbawgwi- Nothing, 
however, should be taken 
for granted. The German 
central bank is well known 
for the pleasure it takes 
in defying market expects- 
Hobs. 

For the statistically minded, 
there is a farther issue. High 
Frequency Economics in New 
York points out that, on past 
evidence, December is the mast 


likely month for interest rates 
to be moved. Over the past 25 
years, 10 of the 72 adjustments 
of official rates have been in 
December; nearly twice what 
could be expected. 

The prospect of the Berlus- 
coni government falling in 
Italy has pushed the lira to 
record lows recently. The 
confidence vote will provide 
markets with more to chew 
on. The markets appear 
to have discounted most 
bad news, but the lira 
could weaken further if a polit- 
ical hiatus threatens the nor- 
mal course of government. 


.Dollar 


iHW<4 T- ll-lt 





Baring Securities emerging markets indices 


Index 

i an 2/94 

Weak an weak imwmanf 
Actual Percent 

Month on montfi movement 
Actual Percent 

Year 10 date movement 
Actual Percent 

World (301) 

Latin America 

17055 

+037 

+032 

-831 

-4.91 

+2.14 

+137 

Argentina (20) 

9023 

+0.04 

+004 

-6.05 

-531 

-19.15 

-16.60 

Bread (21) 

229.77 

+3.63 

+1.60 

-8.67 

-3.64 

+90.12 

+64.54 

Chile (12) 

219J92 

-Ml 

-1.96 

-2-12 

-0.96 

+72.38 

+4936 

Mexico (25) 

131.33 

-6.00 

-437 

-437 

-3.36 

-29.93 

-1836 

PerufIB) 

944.61 

+15.33 

+1.65 

+938 

+039 

+36832 

+6337 

Latin America (04) 
Europe 

— 162.71 

-2.15 

-130 

-5.75 

-3.41 

+13.47 

+9.03 

Greece (16) 

87.01 

+034 

+039 

+5.07 

+6.19 

+3.92 

+4.72 

Portugal (18) 

116.95 

-132 

-1.11 

-437 

-330 

+438 

44.30 

Turkey (21) 

79J26 

-4.60 

-5.46 

-4.16 

-438 

-82.45 

-5038 

Eu-opa (55) 

AsAa 

pB 88 

-1.45 

-1.45 

-1.15 

-1.15 

-1337 

-1239 

Indonesia (26) 

131.41 

+045 

+034 

-18.05 

-1238 

-39.63 

-23.17 

Korea (23) 

145.09 

+137 

+1.09 

-1730 

-10.76 

+35.39 

+3226 

Malaysia (23) 

203.32 

+7.69 

+333 

-25.41 

-11.11 

-49.73 

-19.65 

Pakistan (11) 

103.36 

-4.71 

-436 

-534 

-43 3 

-833 

-7.48 

Philippines (12) 

276.98 

+9.31 

+3.48 

-13.18 

-4.54 

-4530 

-14.11 

Thailand (25) 

24485 

+9.95 

+434 

-29.61 

-1030 

-18.90 

-7.17 

Taiwan (32) 

178.14 

+1.95 

+1.12 

+11,68 

+739 

+22-43 

+1439 

Asia (152) 

205-34 

+533 

+2.77 

-1639 

-7.46 

-1637 

-7.26 


In $ taemtt Jwy 7th infr-lOO. Souc* Suing f Ncirt fag 




7 


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1984 


Toronto now available twice a dav. five times a week 

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fib VOM. AVI MAKl- THE BREAKFAST U.MiJ] i. I \KL ) Ull OM- AT J.l \( H T lUK >. 


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T 







NEW YORK 


There will be an element of 
nervousness in the bond 
marioet tomorrow, as the 
Federal Open Maricet 
Committee meets to discuss 
policy. 

Although farther tightening 
is on the cards, few expect the 
Fed to move only a month 
after Its last unexpectedly 
sharp increase. But as 
pessimists point out, there is 
stQl no indication of final 
demand in the economy 
slowing down. Therefore, the 
longer the Fed leaves it, the 
more likely tt is that fhe next 
rise will be another big one. 

The main economic news 
this week starts tomorrow with 
the release of October’s trade 
figures. Wednesday brings the 
first projections from 
corporations of their capital 
expenditure next year, along 
with actual spending in this 
year's third quarter . 

On Thursday comes the final 
figure for third-quarter GDP 

growth (presumed to remain 
dose to the preliminary figure 
of 35 per cent) and the implicit 


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= Soucoft MWifl Lynch 


FINANCIAL TIMES MONDAY DECEMBER » .»4 


WORLD BOND MARKETS: This Week 


LONDON 


price deflator, which, should be 
close to 2 per cent, Friday 

brings November durable 
goods orders and personal 
income and expenditure. 

While consumer spending is 
of vital importance, the 
November figures scarcely 
matter. In the week before 
Christmas, what matters is 
what shoppers are doing. The 
media say the news for the 
bond market is not 
encouraging: US shoppers are 
out in force and spending hard. 1 


Trading volumes are likely to 
be sluggish In the week leading 
up to Christmas as dealers 
indulge In seasonal 
celebrations. 

The economic statistics on 
offer are unlikely to disturb 
the festivities; the broad 
measure of money supply (M4) 
and the non-European Union 
trade figures rarely move the 
market, and Thursday’s 
third-quarter GOP figure is 
expected to be unchanged from 
the last estimate. 

More significant could be the 
publication, on Wednesday, of 
the minutes of the November 2 
meeting between Mr Kenneth 
Clarke, chanoeQor of the 
exchequer, and Mr Eddie 
George, governor of tbs Bank 
of England With the market 
expecting a further base rate 
rise in the first quarter of 1996, 
the governor’s views on 
inflationary indicators will be 
closely watched. 

Attention will also be 
focused abroad, and in 
particular cm the US Federal 
Reserve's open market 


Philip Coqqan 


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committee meeting in 
Washington tomorrow. 

Ms Katy Peters, senior 
economist at Daiwa Europe, 
thinks the Fed wQl not tighten 
and the Bundesbank’s M3 
money supply target will 
indicate little need for a 
further rise in German rates. 

In such, circumstances, and 
given her view that a lot of bad 
news on interest rates is 
already priced into the market, 
she thinks there is scope for 

short gilts to rally. 


FRANKFURT 


Avid Bundesbank watchers 
will be keeping a dose eye on 
tins week's meeting of the 
German central bank's council 
- at which the money supply 
target for 1995 will be set- to 
see what dues emerge about 
monetary policy. 

The Bundesbank baa made . 
no interest rate changes since 
May and economists are 
divided as to when rates will 
start heading upwards again. 

This year. M3 has soared 
alarmingly before recently 
foiling back to within striking 
distance of the target range of 
4 per cent to 6 per cent The 
1995 target is expected to be 
about the sains. 

For the moment; the 
Bundesbank is keeping the 
markets calm, knowing how 
volatile they have been as : 
band market rates have risen 
in the wake of US 
anti-inflationary moves. 

Nest year is likely to be a lot 
calmer for the bond market 
than 1994 has been.-The 10-year 
bund yield started the year at 
5.55 per cent, its lowest since 


Andrew Fisher 


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1986, and reached a high of 
7B per cent in October, 
from which it has eased 
slightly. 

Commented expects the 
1996 level to average &8 per 
cent, with a similar level for 
1966. 

The favourable inflation 
trend and the easing in M3 
provide a stable basis for the 
band market, the bank argues, 
with domestic investors 
expected to become more 
enthusiastic. 


TOKYO 


Bond bribes to Tokyo ended 
the week little changed in a 
market that has become 
directionless as traders await 
developments. The benchmark 
10-year government bond 
ended the week at 9&B* 
yielding L596 per cent, 
compared with 4.S2 per cent a 
week earlier. On Friday, bonds 
moved in the opposite . . . 
direction to stocks, rising to 


T 7 T* rfm* J utFjf ; j Ar_' 


towards (he oose. 

The easy credit stance of the 
ftank of Japan continues to 
mitigate ajptinst higher 
interest rates in the near term. 
By the end of the week, the 
BoJ had injected Yl,lQ0bn into 
the money marine*; including 
Y300bn in loans to commercial 

hanh 

The total wfakh was on the 
hillside of market 
expectations, inducted about 
YlflObn in three-manth CDs 
issued at&34 per cant, which 

found a ready market with 

short-term fund managers who 
see little chance of a rate rise 
On Friday, outgoing BoJ 


Robert Patton 


BeoaPnwrKSfWd aava (Ny 
*«■»*•*« 


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400 




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’ ^ '—ft 
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governor Mr Yasushi iflww.: 
called, fimtheiniection of 
wifflHam Bqiridity into the 

economy for banks to trada the 
ii(PM*rfbnnto^ lottBS thatfitr* 
the legal? of the bursting of 
the “bubble economy". , 

Mr Mieuo also said Jap*n> 
eunent ac coun t surplus must ■ 
be reduced by correcting the 


and investment in Japan. Mr 
Yasoa Matsushita, his 
successor, Is expected to freed 
much the same path. 


- -.Ty: . . 




Capital & Credit 


l_L 1 J L 


Uncertainty remains over Nordic bonds 


For investors in the Nordic 
government bond markets, this 
has been a year of uncertain- 
ties. 

They have had to deal with a 
general election in Sweden, EU 
referenda hi Norway, Sweden 
and Finland, and recovery 
from recession in all four coun- 
tries that has left investors 
extremely nervous about 
whether there will be a new 
surge in inflation. 

What is more, these uncer- 
tainties have arisen against a 
background of a spectacular 
deterioration in bond markets 
worldwide that has had a par- 
ticularly severe impact on the 
Nordic region. 

However, the most dominant 
concern - for i n vest or s in (he 
Swedish and Finnish, markets, 
at least - has been the state of 
the countries’ public finances. 

Uncertainty has revolved 
around the ability and willing- 
ness of the Swedish authori- 
ties, in particular, to bring 
under control a budget deficit 
expected to reach 13 per cent of 
gross national product in the 
current year and a national 
debt that is now approaching 
90 par cent of GNP. 


This uncertainty remains. 
Although yields in Sweden - 
and in the other Nordic coun- 
tries - have fallen since the 
autumn as a relative calm has 
settled on international bond 
markets generally, Scandina- 
vian investors - and in Swe- 
den’s bond market in particu- 
lar - remain extremely wary. 

The election in September in 
Sweden ushered in a new gov- 
ernment, under Social Demo- 
crat Mr Ingvar Carisson. which, 
immediately signalled its 
intent to be strict an public 
sp ending . 

That, and Sweden's decision 
to join the EU, which many 
Hifnir trill impose an anti-infla- 
tion discipline on the govern- 
ment, provided a boost for the 
Swedish market 

Nevertheless, investors will 
he watching next month’s bud- 
get closely for an indication of 
how strict the government 
really intends to be on public 
spending - there was a wobble 
in the bond market last week 
at talk that taxes may be 
raised instead c£ spending cut 

“Tt was no big deal [the 
rumour was that the govern- 
ment would raise a tax on 


bank profits instead of cutting 
public consumption] but the 
market is very sensitive to any 
sign that the government is 
not keen on cutting spending 
at the moment,” said Mr Niels 
Christensen, Nordic analyst at 
Technical Data in London. 

Another uncertainty facing 
Sweden is the possibility that 
the country's credit rating may 
be downgraded. 

In October, Moody's Inves- 
tors Service, the US credit rat- 
ing agency, warned that the 
country's Aa2 rating had been 
pat on review for possible 
downgrade because of its ris- 
ing public sector debt. If this 
happens. U could raise signifi- 
cantly Sweden’s borrowing 
costs and lead to a jump in 
yields. 

Another, more longer-term 
risk Is inflation. With expected 
GNP growth of 34 per cent in 
1995, there are already some 
signs of significant cost pres- 
sures, with producer prices 
growing at around 6 per cent 

Inflation is also the main 
risk to the Danish bond mar- 
ket. The “economic fundamen- 
tals" look extremely favourable 
for Denmark - inflation is cur- 


rently low at around 2jD per 
cent, tt has a current account 
surplus and its finances are to 
a healthy state. 

Denmark is ahead of most 
other European countries in 
the economic cycle and growth 
is expected to peak this year, 
before declining gradually in 
1995. 

However, although inflation 
is currently low, some analysts 
doubt the authorities’ willing- 
ness to tighten policy to head 
off future inflation. 

“Unlike the UK, which is at a 
si mila r stage in the economic 
cycle, Denmark has interest 
rates on hold and has only 
begun to gradually reverse the 
stimulative fiscal policy it 
embarked upon in 1993-94,” 
said Mr Darren Cullen, Scan- 
dinavia economist at Salomon 
Brothers in London. “Many are 
bullish about Denmark, but 
until it signals a stronger anti- 
infiationary stance Fm not con- 
vinced," he said. 

The prospects for Norway’s 
government bond market are 
perhaps brighter, although it is 
the smallest and least liquid of 
the Scandinavian markets and 
the one which has least inter- 


est for international investors. 

Certainly, its fundamentals - 
a current account surplus and 
subdued inflation - are sup- 
portive, and since the decision 
at the referendum not to join 
the EU, there has been a dra- 
matic rally in the Norwegian 
bond market - the 10-year 
yield has now fallen by more 
than one percentage point 
since .the peak in September 
mid the yield spread against 
G e r man y has narrowed signifi- 
cantly. 

“This reaction to the too' 
vote is perhaps due to the fact 
that Norway was likely to be a 
net contributor to the EU bud- 
get so its fiscal position has 
been helped by the derision,” 
said Mr Christensen. He 
expects the yield spread 
against Germany to narrow 
further next year. 

The Finnish bond market 
has, to a large extent, taken its 
lead from Sweden and it shares 
many of Sweden’s problems - 
a large budget deficit and fears 
that inflation could take off 
with the economy growing 
strongly. 

Graham Bowley 


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This announcement appears as a mmer of record only. 


Saga 

Petroleum a.s. 



US$850,000,000 
7 year Revolving Credit Facility 


December, 1994 


ABN AMRO Bank N.V. 


Arrangers 

Barclays Syndications Deutsche Bank AG London 


Co-arrangers 


Den norske Bank 


ABN AMRO Bank N.V. 
Christiania Bank og Kreditkasse 


Lead Managers 

Barclays Bank PLC Deutsche Bank AG London 

Den norske Bank 


Bayerische Landes bank GirozentraJe 
Commerzbank Aktiengeseflschaft 
The Industrial Bank of Japan, Limited 
The Sakura Bank, Limited 

Soci&d G£n£rale 
Managers 

Bank of America NT&5A 
Chemical Bank 

The Long-Term Credit Bank of Japan, Limited 
The Sumitomo Bank, Limited 

Agent 

Barclays Bank PLC 


Citibank International pic 
The Fuji Bank, Limited 
The Royal Bank of Scotland pic 
Scotiabank (Ireland) Limited 


The Bank of Tokyo, Ltd. 

Credit Suisse 
NationsBank 
Union Bank of Switzerland 




0 


Junk bonds 


m m 

Investors still enjoy positive returns 


Junk bonds - corporate debt 
issued in the US and rated 
below investment grade - lost 
more than 2 per cent of their 
value in November, according 
to figures published last week 
by Moody’s Investors. Service, 
the credit rating agency. 

Noting an increased rate of 
default and rising yield 
spreads, Moody’s said the 
decline was the second largest 
' since the inception of its specu- 
lative grade index in February 
199L 

The news will reinforce the 
views of critics who see dab- 
bling in the $290hn junk bond 
maim as tan tamount to wild 
and dangerous speculation. - 
but the market’s recant evolu- 
tion and performance defies 
this kind of judgment 

Certainly, prices of junk 
bonds have fallen this year, 
principally because of -the 2£ 
per cert increase in US interest 
rates and Investors' expecta- 
tions of higher inflation. 

The Moody's Index - made 
up of 553 bonds - fell by 2^8 
per cent in November bringing 
the cumulative decline far 1993 
as a whole to 9,82 per cent 

However price declines have 
been mitigated by relatively 
large coupon payments and 
tightening credit spreads. 

Overall - when the effect of 
interest payments is included 
- junk bonds have offered posi- 
tive returns of OS5 per cent 
oyer the year to November, 
according to Moody's. 

Between May and October 
investors saw six consecutive 
months of positive overall 
returns. ”111 this rout for the 
bond market, returns are still 


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positive,” says Mr Lea Carty, 
an economist with Moody’s to. 
New York. 

Even to November, investors 
to bonds rated HI and Bal - 
the upper end of Moody’s spec- 
ulative grade spectrum equiva- 
lent to B pins and BB phis rat- 
ings issued by Standard & 
Poor’s, the other major rating 
agency - earned positive total 
returns - of 0.49 par cant and 
0.47 per cent respectively. 

Taking a longer-term view, 
junk bonds have also done sur- 
prisingly well Many corporate 
issuers have been performing 
well as the US economy pulled 
out of recession. 

to price terms, junk bonds 
have outperformed US Trea- 
suries. especially since 1992, 
and spreads over Treasuries 
tightened sharply to 1993 and 
1994. 

Moody's B3s {equivalent to 
S&Fs B minus) were trading at 
€72 basis points over Trea- 
suries to February 1993, har- 
rowed to 483 basis prints over 
to February tins year and 431 
basis points since November, 
for example. 

Moody's Bal bends, the high- 
est rated non-investment 
grade, traded at a spread over 
Treasuries of 306 points to Feb- 
ruary 1992, falling to 260 points 
over a year later and 182 over 
in February 1994. At the end of 
last mo nth Bal bonds h»n nar- 
rowed further to 175 points. 

The Improvement has also 
been reflected In. a gradual 
decline in the rate of default 
Default rates reached 9J5 per 
cent in 1991 before foiling to 3.1 
per cent in 1993. In June 1984, 
based on Moody’s trailing 12- 


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month Issuer-based rate, rates 
fell to a decade low of L44 per 
cent. 

Mr Anton Simon, head of 
high yield Investments at the 
United Bank of Kuwait to Lon- 
don, says this year's decline in 
prices has been less marked 
than many would have expec- 
ted, partially because the mar- 
ket has become both deeper 
and more liquid as a result of a 
change in the profile of inves- 
tors, following fhe entry of big- 
ger institutional Investors into 
the market since 1990. 

Some 30 per cent of the high 
yield market is owned by 
mutual Hands, 25 per cent by 
US insurance companies, 12 
per emit by US pension funds 
and 10 par cent by investment 
grade and equity investors, 
with only 3 per cent of the 
market owned by foreign 
investors, according to figures 
cited by Mr Simon. 

“to the past; the high yields 
would have been clobbered to 
this kind of market,” he says. 


NEW INTERNATIOHAL BOND 


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"People just saw it as dirty 
asset class - when they felt 
nervous they just got rid of it” 

Mr Simon says fhe level of 
tesesrch aprf upjg ts hadln g of 
the market has also Increased 
and there is growing receptiv- 
ity among institutions to argu- 
ments that high yield corpo- 
rate bonds should be treated as 
a separate asset class. 

In a report published earlier 
this year. Pennsylvania-based 
SEI Capital Markets Research 
noted low levels of correlation 
to the performance with eit her 
US equities, investment grade 
bonds or Treasury bonds. 

SEI said investors should 
hold between 10 and 30 per 
cent of their fixed income port- 
folios in high yield bonds. It 
maintained that a portfolio of 
fixed income becomes more 

efficient whan high yie ld V rads 

are admitted - the effir fa yy 
stemming from greater return 
and lower volatility. 

SEI added "risks be 
minimised through diversifica- 
tion among a range of high 
yield issues”. 

Enthusiasts also point out 
the importance of «iMrfnUy 
monitoring the credit quality 
of issuers, with the Investment 
focus much more akin to that 
taken by a manager of equity 
rather than fixed income. 
"Never compromise on credit 
vigilance,” says Mr Simon. 

As signs of an economic 
slowdown to the US build up. 
that looks like essential advice 
for investors tempted by tbs 
potential returns offered by the 
sector. 

Richard Lapper 


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There is only one problem with a car designed by computer. 
It looks just that; designed by computer: functional, pre- 
dictable, soulless. That’s why we entrusted the design of the 
GS300 to Giorgetto Giugiaro. The result is perfection down 
to the smallest detail. Like the LS400, the GS300 is a per- 
fect union of aesthetics with technology. For instance, every- 
thing, from the headlights to the door handles, has been de- 
signed to create the lowest possible wind resistance. Inside, a 
choice of leather or velour upholstery, air conditioning and 




7 speaker CD player, defies the nodon that beauty is only skin brakes and seat belt prc-tensioncrs arc standard, as arc dri- 


deep. Under the bonnet, the GS300’s 212 hp (156 kW), 
3-litre, 24 valve engine is mounted on its own sub-frame, 


ver and front seat passenger airbags. However, to truly un- 
derstand what we mean by ‘the relentless pursuit of perfec- 


before it is assembled on the body to absorb the slightest tion’, get behind the wheel of the Lexus GS300. A test drive 
vibration. Its 4-speed automatic transmission adapts to the is worth a thousand words. 

m 

h 

driver’s mood and its independent double wishbone suspension 
guarantees high speed stability, confident braking and precise 
cornering For peace of mind, the GS300 comes equipped 
with a host of safety measures. Advanced electronic ABS THE RELENTLESS PURSUIT OF PERFECTION 




For more information, please call : Austria : 0222/610 04 203, Belgium : 02 730 76 86, Denmark : 042 91 40 00, Finland : 9800 3663, France : (1) 47 10 81 15, Germany : 0130 4144, Ireland : 01 456 79 05, 

Italy : 06 65 96 23 00, Netheriands : 01621 85900, Norway : 32 20 5420, Sbun : 91 563 33 96 - 93 280 30 31, Sweden : 08 706 71 00, Switzerland : 062 999 91 1, UK. : 0800 343434. 









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Whether you're doing business in Berlin or hatching deals in Hong 
Kong, FT Cityline International can link you with ail the UK stock 
market information you need: 


INDICES 


US INDICES 



General (290077) 1778048 1733341 17381.77 2347240 16/2 1879261 28711 


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8070 801J5 681 JB 113210 3X2 

387.18 38732 38217 4BI08 212 
1027.22 102723 102623 tB225 W2 

139144 138303 136506 154208 9C 

481770 484270 4878905611000 1W 

408235 401404 3S30O3 427806 20710 
411200 4111.70 407800 400800 23/3 
2011J2 200838 199003 218209 1 H 

55217 55427 55710 578140 21/11 

33602 mi5 33605 41279 X 

10060 18190 19050 197200 V2 

126823 127211 127803 198500 2Q 
192116 1931.10 183002 236803 2/2 

77118 78608 76308 >827 18ft 

22107 21950 21 707 34625B 2ft 
207006 20S2J59 202177 2271.11 16ft 


MmSBfrfiim mao 87503 882.16 t194JB IVt 

— — * * — 

none KOO0 

rangSengCn/nn 016809 826888 7967051226109 4/1 

tadta 

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Marta CbnrtlOft/82) 45178 45803 45137 61209 5fl 

SotaMp/f/Sq 1785J5 177806 177115 VKtff 2OT 

My 

Sana Ooram M (1972) 80577 59105 58201 817,17 105 

W Gened (4/1/94) 9810 9590 9440 131000 106 


181200 12TI2 
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37804 25/10 
101106 M 


CBSlVMBD&dSq 

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S6F 250 pi/1260) 
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3881 JD 4ft 

3K75 13/12 

1801.18 3/1 

122708 25nO 
182142 25/10 

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rcpwttns H 237806 210105 288L17 8 fl 

G8SimGBD^id8q 4318 4380 4340 46190 31/1 

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S^Sp/So) 192186 190122 188SLB6 243804 3/2 

Nanny 

0stoSGME/tft3 108306 103344 109107 1211.10 2S2 

UrtaGaqpCVlAq 270609 287906 261700 330607 4ft 

PMqO 

811(1977) 29350 29330 29480 322800 18/2 

^SSporaCWTB 52672 52704 $1409 64101 4ft 


Cftx 40 (1/H8Q) 
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08b 3E 0600/1489 


195703 2QM 

49630 21ft 
25700 21ft 

187909 1V12 

90091 21ft 

290903 9ft 


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bn Bade 9409 9146 9443 1960V 9301 10677 $199 

(21ft) 08/11) ru/iofisj (1/10/81) 

Daqnt 141114 141241 139102 18029 137109 139229 1202 

TO Cm* TO*) TOS9 

un 18204 18102 13244 22708 17X94 29646 1090 

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DJ Ind. D^s Nbh 391705 (379107 ) Low 3769477 0729.13 ) (Thoodk d4) 

Day* Nrfi 380702 (377300 ) Low 378147 (3/4300 ) G%efctff0 


46800 45534 45137 4C09 43X92 

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544 JO 54003 53005 86118 51005 


•real time share prices 
•updated financial reports 


daily unit trust prices 
personal portfolio facility 


4109 4U8 41 Ja 4694 


JSEGobTOTO 

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MbambOra (IftftT) 147000 147100 146300 100300 31/1 


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FT Cityline has proved invaluable to business people and investors 
in the UK for years. And now it is available from anywhere in the 
world. 


If you would like further details fin in the coupon below or call 
the FT Cityline Help Desk on (071) 873 4378. 


(16/ft 04 /ft (18/3ftft (51/10/72) 


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FT Business Enterprises Limited, Number One Southwark Bridge, 
London SE1 9HL Registered in England Number 980896. 

financial times 


29806 5/10 
T3LN $10 
28X49 1212 
14L65 21/4 


YORK AOTIWE STOCKS 


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964 19615 196X2 -35 

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and Moms - 500: Aorita TraOoa BHa. HEX Gn, MB Gn. 3SF230. CAC«X Ewo T<p-I0a CEO OwaK TOramo Co>np7M«tats S 
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INTERNATIONAL 


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(Mb) 

10.714* 

if 

ftrlUStf 


■niunHiMv v 

.».* 

Spdo 

Pte) 

201230 


Sancton 

tao) 

11.7808 

H 

Stfuftnl 

(SR) 

2*782 

it 

UK 

n 

to 

V 

Ecu 

- 

1.2884 

■ 

SORT 

Anutas 


0830161 

* 

WwnUna 


ixm 

Brad 

W) 

1J246 

r i 

Otada 

(CS) 

- 2.1692 

■ 1. 

SI 

Mtfdce (Nwftej) 

5.4111 

■ 1 

USA 

m 

L5630 

y 

FSeMoMASe 

ew/Mkta 

i * 

Auttiafe 

|A« 

ALOIS* 

• i 

Hong Kong 

(HK 8 ) 

iacri 4« 


(ndta 

(W 

410352 

■ 

,toppp 

m 

150535 


Matoyrin 

(MS) 

4JXB0 


NnrZeriand 

(NZS 

24455 


-»00203 

-0038 

•#00062 

-00122 

-00002 

400019 

-002 

*0.0004 

*044 

-0028 

*00008 

+OOOS2 

*0016 

*0001 

+00089 

+OJ0044 


813-Q01 
375-011 
250-353 
922- 127 
594-679 
547-574 


157-170 
459-945 
375-011 
468-502 
086-201 
670- 193 
109-361 
882-924 
747-77B 


17J3Q26 

505650 

9X438 

7JB3SQ 

04704 

24661 

370954 

1.0170 

2560lQ3 

505650 


17.2S2S 

604330 

9X181 

75920 


17.2789 




24531 

370267 

117156 

254432 

604330 

2.7485 

106819 

291.796 


06271 

84604 

2455 

1.0166 

504943 

2.747 

107147 


1 J) 

17X363 

IX 

_ 

. - 

-06 


TO 

4TO043 

1.3 

04 

0-6347 

-02 

06012 

03 

- 


- 

to 

m 

05 

04574 

TO 

64113 

TO 

0J5 

24GQ9 

TO 

24166 

1.6 


m Boric of 
rWrV trig. ran 


1154 

117,1 

1107 

67.6 

1006 

1203 


DOLLAR SPOT FORWARD AGAINST THE .COLLAR 


Deal* 


Ooalng Change Bktttffar Day's n 4d Dm month 

"Bd-print on day spread high low Rtf* ttPA 


mont hs On* year JLP Morysn 
%PA fte %PA Mat 


1 WORLD INTEREST RATES'. 

MONEY RATES 





DvoMtibw 16 (Mr 

Ota 

Ttvee Sh 

One Lomu. Ola. 

Repo 

night 

month 

fntfts mfha 

year inter. rate 

rum 


AiaSrta 


Dam ftifc 

Rnkmd 


OBmay 


206.740 

11-8238 

2*0800 


11.7410 

2X742 


11.7978 

00721 


-02 1.0168 
-3.1 2575J2 
-06 508643 
07 2.7433 

OO 107133 
-09 254329 
-2.1 207345 
-1.7 11.8303 
24 2J06S5 


03 1.0144 02 

-54 262732 -2.8 


105.1 

700 


"wnp 

Italy 


(Sch) 11J0625 
PR) 322900 
0X0} 01615 

(FMt 48640 
(Fffl 64150 
69 1*5714 

(Dr) 242.790 
0 £) 1^379 

H 163000 


+0002 600 
-005 800 
-00022 600 
-00127 590 
-00066 140 
-00004 710 
-026 740 
40081 373 
+2J5 600 


650 11.0630 
000 323*20 
630 6.1752 

600 48700 

160 54216 

M7 1X7Z8 
640 242.950 
384 1.5391 

700 163800 


11J&330 11.055 08 11.0385 09 

3Z2B0D 32276 06 32.225 08 

01530 01627 -02 01825 -Ol 

4.6S73 44618 06 44585 05 

5.4066 5L4132 04 64102 04 

16093 16708 OX 16634 06 

242.700 245.29 -124 25024 -123 

1JS35D 1.5384 -6l 4 14385 -Ol 

162076 1639-75 -22 1647 -2.7 


10941 1.1 1049 

31-09 1 J 2 106.1 

0149 02 105.1 

08415 05 81-9 

0377 07 1008 

13481 13 107.1 

26734 -102 683 

13387 -0.1 
1879 -23 73.6 


week ago 


week ago 


*00008 877-891 


+00027 588 - 610 
-00011 234-258 
+00051 661 r 703 
*00093 078- 144 
*00016 825 - 835 


*0300 

*00221 


141 - 168 


■ ■ — . 

a * + 

* h 


Mtppkios (Pbso) 373371 
Swdktfla (Sfl) 06816 
Singapore (St) 22901 
5 Africa (Coni} R 06618 
S Africa (Ra) 0} 03068 

South Korea (Won) 124048 
Trim . . fll? 413788 

Thetend (BQ 392648 

fSQA am tar Dto 16. BtiMtar apt 


-0094 
*0 3049 
*03112 
*00061 
•*00056 
-00008 
*00079 
-00437 
*1-54 
*00501 
*00351 
ida h the 


156-548 
438-631 
059 - 101 
437 -472 
469-273 
695 -641 
888-916 
788 - 848 
891 -244 
000 - OSS 
817 - 952 


1.5607 1-5584 
1.3299 1.3230 

2.1709 21652 21690 -02 
84149 54070 

1-6645 1X620 1X631 - 0.1 

20107 20093 20173 -'Ll 

127061 120875 126405 5.4 

49X780 49J0040 
1S&880 15M30 155JB95 4.1 

4j0111 40054 

2.4477 <L4380 2.4518 -3.1 

37.7300 37.5370 
5.B870 & 8 S 86 
3JS9ZS 22882 
&SB53 55782 
83387 63834 
1841.59 1239138 
413145 413018 


OX 

430043 

IX 

1TT.1 

Lux&nboua 

(LFt) 

32X900 

-aas boo - ooo 

32X420 

312800 

32X75 

06 

32225 

08 

31 AB 

IX 

106.1 

TO 

2.7078 

15 

121.0 

■■ — » — ■_ 

nmnemnai 

(« 

1.7S6S 

-00013 580-590 

1.7B11 

1.7577 

1.7577 

OB 

1.7652 

OX 

1.7333 

1.4 

1017 

OX 

10.7044 

ai 

680 

Norw^ 


6X550 

-flpffifi 635 - 566 

08732 


06552 

OD 

18575 

-Ol 

1796 

OS 

06X 

-TO 

- 

- 

— 

Pwttigrt 

|B>) 

161X90 

-0.15 200-300 

161X80 161.150 

161X75 

-4.7 

163 

-4X 

167 

-TO 

84.9 

-20 

2D9J97 

-LB 

QSuO 

Spate 

Ett) 

131.945 

-013 010 - 980 

132X80 131,750 

132.16 

-2.1 

13262 

-20 

134.445 

-IX 

800 

-L7 

11A48S 

-14 

TTO 

Sweden 

(SKi) 

7.5373 

-CM»1B 333-423 

7X658 

7X076 

7.5485 

-IX 

7X698 

-IX 

7.6523 

-IX 

80S 

21 

2j0199 

27 

1206 

Sarifznrfand 

(SR) 

1JS83 

400015 Z78 - 288 

1X305 

1.3275 

1X261 

2.0 

1X218 

ZQ 

1.2941 

2.6 

106X 

- 

- 

- 

304 

UK 

B 

1-5630 

*40015 625-535 

1X545 

1X520 

7X691 

-OL1 

1X63 

OjO 

1X610 

at 

08.9 

0.1 

1X820 

04 

- 

Ecu 


1^132 

+00005 129 - 134 

1X141 

1X128 

1X13 

02 

*1.7133 

ao 

1X197 

-ax 

- 

- 

- 

- 

— 

SDftt 

Americem 

— 

1-45133 

— — 

- 

- 

— 

- 

“ 

- 

- 

- 

- 

- 

- 

» 

- 

Argenta 

P«o) 

0X864 

*00008 383 ■ 984 

Q3384 

09978 

■ 

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

Bad 

W 

08475 

-00015 470-460 

06610 

0X470 

- 

• 

- 


- 

- 

- 


week ago 


week ego 


4% 

4% 

54 

54 

5.00 

5.00 

54 

54 

84 

84 

4.64 

4X4 

3h 

3r- 

54 

54 

834 

TA 


5V* 

Stir 

5H 

5h 

5.48 

5.48 

5* 

** 

047 

5.47 

4 

4 

64 

64 

rj 

24 


5tt 

5* 

6 

5* 

5.48 

030 

5* 

6 

SB 

551 

6.43 

44 

4V« 

6 Vi 

64 

*4 

24 


5% 

58 

84 

8 

055 

5-43 

ft* 

6 H 

9* 

9» 

5.62 

587 

4VS, 

6 % 

88 

24 

2 y 


64 

SVfc 

6 K 

585 

5.7b 

74 

74 

104 

10 

005 

5X4 


4.85 

025 

025 

820 

620 


21706 -0.3 21804 -06 608 

1J563 0.0 1.5613 0.1 604 

20218 -L3 20511 -IX 

1204 IX 12055 03 

■ * • — 

164X4 4.1 148JB75 4,9 188.7 

2464 -OO 25021 -23 


Canada (C3) 
M erica (NsvvPuo) 


1*3879 

3.4620 


.*00019 878-881 
*00026 610 - 630 


1,9881 138S9 1X581 -Ol 1^899 -0.6 1^969 -4LB 
04630 24610 2463 -03 24848 -03 3.4722 -03 


■ SUBOR FT London 

* - ■ ■ —i* -i — 

BiunTjonK rang 

week ago 
U9 OoBar CD* 
weak ago 
SDR UnMi Da 


Hong Kong 
Inria 
Japan 
Malaria 


<HK» 

m 

(MSJ 


itt* and ft* 


* ■ 


• ■ r j 
I 

. ' ' ■ / 


- ■*> m , 

... 

' “*rV» 


from THE WftMBJIHIS 


only fta u ftraa da 
tfad by te Bark o# EngtandL 
CUOSiai 8POT RATES. Some 


ga IMS m 10 OBU, Oftar and 
inidfed by aw F.T. 


i to fta 
In bofti 


PWBpp k iee peso) 
Saudi Arabia (SFQ 
Shgapot (SQ 
3 Africa (Com) p) 
8 Africa <RnJ R 
South Koran (Won} 
Tdwai TO 

TheBand (BO 

+8OT ntt for Dae 1&. Bl 
but ww hngdatf by onwi 


1^694 

7.7380 

313725 

100150 

26643 

1-5648 

24.0800 

27504 


25713 

4.0360 

793*60 


25.1100 


*0.0045 

*00001 

*00025 

-018 

*00006 

*00066 

-0.02 

-00001 

-00018 

*00015 

>0032 

+02 

*00088 

-040SS 

ifn thiOfl 
UK Me 


890-898 
376-385 
700- 750 
120-180 
8SB - 848 
640- 652 
300-300 
501 -506 
647-057 
706 - 720 
250-450 
600 - 700 
078- 120 
060-250 


1.2913 1-2857 
7.7385 7.7375 
31.3750 31.3700 
108380 100.120 


24*3500 

3.7506 

1.46B1 

05720 

4.0550 

793500 

26.4120 

201260 


23.8500 

07601 

1.4647 

3-5700 

anan 

793.100 


1^901 

7,736 

31.4425 

9953 

2-5613 

1^655 

3.754 

14637 


-07 1J2919 -08 13047 -1-2 

03 7.7346 02 7,7425 -Ol 

-2.7 31JS75 t2.7 

08 99.16 4j0 95J565 46 

1w4 2.5668 1-2 2.5848 -OB 

-07 1568 -09 1577 -08 


1400 


are oftwd am tor Siitoi tsetse id M> tnthm tv few wto m 
The Inris arr Bankan TnnL Bj* of Tokyo. Ondoya and M 
mm m ihM tor toe rtyamtir Manor Wn, US S CO* and 


4fl 

0625 

3.50 

- 


0625 

3.50 

- 

7V» 

— 

4.75 

- 

7V* 

— 

475 


28 

- 

ITS 

- 

23 

- 

1.75 

- 

7Vt 



ito 

74 

- 

- 

“ 

725 

— 

- 

- 

7.31 

- 

- 

- 

54 

- 

- 

- 

51 

- 

— 

— 

; l «n 

r M. S UOOR tam 

n tag 


ant 


-1.1 

13 

-53 


4063 

79635 


25.1050 25.1445 


07600 -1.1 07754 -07 

1.4002 1.4 14437 13 

06169 -M 07838 -OO 
4.1075 -72 0345 -7.7 

80015 -03 81065 -02 

204698 -09 

202356 -19 2564 -2.1 


EURO CURRENCY 

Dm 1 * Short 7 day. 


i . 


BaJgtan Franc 
OMKitm 


Frinch Franc 


CROSS RATES AND DERIVATIVES 


A ECU are quotad to US eonvney. dP. Morgan mM 


FT GOLD MINES INDEX 


•re not 
15. Bn 


ntod to toe 
1 MW 1 D 0 


Sparifh 


■ » 




■'j 

i 


DKr Hflr 


Ptm SKr 


- 

rL- 

V!-. _ 


' '■>* .i ’ 






. V • . 


i _ , _ 


A <y 


(BR) 100 
63KQ 52.40 
(FFi) 5062 
PM) 2055 
m 4067 
W 1S73 
CFO 1036 
(WO 47.11 
ps) 2002 
(Pta) 2047 
CSfO] 4204 
SA) 2031 
» 5046 
PR 2028 
a 

(V) 3224 
3018 


19X6 

10 

11X8 

3X21 

9.478 

0377 

3X04 


3X21 
4.670 
0175 
4X39 
9X30 
4J440 
6.181 
0153 
7jm 
n Kroner. 


1077- 

8.768 

10 

3j446 

8X30 

0X31 

3X80 

7X02 

3X58 

4.104 

7.184 

4X77 

0483 

3X02 

6.415 

m x 

0571 


1 

2.417 

0096 

0X94 


0075 

1.191 

2X65 

1.183 

2459 

1.132 

1X71 

1X66 

1X07 


2X13 

1X55 

1X01 

0414 

1 

0040 

0370 

0X49 

0403 

0493 

0X62 

0489 

1016 

0468 

0660 

0X48 

0789 

NT IDS 


3021 

1041 

2517 

100 . 


5.448 

2XS4 

3X47 

1.119 

2705 

0107 

1 


1015 

1240 

2171 

1232 


1X90 

1X33 


21X2 

11.12 

1208 

4X01 

1004 

0419 

3X87 

10 

4X50 

5.194 


4894 

281.7 

2870 

1020 

2400 

9X55 

91.70 


1179 


1834 

1965 


1X24 
2748 
1X67 
1.758 
1X56 
2134 
* Yon, 1 


5L15B 

1071 

4X38 


8X43 
0315 
ida Um 


100 . 

1222 

213X 

1214 

2520 

116X 

16L2 

1810 

1907 


4060 

214,1 

2430 

83X6 

203.0 
0064 
75X4 
1925 
81X3 
100 . 

175.0 
99X3 


9507 
1310 
1310 
1601 
per Its. 


23X5 

12X3 

13X2 

4.798 

11-59 

0461 

4X87 

11X0 

4X78 

5l713 

10 

5X74 

11.7B 

6431 

7X37 

7X27 

0146 


4.114 

2150 

2453 

0045 

2043 

0081 

0755 

1X38 

0824 

1X07 

1.762 

1 

2076 

0X57 

1X2B 

1X27 

1012 


1X62 

1X38 

1.122 

0407 

0984 

0028 

0364 

0934 

0397 

0485 

0849 

0482 

1 

0461 

0040 

0X89 

0776 


0X83 

2135 


0789 


0861 

1X52 

1X41 

1X45 

2169 

1 

1X88 

1X86 

1X84 


1X23 

1X47 

0038 

1X38 

0X01 

0X69 

1.450 

0020 

0.758 

1X27 

0.753 


0721 

1 

0X89 

1X14 


310.1 

1025 

1B4X 

6272 

154.0 

8-120 

60X5 

1401 

6210 

76X0 

1329 

75X9 

1505 

7215 

1001 

too 

1210 


1X37 

1X22 

0524 

1X68 

0060 


1X03 

0011 

0X25 

1X98 

OS 20 

1X8B 

0504 

0824 

0X23 

1 


Africa (1* 293042 -112 291 

nntmutntopi 232BX8 - 12 JG 23 

Bortfr toe ita (111 146113 -214 14S 

Copptt*. Iha FfemcU Times UmM 1894. 
Figure* to bradoott dioar imba of compenta 
P rod sca—cr Gold Una tadac Dec IB : 2204; 
MaW ooaad W124M: Souft Aftfca. 


% to 
Dec toe 
16 31/1293 

Dec 1 
15 

into 

ta 

% el 

Hta 


1603X8 -170 

1874.17 

4508 

rtroo 

2X5 

2935.42 -11X 

2908X8 

1210 

33X5 

475 

232608 -120 

2361X5 

506 

1217 


146213 -210 

1496X1 

24X2 

53X8 

000 

Times UrnlM 1884. 





USOoto 
Men Lma 

Yen 


% ffgb Lew 


Short torei 


5*8 - 6 I« 
5\( - S 

Mi ■ 61 , 

Sh‘&4 
8 % - 8*2 
7A - 7,». 
6*2 ■ 5 1 * 
3U ■ 3*, 
5il '51* 
6 *i - P, 
®-7lj 

2 tSt * 2 u 

n ■ 3 s ! 

i cm for fte 


7 days Qno 

noace roomn 

Mb - 6^4 5ft - 5ft 
55, - 5?» ■ 5lj 

5,’, - *S SJV - 5,'. 
5>* ■ 5>, 558-6*2 

5,', - S’. Mi ft 
Si, • B) 1tf<| ■ Tfll, 
711 • 7‘J &ij - 77, 
5*,-5** 5U-5Q 

3^ • 3** 4 - 3^ 

55, - 5,i B - ft 
5*8 • 5>2 8 *. - 0 

- 8 »* 87, - BV 

- 2*4 3*1 ■ 3.*. 

4^ - 0>4 4,1 • 4,1 

UO Drier aid Yen. <*h «• 


SOH iwied Ihpodta 


Three Slx^ 
momns months 


W - 5,1 5% 
61,-5% 6 b 
5A-5b BA 

5b -5 «i 54, 

•*i ■ « 6,1 

11 • 10 b 11 b 
8 A ■ ab 8 U 
Bb • 6 b 6 U 

4.1 - 4,1 4,1 

6 7 l - 6 b 7£ 

6.1 - a .1 ell 
6 b - 9b 912 
3b - 2 A 2 b 

4.1 - 4,1 4ii 
twi twya' n u oo. 


5b 6 ft - 6,1 
flb 7b • tf 

5.1 8b ■ 5b 
5b 6,1-a 

6.1 6*, ■ 6b 
iob nb ■ ii 
BA 9ft - Oft 
611 7U ■ 7b 

4.1 4}1 - 4>1 

7.1 Bft “ 6,1 
all 7ft - 7,1 
9ft iob • tob 

2.1 311 - 2ft 
4ft 4i - 4U 


(TMM1 Sim potoa of 100S 


ViM mm. inxun avtsne 

Ttr V«f ns 247.5 




Issue Amt MkL 


p up Ptl) Ugh \jm Stock 


A. 

■r- 1, * 


■ -i> ■- 


150 FP. 724 
100 FP. 4.79 

- FP. <407.7 

- FP. 68X 
100 FP. 204 
141 FP. 23X 

- FP. 4680 


162 145 Ashbourne 

96 90*2 Asm Man kw 
258 2G8 BSkyB 
173 133 Caydeport 
IX 101 Eucidian 
143 140 Ewovein 

495 468 FUAy Spec Unto 


prtce Mel Oto. Gre P/E 

p *A dir, cov. ytf net 

148 -3 WN3X 3.1 20 130 

95 - - - 

267 +*2 N- - - 

167 *2 RN301 - 20 

102 - - - 

140 WN02 IX 50 11-2 

468 - - - 


Open 

Sen price 

Change 

to* 

Low 

E*L vol 

Opon ML 

03X9 

93.68 

- 

93.70 

93 G7 

56X53 

288.164 

92X4 

32. BD 

-003 

60 67 

02.77 

171.437 

485.417 

62X5 

92.17 

-006 

97XB 

92.15 

164X39 

355.482 

rorrre 

OL urn vm (nuM) Sim per 100% 



93.45 

93.42 

m 

03.47 

93X9 

2.722 

17,483 

92X6 

92X0 

+0.05 

92.68 

02.77 

1,304 

3,760 

_ 

92X5 

- 

- 

92X0 

66 

926 


am Open want age. are tor mv*oa 


1 

■ . 1 *, 
";t> 


J.S*’ 

U- - r . — 


*H 


* 'r 


r p,| > k 

f.. 

■ ■ 

a. 

■ 

•« 


--e 

*-rr v ^ 


00370 

06374 

0.6403 


9&QDH 125000 per PM 

Sett price Change High 

00382 -0X004 00370 

06374 -00002 0X381 

06400 -0X002 0X405 


Low 

0X300 

06370 

0X388 


7X83 

10X06 

42 


Open InL 
4*257 


1X81 


PttI«»flMM)Sft-125.P00perSft- 


■ Poured In ta Yorflc 

Dec 16 

— Ota 

-fiav. date- 

Etfri 

1JGQ5 

10639 

1 Drift 

10602 

10629 

3 ta 

- 10603 

10828 

1 |F 

1X568 

1XB11 


FT QUDE to WORLD CllRRBICfES 

The FT Guide to Wartd Cwrencta 
fable can be found on the Dornpanles 
& ITnanr n pngn In today's triHon. 


07522 

07605 

07808 


Open 

0X970 

1X057 

1.0197 


07516 -00020 07530 0-7510 

07550 -00019 OT57D 07545 

07001 -00019 07616 07596 


RfTlfl— fiMM) Yen 12X per Yen 100 

Sett price Chaige Mgh Low 

09982 +00017 0X992 09970 

.70073 *0X010 10083 10067 

. 1.0200 *00017 ‘ 1.0210 * ‘ 1.0193 


3X02 80X96 

9.791 35X16 

6 464 


EsLral Open fro 

6X02 32X67 

14,743 07.798 

19 2X58 


| UK INTEREST RATES 

LONDON MONEY RATES 





Dec 16 Over- 7 days 

One 

Three 

Six 

One 

— » — »— ». — — 

ngns nouce 

morii 

months 

moram 

year 


100 

fP. 

ITO 

101 

88 

Finsbury Sadr C 

96 


910 

FP. 

972 

625 

615 

Brat Russian Fr 

620 


100 

FP. 

469 

94 

91 

Fleming Ntt Res 

92 


100 

FP. 

300 

106 

98ft 

For 4 Col Envg C 

104ft 

+ft 

100 

FP. 

30l3 

102 

68 

Horn Govett 1000 

101 


80 

FP. 

10L9 

83 

63 

Hycfro tmL 

83 


- 

FP. 

26X 

100 

90 

MV 6 SCO Kocea C 

96 


120 

FP. 

25X 

123 

123 

tatara Tecta 

123 


215 

FP. 

604 

232 

228 

JJB Sports 

228 


100 

FP. 

27X 

103 

100 

xmceritri 

100 


100 

FP. 

69.4 

101 

90 

Lag 6 Gen Ebony 

69 

-1 

100 

FP. 

430 

94 

82 

Mtfttoaon Uoyds 

67 


100 

FP. 

SOX 

92 

88 

Munny Bng Eeon 

92 


- 

FP. 

14J 

145 

iaa 

RAP Group 

138 


175 

FP. 

85.0 

210 

203 

RM 

208 

-1 

- 

FP. 

3l76 

106 

105 

nenWerilri Prop 

105 


120 

FP. 

630 

144 

130 

Ooriftrfsct 

129 


162 

FP. 1X960 

186 

177 

Tekaueet 

161ft 

42 

100 

FP. 

17X 

102 

102 

wMiywi utl 

toe 





RIGHTS 

toaue Araoun Latest 
price pakl Remai. 
p ip date 


RN- - - 330 

M- - - 

RNB.Q 24 30 139 
F4X - 50 


FH405 2.1 42 100 
N4X 3.1 20 13X 


1994 

Hgh Low Stock 

30pm 16pm Cowte 

27pm 10pm DMskai Qrp 

l^pm l 1 ^ MY 

5pm 2pm OMI 

l^pm ^pm S altire 

4pm . At pm Usbome 


18 pm 

27pm «4 

l* 2 pni 

2 pm 

bpm 

bpm 


Weekly Petroleum Argus 

■ Tnc- i niq ( jo so u 1 rep fo r oil r ) di ; i? try t ? o a s . corv ? ic n is , '.r ■ d 

? - Petroleum Argus 

CALL MOW ?r si : RIAL tc \\y* 71 35 •« 


fl SlffUIQ FUTURES (IMM) 9B2XOO per £ 


1X622 

10619 


& any place 
share... 


10606 -00022 10638 

10606 -0X020 10842 

10802 -0.0022 10640 


10690 

10002 

10010 


2X70 Z7094 

6X25 45X78 

28 174 


IrMbank Storfhg 
Storing CDs 1 -■ 
Tnaasrey Btts " 

Barit Bis 

Local authority (tape. 
Dtooount Market daps 


5b ■ 3b ft-ft 6-ft sb -6b 6H-6U 7b - 7b 

-- 6-5% 6 ft - Bft 6 %-Bb 7b - 7b 

" - - 53-5% Bft - B 

sa-5% eft - 6 ft 6 b - 6 b 

6 ft-® 6 b - 6 b 6 b - 6 6 ft - Bft 7 - 6 b 73 - 7» 
6 b - 4b 5B-5H .... 


J dtfjr-r:;.-!." *. 'vs- r.:«" 

i* 1 : ?hs- \\r ~ 


S&to 

Price 

Deo 

— i if - 

Jan 

fob 

Dec 

— PUTS — 
Jon 

Feb 

1X00 

5X5 

5J96 

014 

- 

- 

0X0 

1X85 

3.45 

3X4 

4X7 

- 

015 

TOO 

1X60 

1.00 

1.76 

2X2 


071 

1X8 

1X75 

- 

0X9 

1X4 

1-40 

2X3 

2.62 

1X00 

to 

0.12 

0X5 

3X5 

3X9 

<40 

1X85 

- 

- 

019 

6X5 

6X4 

6X3 

Itoln rivt vOL Grin 12,728 Plii <89G . 

Pfw.deyfeopan biL, Ctfs 419X107 Pula 370.448 




BANKING DEPARTMENT 


UK daaring baric base lencflng ntvA par cert from December 7 0 1994 

Up 10 1 1-3 3-6 ' 6-9 9-12 

iBtebadNNb 

moran moiwi momns rnorew momns 

Certs of Tax dap. £100000) 1*2 4 ft ft 3^ 

CtttoufTocdap. indarCldOjOOOb 1*apa Depotfa udtidman lor omh lipc. 

/toe. tdoder nta ri dboount USSIpa ECOO fbgd rme 9dg. Bqport Raenoa. Nhkottf dtf Nou30, 
1BB4. Agreed rate tor perixt Pec 2MW to dm 24. 1994. aeftmim 1 4 W 70»a fTi k r a nc a reto tor 
pvtod Itov 1, 1994 is tto 30L 1994. Sttamee W & V aiOTpc. Fk»e Hauae Beee Ue $hpc from 
Deal, 1994 


BANK OF 


BHto on afrer 
Ittri of kpHaflons 
TUritoctoK 
lln. aoDBftol Ud 
Attnest at dAl tot 


reareprerei 

MARGINED FOREIGN 

Z m ZmZZ 

EXCHANGE TRADING 


Fast, Competitive Quotes 24 Hoars ■■ 

futures Lui 

TeL +44 71 S15 MOO H 

SE F«t; + 44 71 3293919 S5 


H ii : \ t 

- TREASl 

DRY BILL TENS 

] 1 i 

ta 9 

ta 16 

ta 8 


Dk IB 

£3S0m 

£35fin 

Top kkiM ab 

53360% 5X1BZ% 

£14150 

£1461ia 

Am. cab of dbcouA 

53361% 

5X059% 

£35Dm 

£8590 

taags |Md 

59212% 

5X639% 

£68X45 

fffliffS 

Ota at DBrttanta 

£3Sfin 

E350n 

62% 

40% 

Itaacotf-bU 162 to 

- 

- 


Public depoetto 


Reearw end other aocouris 


Qovc mm ert eecurt tt a a 
Advance and other accounte 
Pranriee, equipment and other 
Notee 

Coin, 

ISSUE DEPARTMENT 


Nolee In dreriation 
Notee In Baridng Depeitment 








Other Go v e rn m e n t seamWee 
Other SecwMes 


Wednesday 
Peoantoer 14, 1994 

2 

14X83X00 
1 079.103054 
1025,100,256 
3,168053,883 

5X07,710,193 

1099080,789 

3,036^412052 

1,769X45001 

3X00,768 

181,183 

5,907.710.193 


19.178X99X32 

3X00.788 

19.180000.000 

13X34,766X81 

5045X04,739 

19,180000000 


Incr eme or 
reese for week 


*48093017 

-1055X81 

*€50027 

*78X80000 

-1X50X57023 

+1X77^452*180 

-4,729X75 

*5038 

• *860027 


*264,729076 

■<729078 

*260000000 

*899X87032 

-439X97082 

200000000 *" 


BASE LENDING RATES 


INVESTORS - TRADERS - CORPORATE TREASURERS 

SAT QUOTE™ - Yonr single service for real time quotes. 
Future* Options* Stocks* Forex* News* Via Satellite 

LONDON +71 329 3377 

LONDON +7130*3377 NEW YORK *312206 CM FXANKFtKT *00446671 


FUTURES 

&0HT0NS 

TRADERS 

roRANEFFinorr 
« txasftsnnvs smvicB 




38 DOVER STREET, UBSDOV WS SKB ■ 
TBIc 0171 629 1183 FAX: 0171 496 0022 & 


THE VENEZUELA HIGH INCOME FUND N*V. 

Notice of Special General Meeting of Shareholders 

NOTICE IS HEREBY GIVEN that the Board of Stzperrisovy 
Directors of the Venezuela High Income Fkmd N.V. (the “FrauT) 
hereby calls a Special Meeting of Shareholder of the Fund to be 
held ai the offices of Curasao Cotporation Company N.V, the 
Food’s managing director (the a Managing Diredof), loaned ai 
De Rnytezfcade 62, WDemstad, Curacao, Netherlands Antilles on 
9 January, 199S at 10.00 un. Netherlands Antilles time for the 
purpose of considering and, if thought fit, passing die proposal set 
out in the Notice of Special General Meeting of Shareholders (the 
“Notice*) circulated to Shareholders with a Proxy Statement and 
Form of Proxy. Copies of the Notice, the Proxy Statement and the 
Forum of Proxy are available to Shareholders from the Managing 
Director at the address stated above. 

By Order of the Board of Supervisory Directors 


Adam&Oompony.. M 

AflrfTtast Baric 

AS Bank 


525 'AoMfutihoBnnfcLafto 


RnancU& Gan Bank -fifi 


BankofCypvtB — 
Boric of botand 


Gfcofaoric A25 •Grriti&WUnmSacs XX5 

•Grim Mahon — 6 X 5 TSB .825 

HabbBankAQZkxfch 525 WritodakorKUNril.^25 
OHa mbroaBonk .JBL25 UWty That Bank Pte ^j6L25 


Brit Bk of MU East 

O&ownShpIsy&CDUl . 


C3feank NA, 


CLttett&Oo J&25 YoricritaBank^. 


auartoaor Landbn 
ImefrimtBmMng 


Credt Lyonnab 8X5 


Merietf Barter 
Mkfenf Baric. 
MartBukhg 


s* - 

J?. '-q : f v * 


A. * 


UK GILTS PRICES 


FOR TRADERS ON THE MOVE 

Watch the marten move with the screea In your pocket that receives 
Currency, Futures, tadees and Item updates 24 hour, a day. For yow 7 day 
tree trial, call Fttuies Pager Ltd on 071-895 9400 now. 

FUTURES PAGEREmmm 


TAX-FREE SPECULATION 
IN R IX RES 


TbobcsMii year free gride ro fro* yotr Rmodri Boekmta can hdp 
you. call tGdmcl Mvns^ v Ian Mtire on e7l-42S 7233 or wpic 
io bk LG. bria nc, 1 Vtewick Re*. Lnta SW1B 5BR 


^rFutnre'Wew a-**** 

n »rflfi accuracy A joeed, in ana value lor roarwy paefcage. 



BsaMpa 

Rnaruad. 


San d U36 wm accuracy & speed, 
ttStfC and Bjrcpfl wa MiSwaT 



Rduasry issue by KredSstbenk SA Luxsmbowgeose 
lo fund a loan to be made by it to 

ISVEiMER 

htit u to per lo Sv3uppo Ecovkhiuco 
deBUaSa MericSoviale 

USS 150 ^) 00^)00 Floating Rate Notes due 1997 

in accondance with the Terns and Conditions of the Notes, nodes s 
hereby 9 w®n that far the Interest Period from December 11 1994 to 
June 1 9. 1995 ihe Notes wi cany an interest Rate of 7%% per annum. 

The Interest Amount payable on the relevant Interest Payment Date, 
June 19, 1995 wil be USS 192.74 per USS 5,000 principal amount of 
Note, USS 3.854.86 per USS 100.000 principal amount of Note and 
USS 19,274.31 per USS 500,000 prinapd amount of Note. 

The Agent Bank 

Kredetoank SA Uixsrnbourgeoisa 


Wkt MM 
Price £ +/- fin 




Irene I2pc 1985 

Brii^cta 1990-85, 
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15.121254 
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10.101288 
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18121302 
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13*290 2004-8- 
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-.1 3.150 JB22J0E2 

7,187 Jttsjyis 
-X 1X50 M2695S 
-X 832! AP130C13 
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8121274 
1801246 
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189 1247 
17.101295 
20 - 
101334 
1812 1289 
12.121339 
2201301 
891343 
1801330 


totes Pta£ W- to 


Lai Oty 
tf Rat 


ZljpcTB (784 

— ns TO 


Zhpcis 

2to6*16 CBIJ60 


200% 1X00 MflftStlO 100 1313 

106U -kl 900 Ap27Dc27 200 - 

16 tih 1000 HX4SC24 1801316 

102% 1000 Hy20||u20 17.101317 

ioaa ai 1000 ton ton 140 - 

»%ri OX 1050 JflfiJriO 13.12 1314 
1528 81 1X08 taOlIXD 17.101318 

157% 81 8100 M3M3 1871319 

12SU OX 2000 FstSJtflB 11X1320 

138% 82 2X00 JtfBjytf 2851821 

132A 02 2.750 Apl6 Odfi 901322 

lOto 02 2X50 J»17jyi7 18121323 
DA ri 03 1X00 JtfBJy22 1812 - 



21296*20 R30I T32& 02 8750 Apl60dfi 901322 

00.7] 110U 82 2X50 Xrt7 jyi7 18121323 

thmim (1381>lDBAri 83 1X00 JtflBjy22 1812 - 

M Pgms In pere ril ie aoB ehoar RPI tan tor Metfng (to 6 
mertha prior to toaua) end mre boon retoled to refleotrebtaq 
of RR to 100 In totay 1987. Cnnerion tocaor8946. RPI lor 
Apl IBM 1442 and far Nwcntar 1994: 1483. 


TtaB 1 /frc 2010 61 hi 

Ckrei 9 pc Lo 2011 #■ USA* 

Ttaflpc 2 m m Uto 

1ta5JtfC20D6-12tt- 79* 
1taBpc20l3tt— — 6 W 

74 ipc 2012 - 15(3 Wt 

Tta 64 ||S 20 l 7 tt— 10 W 

En± I2pc 2013-17 taifi 


-A <750 
-J 5X73 
-4 5X51 

-s 2 1000 

-X <800 
-2 800 
-0 7550 
-A 1000 


Ai 2 Jyl 2 
MM 
MnoSelD 
MrZ 7 S*Z 7 
J£ 6 Jy 2 B 
MS MS 
Jei 2 Dft 2 


1810 - 
812 1245 
3801701 
401330 
220 - 
2861332 
187 1962 
7.111200 


FtolaRtota 

OamtalOUtftilOB-. 10W 
Tffrtt flty to ~ ®A 


-nX 1X3B Kty 22 M 22 


to 2000, 


97% 
10 ?A 

Tam ito m n 93ri 

Ktosoot 10 B& 

to2UR3t 02 

otazue iow 

toainm aft 

I0pc»fi3 Itt A 

hmi^anM^ it 2 fi 

* 

STOCK L 


17.10 ttsc 
£11 - 


~J 1500 J*7De7 
-2 MSB Hr3SB3 3 
~2 3,171 JKMJjrH I 
~2 MD 6 ft&tuX 3 
M5D i«eiM : 
-j 6JKS7 W7M37 3 
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2171349 

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1581360 ThOB-ZbOC 


«b 

42b 

58ft 

35b 

aobri 

29b 


-J 358 F#1 Ml 

&.1 1JB0B Jri Dai 

119 Apt Del 

-1.1 SB Apsoca 

as 275 awpjjoc 

0.4 475 Apl Del 


2TJB 1236 
45.10 1352 

auna 

UTS4 
1.12 1238 
SJW5 


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Mai DHlObpc 2MB— 111ft -A 
Bias 11 > 2 pc 2012 . H9 

MriGgftir'HL— aft M 

OtfOtflOB 9ft -2 

13p eW-fl 1071* — 

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32ft -10 

IRendariv11toc2007 M 116ft — 

RfcLVftr.to 1 * 1 — 6 ft -X 

rHttAatfi3toC2QZ1. 132 -0 

4ftpeL20M raw -vB 

UHlflHStfei1<toe2D0B 139 84 


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IJCCtotOJUt 

tadreta T1ftpc2007- 

ta.mr.to'B 1 

rHttAatfi3toC2QZ1. 

4 ftpc 82 fl »4 

UHriRStfetltiftfCSDOB 


E JUCta batf. wl Ex dridend. Ctahg tataew are tawn In parts. WMty 


100 I024S0M 3*33 - 

451*161*13 4*831837 
303 tort Od -1485 
725 JtfOJtfO - - 

315 Apl OCT 8*931420 
40Hp1MQ 10*93 - 

40 401599 T9S3M5 

5 iMpJaOc CT3 - 

26 IMeSflDo 1*93 - 

6 todS0c25 3*933275 

25 AfrIStfl 8*033361 
00 MOJffO 1*083405 
GO 793 - 

GO UrTSRI 063 - 

ta 8 Frtore to Rtorer Mto. 


Market- Eye 

PrcfORsicnsI Jinunci.tl informziion -J^rcci 

►o >olt PC ^or n 1.^-vs fixed cost. 

FREEPHONE 0800 321_32 1 

Currency or Bond Fax - FREE 2 week trial 

also daily gold and stiver faxes . k Anne v.'hitbv 

C h ■ t A <•. i s l ' } 

: , „ Tel: 0171-734 7174 

s:r«t. Lender - ■ R HD. U.-. - - ax n - 71 . -19 

vi:r:ngv nXo j\r:dd i^v for ever 20 yo:rs 

i' g o’- • j ^ ( ’ ■ i? r e r *.c ■ o' •? '. ‘ t vn I A " ;■ :V 


+ 


*W |0 


To the Bolder* of 


The United Mexican States 

Collateraliaed Floating* Bate Bonds Doe 2019 


NCmce IS HBBBSY 


0IT8N that the 1 
toJnXM 18 1886 


rule* aofortag Ita 
bed below; 


X>UK Dtasount Series 860FeLPJL CUOC 3808 Per DMK uaoo June 


Deoaober 18 , 1994 


CORPORATION PLC 
11 adlewiy 



FTttlOO 
FT-SE MM 250 
Ff-SE UU 250 tf 
FT-5&A35D 
fT-aswrap 
FT^SE 

FT-S&AM^Ba 


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DK«Da:15D6e14Pee13Dee12 ngi U» m Uw 

Dlrt&B 29134 2880L8 2948.4 2904 3B203 2878.8 352B3 D8U 

3437.1 MlftD 34DU 33712 33714 41SRI 33814 4UU 1379L4 

M3U S412JD 3370J 33707 41817 33824 418BJ 13113 

16117 M82J 14B4J 14713 1477J) 377E3 34S1A 1UM B6t& 

173088173081 1737J8T72&S1 1732.78 2BM98 1727« 3B4J0 138170 
188077108079 W97J6 1G8BLS4 17DU8 2080.72 1887 jK 2080 72 138379 
140005 1470601481.19 148010 lOEBblOrmW 14418Sn04.il 8LS2 


FT-z Bnmck 180 
FT-8E BsttlCk 2D0 
FT OMniy 
FT 6wt 5«corttB 
FT Red tarot 
FT BoMMto 
FiilKiiMrGwMMInri 


Pte 16 D4C IS 044 74 Pte 13 Die 12 Up U» W» liW 

1329.65 132874 131082 130030 1309.12 1S40.19 12S&48 164019 80046 
137177 137ZB9 1368154 135BL88 135515 1807.10 133606 1687.10 038L82 
23143 22807229280 2287 J) 22817 27115 22S5£ Z7118 414 

SM7 9194 91-09 9149 91JS 18744 8054 127-41 4118 

10072 1Q&J80 108L82 100.48 109J5 t3U7 10150 13187 ' 5053 
1853>56 1574,17 188548 1887JH 15484S 2387-4 178202 23B7-C 922.16 

224.4 2225 2115 2182 2214 28U 1810 7M7 415 


$CIT$ »i 

INDEXJ 


. - -/.ii 


TefctDl4NSS080Q 
PkK 071-9720970 


•FOREX -METALS -BONDS -SOFTS 

Objective analysis for professional investors 

0962 879764 

r. shivs House. 32 South^sie 'A'inoh-stfr. 

Hr.tS $323 9EH Fjt 0424 774357 


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LONDON SHARE SERVICE 


Note ftta 


Or DMAs* im 


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4 pm dose December is 


NEW YORK STOCK EXCHANGE COMPOSITE PRICES 


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40UtoieDaaat)er78 


COMPOSITE PIECES 


NASDAQ NATIONAL MARKET 




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Gtfn-the edge wet your competftore by having the financial Times defiwred to your home of office way woridngdsy. 
Haid deflvay^ ^seivtaes afeavallabte fix all subscribers in the business centres of Bergen, Osto, Stavar^er and Trondheim. 

Please call +46 8 791 23 45 for more information. 

Financial Times. Europe's Business Newspaper. 


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482 31 1B% 18 18% ft 

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27 8K 4% 3V 4% ft 

13 517 17% 1ft 17 ft 
&48 18 302 26V 25 25% ft 

1813013 18% 17% 17% ft 
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M3 843 16% 15% lft ft 
202326 X 28% 29% -% 
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125 30914SV141% 142 -% 
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tapaito 157778 37% 37% 
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amjM iw 7 a 34 % 34 s * -% 




^ MONDAY DECEMBER 19 1994 

INANC1ALTIMES MONDAY 


J & 


FT GUIDE TO THE F O R T N I G HT 



MONDAY 

EU-Tuildsh customs union 

Foreign ministers of the European 
Union ami Turkey meet in Brussels to 
discuss establishment of a customs 
union in 1996. Opposition from Greece 
and human rights campaigners will 
probably force a postponement of a 
decision for a couple of months. 


Bosnia; Armed forces chiefe from n 
Mato countries concerned in the Bos- 
nian conflict meet to consider ways of 
reinforcing the UN mission in former 
Yugoslavia. They will be joined by 
other interested parties. Including Rus- 
sia and Germany, on Tuesday. 

European Union fisheries ministers 
meet in Brussels to sort out Spanish 
and Portuguese entry to Union fishing 
waters. Felipe Gonzalez, Spain’s prime 
minister, will push for integration into 
the common fisheries policy by 1996, 
but the French, UK and Irish are wor- 
ried about the impact on stocks. 

BCCfc A settlement for creditors of the 
failed Bank of Credit and Commerce 
International proposed by liquidators 
Touche Ross goes before a London 
court 

Gulf Co-operation Councfl leaders, 
meeting in Bahrain, are expected to 
review their commitment to double 
their joint forces in the Gulf. 

FT Surreys; Sweden and Czech 
Republic. 


TUESDAY 

Fed meets on Interest rates 

Most analysts do not expect the Federal 
Reserve's policy-making Open Markets 
Committee to raise short-term rates 
this tide of Christmas, but a half-point 
rise to 6 per cent remains a possibility. 

China and its main trading partners 
meet in Geneva to take stock of 
Beijing's eight-year-old application to 
join the General Agreement on Tariffs 
and Trade and its successor, the World 
Trade Oiganisation. Gatt members will 
try to persuade Beijing to keep talking 
past its end-year deadline for a 
“substantive agreement”. 

Do Beers, which accounts for at least 
80 per cent of world trade in uncut dia- 
monds, reveals its 1994 sales. After 
first-half sales of g&5Sbn, ft eased back, 
so the total is expected to be about the 
same as last year’s $&366hn. 

UK parliament rises for the 
Christmas recess (to Jan 10). 

WEDNESDAY 

Italian politics; The fate of Silvio 
Berlusconi's embattled right-wing coali- 
tion government will be (tedded by a 
confidence debate immediately after 
approval of the 1995 budget Berlusconi 
wifi be testing whether all coalition 
members, especially the populist North- 
ern League, are willing to continue his 
eight-month-old mandate. 


THURSDAY 

Say when on Schengen 

Ministers from seven EU states meet in 
Bonn to decide when the Schengen, 
free- travel accord should come into 
force. 

Interior ministers from Germany, 
France, the three Benelux countries, 
Spain and Portugal are expected to set 
March 25 as a date for the abolition of 
border controls, although France may 
request a 6-month transition period. 

Ti» Bundesbank central council is 
to fix 1996 parameters for German 
money supply growth as measured by 
the much-maligned but stoutly- 
defended M3 formula. The factors 
influencing the decision - permissible 
Inflation levels and potential for eco- 
nomic growth - will also be weighed in 
the routine contemplation of interest 
rates, which some observers persist in 
believing may be reduced today. 

FRIDAY 

Romania's left-wing minority 
government faces its sixth no-confi- 
dence vote to two years In office. The 
opposition Democrat Party's motion 
was sparked by mass protests by thou- 
sands of unpaid workers to the western 
industrial town of Resita last week. 

Holidays: Japan (Emperor’s 
Birthday). European Union institutions 
close until Jan 2. 


Measures co min g into effect on January 1 1995 


The World Trade Organisation, the 

successor to the General Agreement on 
Tariffs and Trade, is launched. Gatt wifi 
continue for a one-year transition period. 

Mercosur: A customs union comprising 
Argentina, Brazil, Uruguay and Paraguay 
is due to come into being. It may develop 
Into the nucleus of a South Am e rican 
Free Trade Area. 

Andean Pact countries, Bolivia, 
Colombia, Ecuador, Peru and Venezuela, 
enter into their own free trade agreement 

Japan initiates a partial opening of its 
rice market, allowing 4 per cent of con- 
sumption to be supplied by imports. 

European security: The Conference 
on Security and Co-operation to Europe 
(CSCE), which comprises all European 
and Commonwealth of Independent 
States countries and the US and Canada, 
changes its name to Organisation for 
Security and Cooperation in Europe 
(OSCE). This is part of an effort to 
upgrade the body into an umbrella organ- 
isation for European s e c uri ty. 

European Union expands: 

Austria, Finland and Swe- 
den. join. The Union's ter- 
ritory will grow by a 
third, its population by 6 
per cent and its GUP by 7 
per cent Norway’s vo te r s 
rejected membership in a 
referendum in November. 



Austria, being rich, will have to 
contribute some Sdb30bn (52_7bn) to the 
ElTs coffers this year, aggravating a bud- 
get deficit of 5 per cent of GDP. About a 
third of the money comes back as adjust- 
ment payments to termers because the 
Common Agricultural Policy takes imme- 
diate effect. 

Consumers are the big winners, not 
only on food prices, but also on many ser- 
vice costs where protectionist walls must 
come down. The Austrian National Bank 
is joining the European Monetary System 
immediately and will probably join the 
Exchange Rate Mechanism in short order. 
The schilling is rigidly pegged to the 
D-mark, so these moves will have no 
noticeable effect 

Sweden and Finland, neutral Nordic 
neighbours who kept their distance from 
western Europe during the Cold War, step 
into the Union hoping membership will 
consolidate their recovery from deep 
recession. 

Both will become net contributors to 
the budget; consumers should benefit ' 
from lower food prices-as trade barriers 
tell, but Finland's highly subsidised fann- 
ers are braced for a painful adjustment to 
the EC’s lower term prices. Both coun- 
tries are signing ifo for the EMS, but 
intend to float their currencies for the 
time being. 

France takes over the rotating 
six-month presidency of the European 
Union from Germany against the back- 


ground of campaigning for domestic presi- 
dential elections due in May. 


EU and the three Baltic republics, 
Estonia, Latvia and Lithuania, are due to 
come into affect They are a first step 
towards eventual accession. 

European Medicines Evaluation 
Agency opens shop in London. A pharma- 
ceuticals licensing body for medicines 
marketed in more than one European 
Union country, it should streamline drug 
approvals. 

Euro-gobbfedygoolc Britain’s Plato 
English Campaign, which crusades 
against obscure bureaucratic language, 
has said it will turn Its attention to Brus- 
sels-speak. Its Inside Write campaign is to 
monitor internal publications. 

Germany’s second Financial Markets 
Promotion Act, the legislative mainstay 
of a project to bring FTnanzplatz Deutsch- 
land up to international standards to 
areas such as regulation and supervision, 
comes into force- Centrepiece is a ban on 
insider trading with five years’ jail as the 
maximum punishment 
j First victims of the Legis- 

lation have been the tra- 
ditianal “fireside chats’' - 
informal pre-Christmas 
5 meetings between man- 
agement and hand-picked 
"i* journalists at which sensi- 
tive foil-year results data were formerly 



SATURDAY 

Elections in Kyrgyzstan 

Kyrgyzs ta n votes for a two-house 
legislature- President Askar Akayev 
was criticised for dissolving parliament 
to September, but his proposed, consti- 
tutional reforms were strongly su p- 
parted to a referendum the next month. 
Mr Akayev hopes the new parli amen t 
will give greater support to his eco- 
nomic r efor ms, which is backed by the 
International Monetary Fund. 

Holidays: Sweden. 

SUNDAY 

J ap an’s new electoral system takes 
effect ft replaces the current 511-seat 
lower house of parliament, elected from 
japan’s unique multi-seat constituen- 
cies with a 5<X)-seat parliament of 300 


^ % i » ; Ct * < * t ru \\ Ul* T-1 J I * ■ 


partiooal representation seats, chosen 
from. 11 electoral regions. 

Uzbekistan holds its first multi-party 
ejections since independence. 

Holidays: Mato markets closed for 
Christmas Day. 

MONDAY 

A Turkish court is to give its verdict 
on 124 Islamic fundamentalists sus- 
pected of starting a hotel fire to the 
town of Slvas that killed 33 people 
attending an arts festivaL 


dished out as liberally as the beer and 
sausages. 

Cost of unity: German taxpayers face a 
7J5 per cent solidarity surcharge on 
Income tax to help pay for the integration 
of former East Germany into the country. 

UK employers’ liability insurance 
policies, which provide cover against 
workplace deaths and injuries, renewed 
from today will no longer offer unlimited 
cover. Insurance companies have Imposed 
a basic claims limit of HOm. 

UK commission disdestire: Under a 
new regime imposed by C5ty regulators, 
fife insurance and pensions sales agents 
and advisers will have to give customers 
more information about the policies they 
sell and the costs of selling them. 

Last gasp: Australia extends its 
anti-smoking provisions. There will be a 
ban on advertising smoking materials, 
except limited point of sale material, and 
on the use of brand names for promot- 
ional purposes. Packaging must bear 
larger health warnings. 

The US’s Delta Airlines begins a smok- 
ing ban on all its flights. 

Century of diMma: The cinema has 
decided to declare 1995 its 100th birthday 
in a year-long celebration around the 
globe. Paris in December 1995 saw the 
first audience buy tickets fra* the first 
public moving picture show to a disused 
ballroom. 


A\ - gY 
- 











* . G 


.. lEV* -■ 


TUESDAY 

US consumer confidence 

The US Conference Board's December 
consumer confidence indicator will be 
scanned for signs of s tabil isa t ion after 
last month's 12 point-jump. 

WEDNESDAY 

UK oconomy: Chancellor Kenneth 
Clarke meets Eddie George, governor of 
the Bank of England, for their monthly 
discussion of monetary policy. The City 
thfafcy interest rates have further to 
rise, but analysts do not expect a deci- 
sion so soon after December 7*s V» point 
increase in base rates to 6.25 per cent 

THURSDAY 

US loading Indicators for 
November are expected to show tittle 
change for the third month running. 

FRIDAY 

UK chancellor Kenneth Clarke starts 
a tour of Malaysia, Thailand and Viet- 
nam to drum up business for the UK 
financial services industry. 

Holidays: Japan (markets dosed to 
Jan 3), Philippines. 


/' -S'*.*- " 

;>,• AV' - ■"*’ 





r-..r.r:. 

-it 

... T 



SATURDAY ■?/.; 

Treuftand «huts up stop - J; 

Germany’s Treuhand privatisation 
agency, the world’s largest hoidtog 
company set up In 1990 to privatise etst 
German Industry, ceases operation*,- . 
With more than 13JJ00 enterpristt origi- 
nally on its bocks, the agency has 
either sold off or shut down the 
region’s Industry. In all, it raised .*•'■ 
DMlSObn fflOSbn) from investment 
guarantees and wtil save iteft of the , ;• 
SJtot pre-1990 industrial Jobs. 

SUNDAY 


Henrique Car- . 
doso take® 
office. Mr Car- 
dosOt of the - 
Social D&bo* ■ 


was elected on 
October a and is 


noutic reforms 
to consolidate 
the success of 
the Real currency in cutting inflation. 


Compiled bp Pofricfc Stfles. 
Fax: (+44) (0)171 $733194 


n. 7 - ■ 


*$: 

'I 



ECONOMIC DIARY 


Other economic news 

Tuesday: The twice-yearly 
economic outlook from the Par- 
is-based Organisation for Eco- 
nomic Cooperation and Devel- 
opment will give an upbeat 
view of economic prospects for 
the OECD's 25 industrialised 
member states over the next 
two years. Governments will 
be urged to maintain prudent 
policies to secure steady 
growth with low inflation. 

Wednesday: Britain’s trade 
with countries outside the 
European Union is expected to 
show some Improvement in 
November. The City consensus 
points to a deficit of £375m 
after October's mildly disap- 
pointing shortfall of £410m. 

Thursday: UK third-quarter 
balance of payments figures 
will attract more attention 
than usual because some ana- 
lysts believe the tell in the UK 
visible trade deficit to a near 
10-year low in the three 
months to end-September 
could presage current account 
equilibrium or surplus. 

During the week: German 
M3 growth is expected to slow 
further in November. However, 
the consensus forecast of 6.4 
per cent annualised growth 
from the base in last year's 
final quarter would still be 
above the 4 per cent to 6 per 
cent target range. 


Statistics to be released this week 


Moo. 

Dee'19 

— ■ f 

Tues - 
Dec aa 


^■fe- 

us 

US'; 

US 

us.;. , 

US- 


* ■■ '■ 


France 


Wed 


Dec 21 


UK ■ 
UK 
UK 
UK . 

S 1 

Canada 

US 


France 


Thur 
Dec 22 


UK .. 
US 

us- ■ ■ 

US - 


US.. 

us - 


Dec wtfsate price fcxjfx (tot id days) - - • , 

Nov matrfjandfaa Irnports" " _ 4.2% 

■■■ * ■■ n«p— ■ unetf ■ i »e w« 

Oct trader goods & sendees .- - -$?0bn " 

i i <iu . i i am a i J 

-Qet 'go«l».&.aenteeegqwrtj^QP. SSOpn. ' ■ 
Oct poods &«ervfceaftrport(0Of^ $70Kxr 

■— hAm. I . h«A» 

Oct trade - gaoda (BtiPj -....- . ' - 

Johnson te«t)dck W/e Dec ?7 

5 ■ nit 1 1 a-S m ,'m 

Qct-overafrperg oooaunw ftqxraT* -0.1 % - 

Oct Industrial prodpetfasvT " ' &2%V *. 

Oct manufacturing productfont . 03%." "* 

eo * ,tl ,l|ll — I 

>4ovrt4» - • - ■ • ; . a4% . 

WovW* • — ~ y? 

Nov M4 tandbig - . . •' . E2bn v . . 

Nov bdp soty rite, near commd . • £&8tan 
Oct retail satesT ' .■ ng%,~ " ■ 

Nov treasury budget -SSfibn ■' 


Nov consumer -prices hdXflhaT 

Nov consumer prices tedxttnte"'. - 

Oct Cade Oetancbt ' ■ FFiTbn 

J ■> - - | I- - — I . ' - - M I- ■- I I - 

Nov trade ex-EC -C37Sm . 

3rd qlr press domestic, prod final • &9% ' 

3rd qtr GDF, delator Aral . 1J9K ' ' 
3rd qtr, after corp tsx profit Z8% -\ 


WBar dafcna Pec IT ■ 322JW0 • 

State Oentetts, w/e Oec-IO - 


P teu r fao e 

Actual 

0U)% • 

2 % 

-$iqibn 

$59.7bn 


-06% . ' 
2% 

-08% 
>qi% ■ 
33%:" 
J£rL8bn" - 
E2.8ba'.. ' 


Q.6% 


aa%;-.,- 

.FB&gba ■ 

> _ _ _ f 

OSK ' 

— -r u m. ' y 


323j00a. ■ 
2-.42jn' ■ 


Day E con o mi c 

HeloMed Oounay StedMie ■ '■ - 

•ThW US '. M2 v/e Dec 12 

■ ' Deo 22 Japan * " Oct coinddant indx 

(cent} Japa n Oct feadns tflffusion indx 

% i .i . m . n i 

'-'•'UK 3rd qtr gross dam prod 

UK '3W qtr rate (gqpo a abtelncopte" 

■ -,y > "• . 3rd qtr savtnga redo 

' UK \ .. ' 3nfqtrbtesnoaof payments 

- fit *' . . ,^.tB ; " • ;; ' Nov disable orders; - 
..F'ffec 29 Yv&" s' • NovdCraWe aWpmerta- • 
;DS ... : . &av pecqnnaf income 

*■ -- - - — ---G-r— r - - - - - -* * - • 

.Nov 'pers ooasvnpdori expend 

* ip pmww m -aim UNt -tea* i ‘rime* ■ ■ i n « ■ ■ i 

. .: DS ' , Bee Mcrggao twSmarrt totf • 

1 If * ‘ll * ‘sift i * if f in l ■ r 

* /Ourfttg.dtB^Hseici-.. ■ \ '■ 

■ ' >■ : ■ ■'"■■■ "■ ■ VJ- Ndy : wha(ee»e to&r. S 

- ’ r.-.QewjnWr V tiw:pr6di%pr prttwt.frxix** ; 

. ^ jiJ - ■ — • * |- ----- -- --- --ir~-i~ *~t — ~~ t~*~ ~il 

'■ ' . "'^rriwy Nov 4th q)^^»se;' 

j. " :;,Ott trade battetce ... . . v 

M Hrm w iinutW ** II « P U S i A M il A 

' tfa ^ i% 'Oct cum' ■' 

.. . rt 1 Jv T T r T . ■ 

* 1 tea m . ■»— <En a—m i 

\ " V'^Oec coteOf'Wetf pedftrr!- 

■■ |A \% efts f t * ^ ^ . I r SI .. An » 

; ‘ ■: : ‘ ;/:,Qar«lBrW: ■ : ‘ Nov Vnport'jxfewr '" . ” - . '. > 

• f- ■■y n — r' Ti — - ~ — - im — -ii* r - 1 . — * i.i . i 

tor ."Oct Pnxaiaer Wcae'lricbt— . ’. 


$Sbn 

70% 

60% 

42% 


02% 

06% 




, x r* ■/ « 


■ ■ -tawmany 


-Sl^bn 

SHfc 

54£% 

42% 

.1^%. 


- rE664m 

■ ■ i 

. i -Mk .' 
; n.7 % • 
:.8?3: 


--Q.196 i.: >03% . . 

i ftj I r , — ■ u 

■cci% V Vr^r-' 

el »\ 

■■ 04% ■■ 

-r^r- : ~rr *~ s r*f ~ r * » ■■ . 

OWBbtt -;':i»rSLSwt v 


* *• - # ■; 
r > y r 1 1 * /r 

■ - " 'X 

k S i** 


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■■■ 


i ii tm ^ s 

■■'2.7% :.f'. 


• «r- 


■ -V. 4- v ■ ■ r 

m ilinteei me ny« m n ,i mii 

- VktiEJ * ' f \ 


iJWfr m m r- ' s ./• 

.. • 

■ iWgv. ' ifr 1 ' iff 
t'-. . •4%-- . • . 


' '-;. : aja^-' -- NoV arteagb^ 33% - ' / :. - > ■" j ■ 

■ m » * . »■■■ ' >* ’ M ■■ > ‘ ' f* 11 1 * 1 ' ' ' , » ■ » ‘ Uimr ' . 

■ * ; • " Oct txoduaerpdces-ihdexr 4 i 2 % ; -tw% . 

- m ~ — * ‘ j , * ** - m '- m --- t - *- * ■ ■ * — — 

•hrteith ^Utatth, 'ytsaf oQ yOBtrf e mra oc aJly adjusted v ^Stedatfea; ccofteay l4M$ fmam«Bqn^ ■ 


% ■ ,« . 


I One exploit leg people Is 
looking round the back for it 


( 12 ) 


10 Waited near hospital, unused 
to Journalist CO 

11 Spear provided Sue in mar- 
quee CO 

12 Tease redhead and friend (9 

13 Old lady in Issue One's settled 
abroad (S) 

16 Faints where you might find 
pegs? (10) 

16 Girl's love for idol (4) 

18 Scuttle round concealed from 
gangster (4) 

20 Hardy fell backwards after a 
vault (io> 

22 Brawn accepts ICI work 
before becoming optometrist 

(9) 

24 They cling on when one 
struggles (5) 

26 Candidate takes one running 
round colliery (7) 

27 Take control; start perform- 
ing live (7) 

28 Wrongly portray miser danc- 
ing bare (12) 


2 Abused vicar lied badly (7) 

3 Army draft endlessly training 
somewhere countrified? (8) 

4 Orderly wifodHg a day after it 
turned op (4) 

5 Opinion as to time in organi- 
sation. (10) 

6 Not without noticing It’s 
freezing (5) 

7 Explosive device taken round 
to French class (7) 

8 Complete even if going round 
or working ( 13 ) 

8 Turns to steam trains for a 
job? (13) 

14 Against even appearing 
unruly to infringe (Ul) 

17 Rows with poor Gus about 
repulsive quality? (8) 

19 Best spinning tap, one mother 
finds (7) 

21 View inside butt) is very good 

CO 

23 Icecreams being cold one 
starts shivering (5) 

25 Knocks up box (4) 
















[TTY] 

J ) 

J - \ 

1 * 

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• : $ 



No.8,640 Set by GRIFFIN 

A prise of a PeHkan New Classic 390 fountain pen Car the first correct 
solution opened and five runner-up prizes of 235 Milan vouchers wQl be 
awarded. Solutions by Thursday December 29, marked Monday Crossword 
8.640 cm the envelope, to the Financial Times, l Southwark Bridge, iioni Vw i 
SE1 ML Solution an MrmAiy January s. 
































Winners 8,628 

Ann Forbes, Huddersfield 
C. Baxter. Lower Froyle, Hants 
J. Doe, Bath. Avon 
J. Duddy, Templepatrick, Co. 
Antrim 

Mrs S. Farquhar, Woodley, 
Ber&s 

M.B. Murphy, Lindley, York- 
shire 


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>LI. 


’I* *"■ ■> 



























FINANCIAL TIMES SURVEY 






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***** 


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Monday December 19 1994 

A pro-business government has achieved political 
stability while maintaining economic growth, 

writes Anthony Robinson 

Towards a state 


of grace 


The inter-war Czechoslovakia 
which is preserved in sepia 
photographs and the still 
modem buildings of its 
avant-garde architecture was a 
prosperous, bourgeois 
democracy in the heart of 
Europe; it was a normal 
country. The post-communist 
Czech Republic, divorced from 
Slovakia since January 1998, is 
well on its way back to that 
state of grace. 

Keeping the new state an the 
straight and narrow path of 
recovery is a pro-business 
government beaded by an 
abrasive, opinionated, bnt 
undoubtedly clever, man. In 
style mid substance, Mr Vaclav 
Klaus, the prime minister, far 
more closely resembles his 
political fdol, Britain’s 
Margaret Thatcher, than any 
of his counterparts elsewhere 
in a centra] Europe released 
from Soviet bondage only five 
years ago. 

Alone . among post- 
communist politicians, Mr 
Klaus manages to combine 
dear' and unequivocal public 
statements about the virtues of 
hard work, private enterprise 
and free markets with a subtle 
manipulation of the state 
budget to ease the pain of 
transition and keep the 
electorate cm his side. 

"The government will not 
subsidise or bail out bankrupt 
companies.' It is prepared to act 
as a catalyst for change or to 
share fr restructuring costs, 
but then ail involved - the 
government, creditors and the 
enterprise itself ^ have to 
sacrifice something," says Mr 
Jiri Waigl, the prime minister's 
chief adviser. ■ 

Not everyone is impressed. 
Mr Milos Zeman, who leads the 
main • .'.non-communist 
opposition grouping, the social 


democrats says: “Klaus was 
fine for the first, restrictive 
phase. His time is over. The 
problem is that he does not 
know it yet" 

But neither, it seems, does 
an electorate which voted 
heavily for Mr Klaus in the 
June 1992 elections and 
reconfirmed its support by 
backing candidates linked to 
his party, the Civic Democratic 
party (ODS), in last month's 
local elections. Opinion polls 
also continue to give him and 
his party top rating. Barring 
accidents, Mr Klaus, a 
52-year-old macro-economist, 
looks weD set for another term 
in office as head of a coalition 
government after general 
elections scheduled for 
mid-1996. 

The economy is his strong 
point. As finance minister he 
masterminded the economic 
reform strategy which came 
into effect in January 1991, a 
year after the pioneering 
“shock therapy" Polish reform 
programme. Whereas Poland 
faced hyper-inflation and was 
saddled with a $42bn foreign 
debt, Mr Klaus inherited a 
decaying but cautiously 
managed economy with 
relatively little debt and stable 
prices. 

While Poland and Hungary 
became bogged down in 
complicated, government- 
managed privatisation schemes 
Mr Klaus, contemptuous of the 
capacity of governments or 
bureaucracies to manage 
enterprises, boldly struck out 
on a two-stage mass 
privatisation programme. 

The results have been 
spectacular. By early next 
year, around 80 per cent of the 
economy will be at least 
partially privatised. At that 
point the fate of the Czech 


economy will be largely in the 
hands of enterprises and the 
managers and investment 
funds set up to exercise 
corporate governance on 
behalf of more than 7m small 
shareholders. 

The most painf ul part of 
micro-economic readjustment 

at the enterprise level is proba- 
bly about to begin. Hundreds 
of former state-owned enter- 
prises have already shed up to 
half their bloated workforces 
and disposed of assets. But few 
have actually closed or been 
forced into bankruptcy. The 
bankruptcy and related laws 
are on the statute book, but 
the courts are inexperienced in 
commercial matters and over- 
loaded. 

The pace of bankruptcies 
should rise sharply in the new 
year, and so. temporarily, 
should unemployment. The 
jobless rate is currently around 
345 per cent nationally, but far 
lower In the Prague region 
where around 60 per cent of 
GDP originates. Increasingly, 
influential policy makers such 
as Mr Josef Tosovsky. the cen- 
tral bank governor, argue that 
without a labour shake-out 
from dying companies, the 
pace of economic recovery 
risks being stunted by labour 
and other shortages. 

The difficulty lies in convinc- 
ing Mr Klaus that the political 
fall-out will be less than feared, 
provided policy makers con- 
centrate on removing bottle- 
necks to growth in what is 
already an expanding econ- 
omy. This means difficult deci- 
sions in politically sensitive 
areas, such as raising public 
utility tariffs and rents so as to 
encourage labour mobility by 
freeing up the property mar- 
ket 

Mr Klaus has already shown 


he can be stubborn in such 
matters. After months of work 
by bankers and lawyers, he 
turned down flat a plan to 
build a toll motorway from 
Heidelberg to Prague when he 
found that the tolls would have 
to be so high that only German 
motorists could afford them, 
but not Czechs on an avenge 
monthly wage equivalent to 
about $250. 

For all the razzmatazz about 
the market economy, Mr Klaus 
is acutely aware that daily life 
remains a struggle for most of 
the 10.3mCzechs, while the 
fruits of change as yet are 
bring enjoyed by a fairly thin, 
albeit highly visible, stratum 
of society. His delicate political 
antennae have helped ensure 
that, unlike elsewhere in the 
region, the Chech communist 
party stands no chance of 
returning to power in a new 
guise. The communists retain 
electoral support among the 
old and those nostalgic for the 
old social safety net and easier 
work practices. But the major- 
ity continue to share the opti- 
mism shown by Mr Klaus 
about the future. 

There are blemishes on the 
record. One is the prime minis- 
ter's constant humiliation of 
President Vaclav Havel, who Is 
in many ways a for more repre- 
sentative figure of the tradi- 
tionally tolerant, sceptical, 
bucolic and somewhat sham- 
bling Bohemian of popular ste- 
reotype than the austere, 
rather Germanic, Mr Klaus. 
Another is the Czech approach 
to the civil rights of an uncom- 
fortable minority within their 
ranks - the country's nearly 
250.000 gypsies, many of whom 
were rendered stateless after 
the divorce from Slovakia. 

Increasingly however, the 
Czech Republic is being per- 
ceived. along with Poland, as 
the economic success story of 
central Europe. Of that region, 
it is the most prepared country 
for entry into the European 
Union. 

Foreign capital has been 
flowing into the republic in 
embarrassing amounts. 
Reserves have risen virtually 
to equal the nation's foreign 
debt. The credit rating agen- 
cies give it investment grade 
listing, Czech companies and 
banks have been welcomed 
back to international capital 


MUMS SURVEY 

□ Economy: raising efficiency 

LS Vital ..MMllMin.MIM.iUHi P&Q9 2 

□ Privatisation: Sell -off 
broader than it a deep 

□ SPT Telecom: the Slbn 

draw ...... Pag* 3 

□ Foreign investment: 
Reassessment after setbacks 

□ Steel Industry: Vitkovics 
afloat without llfe-raft.. ..Page a 

□ Banking: where success 
breeds success 

□ Profile: honest broker 

strikes gold Page 5 

□ Gypsies; a blot on the 


□ Power engineering; a 
bridgehead for ABB... .Pag* 8 

□ Brno: trading post has big 

Ideas ...Pegs 7 

(1 Tourism: facilities stretched 


Editorial production. Gabriel 
Bowman aid Saruh Murray 


markets while the government 
is repaying its own loans at a 
fast clip. 

Above all, the economy is 
expanding again while the bud- 
get remains balanced and infla- 
tion is dipping towards single 
digits. The Czech Republic is 
closer to complying with the 
“convergence criteria" laid 
down by tbc EU Maastricht 
summit than most of the ElTs 
current members, and is more 
politically stable, too. 

Mr Klaus, in an elegant over- 
coat and carrying a stiver- 
topped cane, looked at least the 
equal of his western counter- 
parts at the EU summit in 
Essen earlier this month. He 
has clear views on the future 
shape of an enlarged Europe 
and on the errors of Europe's 
current policies. Prague did 
not break free from Moscow 
only to fall under the thrall of 
centralising, social is tica 11 y 
inclined Brussels, he tells the 
west. He also blames excessive 
social security costs for 
Europe's high unemployment 
and loss of global competitive- 
ness. 

Until now, western Europe 
has liked to view itself as the 
senior party when advice was 
required. The Czech Republic 
under Mr Klaus has become 
the most forcible advocate in 
former co mmunis t Europe or 
the need for a genuine dia- 
logue. Both sides will probably 
benefit from the exchange. 




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n — 


IX 


FINANCIAL TIMES MONDAY DECEMBER >» 



CZECH REPUBLIC 



T he Czechs have managed 
better than most to shift 
from a command to a 
market economy while mam , 
tai n fog macro-economic stabil- 
ity through the transitional 
recession. The issue for next 
year and beyond is how far and 
how East the owners and man* 
agers of the newly privatised 
enterprises and start-up com- 
panies can raise efficiency 
against a backdrop of resumed 
economic growth and rising 
foreign reserves and invest* 
ment 

The government likes to 
boast that 80 per cent of the 
economy will be in private 
hands once the second round 
of mass privatisation is con- 
cluded early nest year. It exag- 
gerates. The state retains 
majority stakes through the 
national property funds in 
what socialists used to call 
"the commanding heights of 
the economy" - energy, steel, 
telecommunications and the 
like. 

What is more, the still indi- 
rectly state-controlled commer- 
cial banka themselves control 
hundreds of the newly priva- 
tised enterprises through their 

ownership of most of the top id 
investment funds which have 
sprung up over the past three 
years. 

The revamped state-owned 
banks still control about 80 per 
cent of banking business and 
have received large-scale state 
aid in order to clear their bal- 
ance sheets of inherited bad 
debts. They still have to prove 
their efficiency as risk asses- 
sors and capital providers to 


The main economic indicators 



Unit 

1990 

1991 

1992 . 

1993 - 

1994 

Latest. 

Real imftratrial growth 

% 

-12 

-14.2 

-06 

-03 

02 

Jtme-Jiaie 

Industrial production 

% 

-3JS 

-24.4 

-106 

SB 

13. 

Jufr-Joly 

Consumer pricesf 

% 

9.7 

507 

11.1 

20 J6 

. 102 

Aug 

Unemploymentrate^ 

% 

0l8 

• 4.1 

2jS 

05 

32 

Aug 

Convertible exports 

USSm 

-4p668 

5,916 

7^50 

. . 10,006 

10300 

Forecast 

Convertible Imports 

US$m 

4,920 

5,476 

0222 

10^04 

11,100 

Forecast 

Convertible trade balance 

USSm 

-259 

340 

-1,372 

-498 

-900 

Forecast 

ConvertBate current account balance 

ussrn 

-127 

1,186 

53 

279 

637 

JunenJune 

Foreign direct investment!: 

USSbn 

03 

08 

-1A 

SJ3 

25 

June - 

uonverODte axcsmsi dfotf 

USSbn 

- 

■ 

7J5 

8.7 

8.7 

March 

Officta! forengri exchange reserves^ 

USSbn 

- 

- 

OS 

3.8 

5L4 

July 

Debt ratio 

' Years 

. 

- ' 

05 

03 

04 

Forecast 

Interest service ratio 

96 

- 

- 

5.” 

4 

6 

Forecast 

Official gold reserves^ 

m ounces 

- 


- 

1.95 

1.95 

March 

Exchange rate vs US doHarf# 

CZK 

■ 

200 

27^8 

209 

30.0 

27.7 

NOV 4 

■ -Until ,199V. companies mrftii more than 100 empkiyeea. From 1992: compardn of ati abxa. T = Change over prenrioua year fanmnd average). 
t= At end of period. #■ Until 1992: Cterohoslovak konma (CSK). Souroo; Deutsche Bmk Research 


Anthony Robinson and Vincent Boland on economic prospects 

Raising efficiency is vital 






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the prime mbtister W with Sir Evelyn da ite&icfaM 


NJNL RrttaPNM and 


private business. 

The banks insist that they 
have erected Chinese walls 
between their banking and 
fund management activities. 
Independent fund managers 
are not so sure that the state 
banks would be willing to take 
pa infill bankruptcy decisions, 
for example, if the net result 
was to expose their own bad 
loans to the company con- 
cerned. 

Economic policymakers also 
face some difficult in 

the new year if they are to 


satisfy demands for clarity on 
the future tariff structures of 
public utilities. Last but not 
least, the recent inflow of for- 
eign funds into the country 
also demands action if the 
Czech Republic is to maintain 
macro-economic stability and 
progress securely to single- 
digit inflation as desired in 
1995. 

The government and the 
Czech National Bank have dif- 
ferent views on how to profit 
horn the capital inflows. The 
CNB would like to see faster 


progress towards full convert- 
ibility for the Koruna and 
argues that policy should con- 
centrate an removing labour, 
housing and other physical 
bottlenecks to faster, invest- 
ment-led growth. 

The government, which 
TF ipans the prime jninister him- 
self as the ultimate decision- 
maker, is more cautious. With 
elections doe in mid-1996 at the 
latest, ministers fear the elec- 
toral fall-out from over-hasty 
moves to raise utility tariffs or 
radically reduce the security of 


tenants in low-cost apartments. 

Construction was the first 
sector to pick up, with a 20 per 
cent rebound In 1992 as the 
new owners of shops and 
apartments refurbished and 
modernised pr o perty restored 
to them as previous owners or 
bought at auction. 

But broader signs off an eco- 
nomic upturn appeared only in 
May this year, fuelled by rising 
industrial and construction 
activity and a surge in tourism 
and other service industries, 

inritHftng hanking and finance. 


Gross domestic product is 
expected to expand by JL5 per 
cent in 1994, after four years of 
declining output and incomes 
accompanied by far-reach in g 
structural changes in the econ- 
omy. 

Next year the CNB forecasts 
GDP growth of 3 to 4 per cent 
while Mr Vaclav Klaus, the 
prime minister, told parlia- 
ment in early December that 
the 1995 budget estimates were 
predicated cm. a 33 per cent 


The pace of growth will 



v - - ■ -o- v 


1 


♦vV 

\ / 

6B K& 


LOCATION 


Brno is the historic capital of Moravia and the Second Largest 
City in the Czech RepiMc. Heme to needy 1/2 mfflon people, 
the City ts aupertty situated in the heart at central Europe. 
200 km South East of Prague. Brno is only 130 km torn the 
capital cities of both Austria and Stovakia and 180 km tom 
the Potsh border. The City serves a region of more than 2 1/2 
mifion people. 


COMMON L CATIONS 


Brno is located at the centra of the regions road network 
enabflng direct motorway access to Prague; North East 
towards the Polish border and South to Bratislava and 
Vienna. There te an international railway station and airport, 
both of which are due to be extended and improved. Brno 
also offers digital telecommunications and is soon to be Anted 
into Europe^ fibre optic network. 


ECONOMY 


Brno has a long industrial tradition dating back to its years as 
powerhouse of the Austro-Hungarian Empire. As a resit the 
City has Central Europe'S largest trade fair ground and VUT, 
the Czech Repubtic finest technical university. Today the City is 
home to a host of high technology and en^nearing -related 
businesses who benefit from the supply of skilled labour and 
the excellent kxadon. Com p an ie s such as ABB, Siemens and 
K-Mart have ai invested heavfly in the area. 


CZECH REPUBLIC 



DEVELOPMENT 


Several bMutwes are currently underway tom both the 
pubfic and private sectors to satofy the grotwng demaned for 
bumn accommodation In Brno: Czech Technology Park 
is a $ 200 mflbon development on (he Northern Rmg Road 
and a Development corporation .South Centre Bmo* 
has been established to regenerate 100 hectares of land 
adjacent to the historic core. Infrastructure works to South 
Centre v® commence next year. 


CROSSROADS OF 


EUROPE 



Brno's excellent location, skilled labour force and commited local government have ail contributed to making the city one qfour most important centres qf operation. “ 

Dr. v on Koerber Vice president of ABB responsible for European region. ( ABB employs over 4000 people in the City}. 



Czech Technology Park 

Brno 





Czech Republic 's 
first true 
Science Park 


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A 'fS" ^ 

. # - iif- ^ <trw 3 *3 

■ - £ 1 J *3. • -vY 


- 120 hectares masterplanned for over 150,000 m 2 of office, 
research and fight industrial space. 

- Located on Brno's ring road, 4 km north of the City Centre. 

- The first speculative office building (Buflding A) of 3,200 m 2 wfl 
be completed fin February. 

- Buildings can be constructed to suit an IndMdual occupier's 
requirements on much on the romalndar of the park. 

The development is a joint venture between Bovis Ltd and City 
of Brno in association with VUT, Czech Republic^ 
finest Technical University. 


MartuUng Agents. 



HEALEY & BAKER 

Brno: Telephone 442 5 4221 6372 

RecsMs 442 5 4221 6373 



Bovis 


Prague: Telephone 

Facsimile 

London: Telephone 
FBCSMb 


+42 2 2422 2802 
442 2 24222816 
442 2 2422 2820 

+44 716299292 
444 713554299 


morAvka centrum 



MOrAvKA CENTRE offers both to Czech and foreign firris very att rac tive floor eparaa 
reedy lor development 

The areas advantage is the property of sites concentrated it one compary - Monivka 
centrum as. joint-stock company). 

the area is suitable tor activities in economic administration and housing devekJpmwt 
spheres. Further far church, cultural, social, health care and sport developments, amuse- 
ment faditfas etc. 

The areals advantages: - area of 21 ha 

- fdeafy ovarvteMring Brno city at the arrival, . 

- immedate relation to the hteoic core of the city 

- &no city centra within easy reach bom Bmo Fair Grounds 


Customers .contact; 

MorMra centrum sue. (joint-stock company) 
Brno, Her &p lc fcd 7 


Mr. Pavel Novak 
Managing Dtector 
Tel.: +442 5 7176407 
Few ++42 5 41211674 


ft*. Meted Siefl 

Chatman of Board of Drectns 
Tel.: ++42 5 7170401 
Fax: +442 5 41211874 


CENTRUM 


GLfSWMP 


depend partly on the perfor- 
mance of the German- econ- 
omy, and partly on how the 
government dfiCldflS to use the 
capital Inflows that are cur- 
rently being absorbed by tine 
CNB’s open market operations 
and domestic bond issues. 

So far, most of the foreign 
rapitfli inflows have been in 
the form of hard currency cred- 
its by overseas banks to Csech 
enterprises. The loans have 
been used to finance the pur- 
chase of capital equipment or 
for working capital, on terms 
cheaper than those available 
from Gaach banks. 

The inflows are reflected in 
the Czech Republic's trade sta- 
tistics, which show that import 
growth was much higher than 
the IS per cent dollar increase 
in exports in 1994, leading to 
the virtual elimination of last 
year's trade surplus. With 
gross tourist revenues running 
at more than SUSbn over the 
first nine months of 1994, the 
overall current account Is 
expected to show a surplus of 
about SGOOm in 1994. 

But if the government opts 
for a strategy of Investment-led 
growth next year, the mo gt 
likely result would he a sub- 
stantial trade deficit, although 
again the Ugh rate of tourist 
and other invisible earnings 

Despite Prague's free 
market rhetoric, ft 
remains actively involved 
hi big strategic 
investment projects 

■ , ■ 

should allow for a surge in 
imports without pushing the 
current account of the balance 
of payments into deficit. 

The government has agreed 
to consider higher energy 
prices from next year, hut the 
proposed increases, averaging 
about 12 per cent, have not sat- 
isfied producers. CEZ, the elec- 
tridty monopoly^ says it wfD 
Lose money on domestic cus- 
tomers even with the price 


will come when it formulates a 
price structure tor SFT Tete 
com, the national telecommu- 
nications company. The stale 
is selling ST per cent of SET to- 
a foreign Investor and the new 
structure will have a crucial 
bearing on toe mice to be paid 

Formulating a price. 


m 




Tel e com wifi tend the 


to 


Ngherutffity prices 


• ■i _ 
i . 


for the stake The ovaraH rim 
is to "rehatenca* pri ces, raising 
domestic call charges while 
kmerixv international charge*,, 
currently among the highest in 
the region. It is a dalkate poftt- 
ical and commercial balancin g 
act 

D espite the government** 
ceaseless Dree market 
rhetoric, it remains 
actively involved in big strate- 
gic investment and privatisa- 
tion projects such as Skoda/ 
VW ami the thri ce of strategic 
partners for SET and the petto- 
chemical industry. - 
Both telecoms and petro- 
chemicals are bUUon-doll&r 
projects that are designed to 




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A test of the government's 
attitude to higher utility prices 


tatsmathnud 


That teak is retetivsiy easy 
and will follow we&troddea 
t v jginripal challenge 
in 1995 will be to rtfsa toe level 
of managerial «fcin« and effi- 
ciency in thousands of priva- 
tised former state enterprises 
across the country. 

Where the strategic vision 
has succeeded ts in ensuring 
that this Is no longer a job for 
the government but for Mr 
Klaus’s army of new share- 
holders, investment funds, 
managers and worker s. They 
now hold the fate of most 
Csech enterprises in their own 
hands. Good corporate gover- 
nance is the need now and will 
dedde how the economy as a 
whole shapes up in preparation 
for foil membership of the BU 
early next century. 


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7 ^growth 

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- - 


Reserves grow 


Relatively Wgh foterest rates 
mid the p rospect of Koruna 
revaluation tn the event of 
foB convertibility keep for- 
rign fonds' flowing tn. Bnary 

day for the past few months, 
the CNB ’ ’ - 


elgn currency at the regular 
llam forex fixing session, 
writes Anthony RobinKa. 

So far this year, it has 
drained $3.4bn of liquidity 
from the markets, pushing 
reserves up to tf.gbn by 
early December. This is after 
repayment ahead of schedule 
of International Monetary 
Fund loans totalling |L07bn. 
Reserves in the banking sys- 
tem as a whole, at about 
l&fflm, are roughly eqfova- 
tent to & quarter of the esti- 
mated $35bn gross domestic 
product for 1994. 


This means teat at the (find 
of its second year or fodepen- 
denee, the Czech Kepubfic is 
essentially free of forefon 

debt. PBycfeilugicaUy, Sbatte 
ratifpfoTeSxrJiy after 
the initial worry prompting 
tee central hank to borrow 
abroad to bolster reserves 
shortly after the January 
IMS divorce from Slovakia. 
_Bu* the inflows, natch of 
*» speculative, have 
discing implications for 

nwney supply and 

control. The CNB Is strug- 
gling to keep inflation for 
1994 within its target of 10 
pw cent Mr Josef Tosovsky, 

govwnor of the CfiB, wans; 

will be much hudff to 
reduce Inflation to 8 percent 
1995 against a background 
°f rising economic growth." 



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'V V 

V\ ,; - 

V ■ FINANCIAL TIMES MONDAY DECEMBER 19 1994 





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MB he official rhetoric is tri- 
umphant Privatisation 
Am in the Czech Republic is 
: IfeaDplete, victory declared. A. 
tfffl p-ammfl of mass asset sales 
ra vouchers ocivers tsob com- 
-According to the gov- 
;{ffnmeiit T -once shares from the 
'Second and final wave of sales 
vloss vouchers are distributed in 
..•fefofuaiy; 60 per cent of the 
^jgmomy will be in private 

7^/Bht while Czech privatisa* 
- tSBihas been broad, a question 
ji gnains ov er how deep. 

^ privatisation- has broken the 
\mnbihcal cord between the 
state and enterprises. Manag- 
es. are now. to a large ggfent 
free of governmental trrtorfw- 


While official declarations talk of the success of the privatisation programme, a number of problems remain 

sell-off broader than it is deep 


Fears that mass distribution 
of shares would leave owners, 
each with a tiny fragment, 
impotent have proved 
TTnfhamfTprf About two thirds of 
.Czechs participating in the 
mass privatisation scheme 
entrusted their vouchers to 
special investment funds. 
These can take stakes of up to 
20 per cent In individual com* 
parries. 

Id the second wave of wa« 
privatisation alone, 349 funds 
and about 2m individuals bid 
for shares, bat the 15 largest 
institutions picked up 40 per 
cent of what was on offer leav- 
ing share ownership more con- 
centrated than , in the UK or 
US. 

But while man agers have 
proved surprisingly responsive 
to their new owners the funds 


themselves seem unsure of 
what to do with their sodden 
power. The few western-con- 
trolled funds behave hke their 
western counterparts, but most 
are passive. Attempts to 
revamp manag ement often run 
into opposition from the larg- 
est domestic funds. ZB-Trust, a 
subsidiary of a German-Czech 
bank, says it initiated shake* 
"ups but could never gather suf- 
ficient support from other 
shareholders. 

Institutional investors is the 
UK or US, while rarely forcing 
management change^ do drop 
the shares of companies with 
which they are unhappy. The 
large Czech funds do not. “The ' 
majority of funds are very 
bureaucratic,’* says Mr Tibor 
Names, director of the capital 
markets department of Ceska 
Sporitrtna. “’Call me in a week 
after our iuvesbnesxt commit- 
tee meets and then we can 
decide/, they say.” 

Lack of experience is part of 
the problem. Mr Names talks 
dismissively of “socaDed fund 
managers" and says: “They are 
not fund managers, the; have 
no experience.” 

Another explanation Is that 
fund managers are not primar- 
ily interested in pleasing their 


investors. The fee structure for 
Czech fond managers encour- 
ages them to Increase the 
worth of the holdings they con- 
trol, but not necessarily the 
return to shareholders. Stan- 
dard fees are 2 per cent of net 
asset value a year. 

But there are many other 
ways of making fond manage- 
ment pay. At one extreme are 
the fraudsters that use their 
control to enrich themselves 
with little regard for share- 
holders. Kit some respectable 
fund managers also charge 


obscure “management fees". 

A more serious concern is 
that three of the top four fond 
managers are subsidiaries of 
state-influenced Czech banks. 
“You take a company con- 
trolled by government and you 
sell to a bunch erf funds con- 
trolled by banks controlled by 
government," says Mr Harvey 
Schuster of Corns, a Caech- 
American fond 

Government and banks deny 
that commands pass down 
chain. But the banks’ dual 
roles of lender and owner, 


through their foods, are con- 
fused, although they maintain 
that Chinese walls divide the 
parent company and its fund 
management subsidiary. 

Mr Alex Angel] of brokers 
Wood & Co suggests a conflict 
of interest exists. "Large 
banks’ funds have been using 
their influence to maintain 
banking Hnha with the parent 
company," he says. Bank funds 
may also be reluctant to file for 
bankruptcy and fierce a write- 
off on to the lending arm. 
Banks have brokerage as well 


as fond management subsid- 
iaries. The temptation is to 
milk the fund management 
unit through excessive broker- 
age fees. 

However, none of this 
detracts from the broad suc- 
cess of the Czech Republic's 
mass privatisation. Abuses by 
fond managers occur in coun- 
tries with for longer traditions 
of stockmarket capitalism. 

There is, moreover, a tradi- 
tion of compromise In Czech 
business life. The passivity of 
tbe voucher funds may reflect 


Activist funds are in charge 


Critics of Czech voucher privatisation 
feared that managers, freed of state con- 
trol, would answer to no one but them- 
selves. Some activist investment funds 
lave shown that is not necessarily the 
case, writes Nicholas Denton. 

' Creditanstalt Investment Company, a 
subsidiary of the Austrian bank, has seats 
on the management boards of about 30 of 
the 70 companies in which it holds shares. 
When it was unhappy with the managing 
director of a hotel and spa company in 
Marienbad, it gathered the support of two 
other funds and brought in a younger 
man . The Harvard Group, run by Mr Vic- 


tor Kozeny, the controversial entrepreneur 
who thought up the first fond, even suc- 
ceeded in changing the chairman of Ceska 
Sporitelna, the savings bank. 

Shareholder activism has its sunnier 
side, too. Creditanstalt and fellow institu- 
tional shareholders gave the management 
of a Moravian brewery a 10 per cent stake 
on easy terms. 

If none of this works, tbe institutions 
have a final resort “If we like a company 
hut not the management we seek other 
funds; if they don’t agree to changes we 
sell,” says Mir Nigel Williams, chairman of 
Creditanstalt Investment Company. 


Managers are aware that the funds con- 
trol their fete. Cams, a C^wh- American 
investment company, manages a holding 
in a Moravian brewery. Mr Harvey Schus- 
ter, its chairman, says: "When tbe man- 
ager comes to Prague, he's a bit jumpy. He 
wants to make sure we*re friends.” 

Yet Mr Schuster reckons that Czech 
managers, after four years of capitalism, 
pay more attention to shareholders than 
their US counterparts. “They are some- 
times too sensitive." he says. “When some- 
one says he owns 20 per cent of the shares, 
the manager still thinks he is like a com- 
missar or from tbe ministry.” 


that as much as encourage it. 
"Czechs are much more likely 
to at round a table than to pull 
the trigger," says Mr Daniel 
Arbess, a partner at lawyets 
White & Case. 

Tbe Czech economy is still 
evolving. The dominance of 
funds may be a transitory 
phase. Already some western 
investors have bought them 
out in order to take control of 
Czech companies. Welsh 
Water's acquisition of a Czech 
water utility is a good example. 
Shares in SPT Telecom, the 
telecoms utility, are due to be 
distributed only next February 
in the second wave but New 
York hedge funds and Swiss 
private investors have already 
engaged in futures contracts to 
buy shares allocated to privati- 
sation funds. 

It becomes harder to cast 

voucher privatisation as a 

mere restructuring of public 
ownership. Banks, the owners 
of fund managers, are moving 
into private ownership as they 
make rights issues to build up 
their capital base. 

Fund managers ore them- 
selves improving under the dis- 
cipline of the market. ZB-Trust 
is the best regarded of tbe 
Czech bank funds, “We want to 


be a professional investment 
company. Not just for voucher 
privatisation. We wont to be 
good because we plan products 
in the foture and we want to 
build up a track record," says 
Mr Ales Barabas, member of 
the board of parent Zivnoten- 
ska Banka. 

The ultimate market disci- 
pline for fund managers is the 
threat of takeover, "They are 
like any manager of any busi- 
ness: if it can be taken over 
they are going to care more” 
says Mr Richard Wood, manag- 
ing director of Wood & Co. 

The threat is there. Funds 
are worth less than the sum of 
their parts. Out of LS funds fol- 
lowed by Wood & Co, il trade 
at discounts of more than a 
half to net asset value. Wood & 
Co is trying to identify a small 
fund and help take it over for a 
demonstration effect that 
would revalue investments in 
all funds. “That would be a 
theatrical event," says Mr 
Wood. “Once people see that it 
can happen discounts would 
decrease dramatically." 

Some fund managers have 
foreseen takeover bids, how- 
ever. The Harvard fund man- 
agement group - run by con- 
troversial entrepreneur. Victor 
Kozeny - has instituted a “poi- 
son pill” arrangement that 
makes it all but impossible to 
seize its funds. The Czechs 
have adopted the tricks of capi- 
talism as well as Us nobler 
principles. 

Nicholas Denton 


E xc it ement over the Czech Republic’s 
telecoms pri v a ti s a ti on is reaching a 
peak. Rival telecoms executives 
from the US and Europe - and their 
investment bankers - trip over each other 
in hotel lobbies. In tbe breakfast rooms 
they confer in bushed voices to ensure 
they will not be overbeard. 

Ten compa ni es remain in tbe running 
for tbe 27 per cent stake on offer in SPT 
Telecom. Three consortia have emerged: 
one; already announced, grouping Ben 
Atlantic of the US and France Telecom; 
another pairing Ameritech, another US 
regional operator, with Deutsche Telekom 
of Germany; and a third led by KPN of tbe 
Netherlands and hvdnding AT&T of the 
US and Swiss Telecom. Telecom D enmar k, 
Southwestern Bell and Italy’s Stet are 
still casting around for partners. 

Tve never been on a deal where Fve 
met so much bidder interest,” says Mich- 
ele Gaffin, a vice-president of JP Morgan, 
advisers to the government. She describes 
bow bidders argued about how many peo- 
ple could go into the “data room” to look 
through SPT documents far the specified 
12 boars. “It was incredible to watch 
them cram 14 people into a roam.” 
Financial inv estor s, too, are buymg into 


SPT Telecom, even ahead of privatisa t i on. 
In tbe second wave of the Czech Repub- 
lic's voucher programme, 26 per cent of 
the company has been allocated to indi- 
viduals and voucher funds. These shares 
will be distributed early next year. 
Already, however, wes te rn hedge funds 
and private investors are engaging in con- 
tracts with Czech institutions to take 
future delivery of stock. This market has 
set a price of about Kc3/>00 a share. 

Tbe intensity of interest puts Czech offi- 
cials in a strong bargaining position. “We 
are not begging investors to come,” says 
Jtri Makovec, chairman of SPT. “We are 
just telling them that this is an opportu- 
nity.” Tbe sale is likely to raise more than 
(lbn, making it the biggest transaction 
yet in eastern Europe. 

Such fierce competition reflects the feet 
that for western operators the sale is a 
rare opening. “Tbe oppor tuni ty to buy 
into and influence an emerging markets 
telecoms company is disappearing. This is 
the biggest play around at the moment,” 
says a western investment hanker. 

The Latin American telecom deals are 
largely completed and west European pri- 
vatisations are generally taking the form 
of public offerings. Thirty per cent of 


Nicholas Denton on the SPT Telecom offer 


The $1 bn draw 


Hungary's telecoms company Matav has 
been sold to Deutsche Telekom and 
Ameritech; Poland still appears uncertain 
about bow to conduct its telecom privati- 
sation. “Tbe timing for the Czechs has 
been impeccable,’' says Ms Goffin. 

SPT Telecom has its own special attrac- 
tions. The Czech Republic is home to east- 
ern Europe's most successful economy 
and must cany SPT with it "Telecoms 
has to do well because otherwise they 
wont turn around their industrial soci- 
ety,” says Harvey Scbuster, chairman of 
Corns, a Czech voucher fund that has 
invested heavily in SPT. 

Investors believe the company is wen 
managed. Operating profit in' 1993 was 
Kc6J>bn ($230m). The company has little 
debt and win have still less: the winning 
weste r n consortium will take its 27 per 
cent stake through a capital increase. Tbe 
Czech budget is in rough balance; so all 


the proceeds will go to SPT, none to the 
g ov er n ment. 

Th e con cern of investors is an unusual 
one SPTs gearing is too tow rather than 
too high. “They wont have to borrow a 
cent for two to three years,” says one 
adviser. 

Even the company's fellings have silver 
linhigg- Line density at 20 per 100 inhabit- 
ants is low by western standards. Waiting 
lists are still high at 600,000. But frus- 
trated demand offers the potential for 
rapid revenue growth. Labour turnover is 
high at about 20 per cent per annum. This 
leads to rising salaries but it also makes 
cutting hack the labour force easier. 

One problem is the Czech Republics 
distorted phone tariff structure. Interna- 
tional calls are among the most expensive 
in Europe while local calls are the cheap- 
est at about US5c for unlimited time. The 
gover n m ent is un wining to raise charges 


sharply ahead of elections In 1996. 

The group most likely to win will be tbe 
one which can promise the most rapid 
development. The target is to double the 
number of lines by the year 2000 at a cost 
of about Kcl30bn. Only large-scale invest- 
ment will ease widespread criticism of the 
telecoms company. “We are pnblic enemy 
number one,” says Mr Makovec of SPT. 
“No other company is so unpopular.” 

Attac ks co me not only from the general 
public. SPTs International switch is over- 
loaded and businesses are stepping np 
their criticism, “lines are getting worse. 
They’ve hooked up so many that yon can't 
get through,” says Andrew Reicher, out- 
going general director of investment bank 
CS First Boston in Prague. 

France Telecom rites its experience in 
transforming a backward telephone net- 
work to one of the world's most modern 
in the space of a decade. But most of the 
companies competing are technically up 
to the task. Stet will have to bear Italy’s 
often unjustified reputation Tor broken 
lines but it is likely to compensate for 
that by bidding high. 

Bell Atlantic, France Telecom and KPN 
all have the advantage of longstanding 
links with SPT. France Telecom and Deut- 


sche Telekom suffer the handicap of state 
ownership. Deutche Telekom and Amert- 
tcch will find tt difficult to promise the 
CZech Republic any role as a regional hub 
for telecommunications traffic after hav- 
ing done so already hi Hungary. 

But the deriding factor may be national- 
ity. The Czech government’s view of 
French state companies has been soured 
by Air France's unsuccessful Investment 
in CSA, the Czechoslovak airline. 

A loading role for Deutsche Telekom 
would reinforce Germany's economic 
influence, already uncomfortably large, 
over a country it occupied in the second 
world war. 

Moreover, a sale to a state-owned com- 
pany would hardly be the privatisation in 
which tbe Czech government believes so 
strongly. France Telecom and Deutsche 
Telekom are addressing these concerns. 
Each led its respective consortium in Hun- 
gary. In the Czech Republic they are tak- 
ing a back seat to their US partners. 

Whicheve r we stern consortium comes 
out on top. SIT and the Czech Republic 
are bound to be winners. All the condi- 
tions are present for a bidding war. “It is 
going to tufa* a bllUon dollars or more to 
walk away with it," says an adviser. 


•♦w*- . T- . 


RESTRUCTURING AND EMPLOYMENT 


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The pace needs to quicken 




As an economist, Mr Karel Dyba, minister 
of toe economy and an old friend of Mr 
Vadav Klaus, the prime minister, likes 
tackling questions such as “Is it possible 
to restruct u re a socialist economy without 
either large-scale bankruptcies or heavy 
unemployment?” 

For most of the post-communist states, 
plagued with double- digit unemployment 
and idle factories, the answer has proved 
negative. But the Czechs, partly through 
goal fortune bat mainly through astute 
political and economic footwork, appear to 
have palled off the trick. 

Sceptics argue that Czech full employ- 
ment is largely an fllusion, with govern- 
ment-enforced low pay allowing enter- 
prises to' keep under-employed workers on 
the payroll rather than unemployment 
lines. 

Alternatively they claim that Czechs 
have low unemployment because they 
have hardly started tbe painful microeco- 
nomic surgery on former state-owned 
enterprises which has led to mass lay- offs 
in seriously reforming states such as 
Poland or Hungary. Bankruptcies to date 
have been few and far between and mainly 
limited to small companies. 

Mr Dyba has little time for such ertfi- 
f jyin. without changes at the enterprise 
level, it is impossible to sustain macro-eco- 
nomic stability, he argues. . “Our experi- 
ence shows that speed is better than 
ftpflrrihfng for perfection. We have moved 
from zero to 80 per cent share of privately- 
owned enterprises in five years. But this 
has been accompanied by dramatic struc- 


tural changes. 

“Employment in the farm sector, for 
example, has fallen by 50 per cent The 
fastest growth has been in the service sec- 
tor, especially tourism and financial ser- 
vices." 

Countering accusations of slow change 
in the formerly bloated state-owned indus- 
trial enterprises - artificially biased 
towards heavy industry and the Soviet 
market he reels off the manpower reduc- 
tions in the largest five state-owned ente r- 
prises. 


The economy minister answers 
his critics, in an interview with 
ANTHONY ROBINSON 


“The biggest employer of all, the Czech 
railways, sited 30 per cent of its former 
165,000 workers between 1990-93. Skoda Wi- 
zen, the biggest engineering conglomerate, 
lost 43 per cent, the OKD coal mines shed 
nearly half their workforce, the Vitkovice 
steel plant lost a further 28 per cent and 
the telephone monopoly SPT shed 13 per 
cent,” he says. 

But Mr Gabriel Ei elder, chief financial 
officer of CEZ. the electricity corporation, 
which has slimmed its workforce from 
16£00 to 12,000 in three years, says that 
with wages so low the real i m p ro v e ments 
in efficiency have come elsewhere. “At 
CEZ labour represents only 2j6 per cent of 
total costs. In oar case, the real improve- 
ment has come through a 500 basis points 


reduction in our average borrowing costs 
through tighter financial management" 

Few companies are as capital-intensive 
as ra?- The general pattern has been for 
loss-makers to be slimmed down rather 
than closed. Few workers have been 
sacked Most have Just walked away from 
low-paid, boring jobs and found new 
employment in the booming construction, 
hotel and ca terin g, retail and distribution, 
banking, tourism and other sectors. A 
growing number have become self-em- 
ployed or work far the fast-growing pri- 
vate start-up companies. 

The Czechs are slower, more cautious 
and less entrepreneurial than the Poles, 
who have taken to capitalism like a duck 
to water. But the country now boasts a 
growing number of private companies and 
entrepreneurial business types. 

The rate of Job creation In tbe private 
sector is such that labour shortages and 
rapid labour turnover are now a growing 
concern. Mb' Jan Havelka, head of Czech- 
invest, the government’s inward invest 
meat promotion agency, says that one in 
five Czechs changed his or her job last 
year. As a result toe Prague region, where 
60 per cent of the GDP is produced, has 
tamed into a magnet far foreign workers, 
especially Ukrainians, Serbs and other 
escapees from the Yugoslav imbroglio. 

The real question for Czech economic 
managers Is not how to preserve employ- 
ment and social peace but how to speed up 
tbe liquidation of hopeless enterprises so 
as to free labour for more productive use 
in sectors now feeing skill shortages. 


The World may Change... 




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INVESTING IN EUROPE OR THE CIS? WE ARE. 



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CZECH REPUBLIC 4 





E FOREIGN INVESTMENT 

Setbacks lead to 
reassessment 




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The Czedi RqmhUc’s political 
staUUtr and a consistent eco- 
nomic policy, pursued by a 
group of technocratic politi- 
cians with the zeal of true con- 
verts, has made the country a 
favourite of foreign investors. 

The government of Mr Vao- 
lav Bans has created a pnwe- 
fonn consensus that has seen 
markets deregulated, state 
enterprises wholly or partly 
sold off; and the comptottoa of 
a huge privatisation pro- 
gramme that has turned the 
Czechs info a nation of bud- 
ding bourgeois capitalists . 

One of the rewards has been 

the granting of coveted invest- 
ment grade stains to the coon- 
try by the international rat- 
ings agencies. The Czech 
Republic is rated BAAS by 
Moody’s and BBB-plos by 
Standard ft Book’s. 

Since 1990, and especially 
since 1992 when Mr Klans 
became prime minister, for- 
eign buyers have taken sub- 
stantial stakes hi the country's 
automotive, tobacco, food and 
construction industries. A 


Investment has been 
attracted without offering 
tax breaks or other 
incentives - an approach 
that has paid off 


total of |2.7bn in foreign 
direct investment was commit- 
ted by the end of September 
this year, with expectations of 
SSbn by the year-end. This is 
less than half the levels seen 
in Hungary, where pri v ati se- 
tion has moved mnch more 
slowly, but more ft«n Poland, 
which has four times the popu- 
lation but is seen as more 
politically unstable. 

Significantly, the Czech 
Republic has attracted hh« 
level of investment without 
offering tax breaks or other 
incentives. On the contrary. 
‘Why should we subsidise for- 
eign companies to compete 
unfairly against Czech compa- 
nies?" Ur Klaus provocatively 
asks those who urge such mea- 
sures. It ts an approach that is 
paying off. Czechlnvest, the 
agency for foreign investment, 
says that serlons foreign 
investors appreciate the 
absence of incentives, seeing 
tills as farther evidence of the 
government's commitment to 
the law of the market 

The biggest and most cradal 
foreign investor to date is 
Volkswagen, which bought 31 
per cent of Skoda, the Czech 
carmaker, in 1991. Europe’s 
biggest carmaker is doe to 
raise Its stake to 70 per cent 
by the end of 1995. Confirma- 
tion of the eventual handover 
of control to Volkswagen was 
agreed this year after a diffi- 
cult renegotiation of the origi- 
nal 1991 agreement This fol- 
lowed tile German carmaker’s 
embarrassing abandonment of 
earlier plans to invest up to 
Dm9im in Skoda by the aid of 
the ffr cq jfr 

Other Mg investors include 
Philip Morris, which spent 
1420m buying 80 per cent of 
Tabak, the Czedi tobacco 
monopoly, and modernising 
production at its Xntna Bora 
facility; BSN and KestiA The 
latter bought into Cokola- 
dovny, a confectionery maker, 
in a joint venture in 1992 and 
now controls the company. 
Another big i n v esto r is ABB, 
tiie Swiss-Swedish engineering 
giant, which employs 6,000 
people in Brno, the country's 
second city, in a range of i 
power engineering and alec- i 
ironies products ventures. 

OS multinationals have 
been substantial investor s in 
the fast food and consumer ] 
goods sectors, but investment ] 
is not confined to the bouse- i 
hold names. Earlier this year, I 
for example, the small US 
pharmaceuticals group Ivax < 
bought majority control of < 


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pharmaceutical comp any. 

Success is now bringing new 
problems for foreign investors. 
Czech attitudes, especially in 
political and business circles, 
have altered as company man- 
agers come to teens with the 
mechanics of restructuring. 
Some high profile deals with 
foreign investors have come 
spectacularly unstuck. 

The trigger was Volkswa- 
gen’s scaling back of its plans 

far Skoda, which threatened to 
make the Czech venture a 
mere sideshow in the Volkswa- 
gen group and cause large- 

scale redundancies at its 
Mlada Boleslav plant Putting 
a brave face on what has 
undoubtedly been a severe 
embarrassment far tim govern- 
ment, Mr Vladimir Dlouhy, the 


defends the renegotiated 
agreement though its terms 
have not been revealed. In 
hindsight be says, the origi- 
nal deal was too optimistic. 
‘There were mistakes on both 
sides in signing the original 
agreement” he adds. 

The Volkswagen setback 
was followed in Mar ch this 
year by the withdrawal of Air 


facing opposition from Mr 
Klans. 

The currency, widely consid- 
ered undervalued, is expected 
to Jump against the dollar and 
D-mark in the event of fall 
convertibility, hurting the 
country’s boonring exports in 
its newly-won and valuable 
western European markets. 
“Czech goods compete on 
price, not on quality,” says Mr 
David Svujttka, bead of trea- 
sury at Bayerische Vereins- 
bank in Prague. 

Large inflows of speculative 
capital attracted by high inter- 
est rates and the chance of 


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money supply soaring to 30 
per cent by October and are 
threatening to p us h iwfiattfm 
above the CNB's target of 10 
per cent for the year. This type 
of capital inflow, with its 
destabilising potential, has 
received the particular wrath 
of the g o v ernm ent 

Mr Klans is understood to 
want to leave the question of 
c onverti bility imtn after gen- 
eral elections in 1996. By then, 
tiie proposed sale of the SPT 
Telecom stake and a potential 
2700m investment in ofl refin- 
ing by a consortium of Shell, 
Agip, Conoco and Total wiH 
have been decided. 

Future attention is expected 
to focus an the hundreds of 
newly privatised and start-up 
companies which are in dffi- 


uMil } ►; 


and good management to turn 
the premise of privatisation 
into a reality. Potential inves- 
tors are now scouring the pro- 
vincial towns and villages for 
hidden Jewels whose turn- 
around wfll be profitable far 
them, and good for the contiii- 
aed health of the economy. 


Vincent Boland 


C orn mi n iirt* rn g Pi wmil, and C(Bn- 
rade Stalin in particular, were 
obsessed with steeL It_ was an 
obsession that lumbered former CbBcbosk}- 
vakia with dozens of smoky steel plants, 
and an enormous industrial restructuring 
problem when communism felL 
The Czech Republic alone has over 20 
steel and znetaBingy companies, and many 
wfll not survive. Vitkcrvke, the republic’s 
largest integrated steel and engineering 
complex, is determined to be cme that win 
pull through. Mr Jaroslav Dusflek, Vitkov- 
joe’s finance director says bluntly: “We 
will not dose down.” 

Two years ago, he was not so sure. like 
much of Czedi heavy industry Vhkovke, 
based in Ostrava, northern Moravia, had 
drawn up a reconstruction plan which 
relied heavOy on government funding. But 
goon after the June 1992 ele ct ions, the new 
gover n m ent, headed by Mr Vadav Klaus, 
maik jt abundantly dear n«h coanpa- 

nies would have to swim along without 
the aid of a government Efe-raft 
Vitkovice. winch has to produce at an 
optimal level of lm tons of steel and core 
products to survive, was forced to jump in 
at the deep end. ft has already shed lftOOO 
employees since 1989 and, its current work- 
force of 23.000 is targeted to fall to l&jOOO 
by the end of the decade. While reducing 
the labour force, mainly through volun- 
tary retirement it is also .planning to 
reduce its dependency on steel production 
and boost its engineering cflvision. 

The company has invested EcLSm a 
year since 1962, much of it on a KcSUba 
continuous slab caster to modernise steel 
production. But it is also saddled with 
heavy environmental costs, currently 
KcSOOm annually, to reduce haz ar do u s dis- 
charges and waste. 

Mr Dusflek claims that Ostrava, a bleak 
industrial city of 33QJM0 people dominated 
by the sprawling Vitkovice plant, is 
“cleaner than Prague”. Yet neit her is par- 
ticularly dean, though better than they 
were in commimfot times when ecological 
concerns were not an overriding factor. 

Steel production currently accounts for 
56 per cent of Vttkovice p s total output, but 
is scheduled to decimal to 45 per cent by 
2003. according to a new strategic plan 
which has just hit Mr DusQek’s desk. The 
company’s main product is hot rolled 
thick plates used fa shipbuilding and boil- 
ers. It also makes long products such as 
seamless tubes used by the oil industry. 

Its engineering division, which c ur r ently 
accounts for 30 per cent of total produo- 
tion, on marin* crankshafts* 

of which it claims to be one of the two 
leading world producers with 16 per cent 
of the global nurkeL It also makes compo- 
nents for endear power plants, and was 
the main supplier of such products to Sovt 
et-designed reactors nntfl 1389. 

Since the collapse of Cotnecon, Vitkovice 
has had to fight hard Cor new mart»»fai 
This has inevitably brought it into conflict 
with western steel producers, which 
invoked anti-dumping clauses to restrict 
exports of seamless tubes and other prod- 
ucts to European Union markets. 

Mr Dusflek dearies allegations that Czech 
and Slovak steel makers, and seamless 
tube producers in particular, are guilty of 


France fitnn . Czechoslovak Air- 
lines. Air France and the Euro- 
pean Bank for Reco ns truction 
and Development each bought 
19.1 per cent stakes two years 
before in a 260m investment 
After a lot of haggling, an 
exasperated government 
bought ant the French stake 
and began looking for Czedi 
backers to provide support for 
the heavily indebted airline. 

These setbacks, and contro- 
versy over the future of the 
petrochemical industry, have 
fed many Czechs to reassess 
the merits of foreign invert- 
meat The country’s success In 
other areas of economic 
reform, especially in coupon 
privatisation, sent expedi- 
tions soaring, but the foreign 
investment controversies were 
a blow to national pride. 

There could be danger 
ahead. “We are now in a 
period of euphoria over our 
own success - we risk overes- 
timating our own capabili- 
ties,” says Mr Jan Havelka, 
chairman of Czechlnvest. 
Western bankers in Prague 
dismiss the notion that the 
Czechs can complete the task 
of restructuring without for- 
eign capital. Huge areas of the 
economy, including such 
industries as banking, brew- 
ing, energy, mining and metal- 
lurgy, are heavfly undercapi- 
talised and unable to ftwanire 
restructuring on. their own. I 
A Mg test of the new mood 
towards foreign investment 
will come early next year 
when the government de cides 
on a strategic partner for SPT 
Telecom, the telecommunica- 
tions company to which tiie 
state Is selling a 27 per cent 
stake far around 21bn. 

The deal is shaping up to be 
the biggest one-off investment 
yet in the co untr y, as well as 
the b ig gest telecoms deal in 
eastern Europe. Hr Karel 
Byba, the economy minister, is 
overseeing the tender and has 
promised to run an open and 
transparent process, partly to 
restate a commitment to for- 
eign investment and partly to 
shake off allegations of shady 
dealing to earlier privatisa- 
tions where transparency took 
a back seat. 

Away from the big deals, 
some private Czech companies 
are looking to raise new capi- 
tal directly by wooing interna- 
tional i ns t i t ution al investors. 
Mr Ivo Lurvink, head of CS 
First Boston in Prague, says 
foreign investors are looking 
increasingly at emerging 
industries such as media and 
entertainment rather than at 
established sectors which still 
have mnch restructuring 
ahead of them. 

An additional factor that 
will enhance the Czech Repub- 
lic's attractiveness as an 
investment location may come 
about as early as next year 
when the konma, the national 
currency, is expected to 
become folly convertible. The 
Czech National Bank is push- 
ing for the move early, bat is 

The national bank is 
pushing for the koruna to 
become fully convertible, 
but the prime minister may 
wait until 1996 



A factory In Uhaiahy Hndhto 


STEEL INDUSTRY 


Vitkovice is afloat 
without a life-raft 


dumping products to the EU. When tower 
labour costs depreciation are 
CTchirted, “all our costs are at interna- 
tional market levels.” he says. 

The biggest proportion of Vltfcovice’s 
output is still consumed by local engineer- 
ing industries. But the company now 
exports 47 per ceot of total jataducton, cf 
which 55 per cent goes to the ETJ, mainly 
Germany, «”d a third to Slovakia. 

Until the collapse of communism 30 par 
emt of the company’s production, mainly 
engineering products, was exported to 
Comecon. markets, with the rest sold 
domestically. The great difference today is 
that its new customers pay for what they 
receive. Vitkovice lost Kclbn in 1993 after 
being farced to write off unpaid debts by 
former Soviet customers. 

Meanwhile, Vitkovice is benefiting from 
the end of the recession in the steel indus- 
try worldwide which is pushing up export 
prices and volumes. Profits this year are 
expected to reach Kc400m. In . the 10 
months to October, it reported turnover of 
Kcl8bn and sales of Kcl2.7bn, of which 


Rising profitability is essential if the 
company is to earn enough to complete its 
restructuring plans. Much of Czech heavy 
industry is still largely state-owned, but 
the recently completed second wave of 
coupon privatisation included blocks of 
shares to many “difficult” industries, 

mriraHng SteeL 

Vitkovice was Included in the wave, 
with almost 25 per cent of the company's 
shares sold to private investors. Another 5 
per cent is owned by the city of Ostrava, 
which depends an the company far its own 
survival The state retains two-thirds. 

Vitkovice has tried to woo a partner 
among western steel companies, arri hired 
UBS Phillips & Drew in 1992 to draw up an 
“information memorandum” to sell the 


ccanpeny’s divisions to potential Invasion, 
including British Steel and Thysftm 

That move coincided with the worst of 
the recession In the world steel industry, 
and so far there have been no tatek 
Vitkovice is now trying to secure 

long-term co-operation agreements vdtieh 
may an equity partnership. It is 

hoping that the improved international 
fflrtlflnfc far the steel industry will help. 

What potential investors will be buying 
into is the Czech Republic's third biggest 
company, with a colourful past and a 
potentially prosperous future as industrial 
growth resumes, provided it can campfete 
its modernisation while Us tow cost base 
gives it a price advantage. 

It may be the only steel company in the 
world to have been founded by an arch- 
bishop. In 1828 Rudolf Jan, archbishop of 
Olomouc in central Moravia, built a 
smelter to Vitkovice, which was then a 
tiny village. Jan. was a member of foe 
Hapsburg dynasty, and owned ore mines 
to Sweden and coal mines in the Ostrava 
region. 

The plant was bought to 1843 by a 
branch Of the Rothschild family, and 
remained in their hands until it was aeted 
ter the Nazis to 1989. Hu state cf Czecho- 
slovakia settled with the Rothschilds In 
1947. so that Vitkovice was not subbed to 
restitution altar the Veivrt Revolution. 

Bari tor nn yn th« th& RothscbUd (no* 

fly resumed its severed connection with 
the Czechs whan Sir Evelyn do Rothschild 
came to Prague to sign a Joist renta l 
agreement between Nil Rothschild and 
Ceskoslorenaka Obchodni Banks, For Vlt- 
kovice such agreements could augur for- 
eign investor interest even to sectors such 
as steel, where the fixture looked so Meek 
three years ago. . 

Vincent Boland 






i 


1 


IN CZECH REPUBLIC 


There’s been a surprising rate 
of interest in the Czech economy 
&om foreign investors of late. 

In fact, the flow of forei gn 
investment into the country has 
increased by 800 % in die last 
three years alone. 

The reason for ibis foreign interest, can 
be attributed primarily to the Republic’s 
remarkably stable business environment. 

During i 994, inflation was halved 
to 10%, unemployment remained around 
4% and in the last year, GDP has grown 
by abealtby 15%. 

Even their currency, the Czech crown, 
has consistently gamed in value avgin« 
the US dollar. 

But, perhaps of greater interest, is 

Moody's upgrading of die Czech Republic — 'O — J9 — • w a n napi 

yet again, from Baa 3 to Baa 2. A strong German neighbours, the cost efficiency 
endorsement of the counn/s continued of the Czech workforce is of great interest 



economic and political stability. 

A highly skilled, cost-effective workforce 
is also a notable 


to foreign investors. 


t 1*P*t*lkfoCzeckRtpBblkanIdm*te 

cost efficiency lucrative market. Czechlnvest was created 
^Bofgrcacouecest tZzechlnvea’s primary aim is to meet the 

' needs of *fyeenfiekT and strategic i ni nr 

£ Czedi Republic couldn't : . .. . . a * c S K J«nt 


c ha ra c teristic of 
the Czech market. 
Heavy investment 
in the education 
system has helped 
create a highly 
qualified labour 


“But, perhaps of greater interest, 
is Moody’s upgrading 
of die Czech Republic yet again, 
from Baa 3 to Baa 2.” 


“ “ST£T? r ^ by W £ 


lies literally u tbe and hv «m regwos 

p ** Provkfing essential information for 

centre of Europe, effective investment appraisal, 
totte^rJT 5 ^ If T«» we tetaoteri bn obtairing mre 
“OMjBfag Eastern, opportn 

aasss-SS 


force with, incidentally, a higher proportion location of tte Czech Republic andlts PrafflTl ***** * m * 

of science and engineering graduates than cost-effective workforce are the key (4221 mo *-t m Republic. Telephone 
leading OECD countries. Furthermore, with benefits dri ving tbe increasing interest in ^ F “ (422) 242 21 “<■ 

average vvages, in tbe automotive industry foreign investment To help maintain this 
for instance, up to 18 times less than (heir momentum and assist new entries into this 























Nix 


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t first gtoncB. hm fat tn 
the Czech Republic 
radiate good health. 
’•ffiSbtrbe o £ the largest, 
iJX&mwsKt, Obcshodni and 
Ifcwstnid, recently broke the 
.'^mesa^sg markets equivalent 
,;3Nhe fimrmfoute mi~k> Tha y 
^jateed or are raising 
Syndicated loans inter- 
-Jpaftonally at less thaw 
■percentage paint over the 
Jittadan interbank rate: much 
! Jims, at a spread (< 65-70 basis 

. jS?5«fcW® ■. low borrowing rates 
.tows much to ^international 
reputation of the Czech 
econom y. But the h anking 
system Itself takes soma of the 
credit. The Czech Republic 
dealt early with the overhan g 
of bad loans. 

From 1891 on, banks hived 
off bad loans into a new 
institution, Konsolidacni 
Banka. They up their 

balance sheets before the 
problem overwhelmed tham 
The central bank said their' 
capital should exceed &£> per 
cent of assets by the end of 
1998 and- the banks have met 
the target 

Czech banks are in confident 

mood. Komercni and Invest- 
i rid', corporate bankers, sod 
die savings inatitntMn Pal m 
Spoilt elna began with 
specialist roles but each is 
invading the others’ patches 
with gusto. Komercni has 
completed an energetic 
expansion of its branch 
network and Investnicf has 
bought into one by taking over 
Bostnvni. the post office bemv 
Sporttalna is seeking to buhd a 
leading capital markets 
business on its efree p frmMnp 



SAm!? 





Konisrenl Bank has co mpl eted « enarseB c ez pa nsion of Its branch network 

Nicholas Denton on the banking i 


sector's health 


share- holders," says a western 
investment banker. 

Nor does a shareholding 
always stave off competition 
for lending business. Suitors 
surround CEZ, the electricity 
utility. And Komercni, for 
instance, lost the Czech 
tobacco company as a client 
when it was taken over by 
Philip Morris. Citicoip was the 
be nef i c iary. Margins are also 
coming under pressure as 
western hanks make inroads 
into the Czech corporate 
market. 

The Czech banking policy 
has been expensive. Mr Ales 
Barabas, board member of 

Mvnntenalrn ~Ranta> gays; “The 

government is p™pi"g money 
into the banks, don't wasry. R 
is just that here it is not 
public." 

The foundation of Konsol- 
idacni was in itself a 
pre-emptive bail-out. The 
Czech government’s liberal 
distribution of guarantees on 
corporate loans also reduces 

banks* need to provision and 
boosts capital. 

Three small banks 
nevertheless failed earlier this 
year. Agrobanka, the fifth 
largest bank, applied 
international standards to its 
accounts and 


Where success 




discov er ed that A , 

provisions had Smaller b 

wiped out its brutal r 

capital in 1893. that full p 

Further bank wfil total 
failures are a .. . 

distinct tneir 

possibility. “My 
guess is that there is a much 
larger hit looming than has 
been acknowledged," says one 


Smaller bartks face a 
brutal realisation 
that full provisioning 
will totatty exhaust 


They follow less the example 
of the AnglfrSaxon lenders abd 
more the powerful universal 
banks of neighbouring 
Germany. Their fund 
management Mwpmitw have 
also grown through voucher 
privatisation and have mart* 


Deo 31 


w<ga reserves ffJ 8 $tm) 

1804 

31 An 30 Sep 30 Oct 30* Nov 30*1 Doc 1" I Dec ST I Dec"p 


** - Vt * 


r-. : 

-V ' 




W H*w 


L. r f ^ J 


Vn*h 


well as lenders. 

Influence on the - board 
through seats held by fund 
management c ompanies h»g 
safeguarded banks* lending 
relationships, soma believe. Mr 
'Alex Angefl of brokers Wood & 
Co says: HSufls why you see 
so little capital markets and 
corpo ra te finance activity in 
this market. Czech banks want 
to keep the business for 
themselves." 

Banks have shown strong 
results at the operating level 
The government has pursued a 
deliberate policy of tolerance 
fin* high margins. The spread 


3 , 8 ns 4,565.6 5,170.4 5,416.6 5,081.6 5^19.0 5.783.0 5,7275 57230 

6744.6 67703 7756.0 7703.7 6,4733 8732.7 87387 87287 87957 

17413 17693 17627 9437 1.1827 13097 1.1067 17527 13585 

47035 5704.1 67937 67807 77813 7,423.1 7732.1 77763 77377 


The Czech National Bank 
classified loans more 
rigorously than ever before for 
its September data and found 
that 35 per cent are bad, 
compared with 22 per cent as 
measured before. 

When the Hungarian 
authorities conducted their 


is not a catastrophe." 

The large banks claim they 
have already moved over to 
international accounting and 
so the change in calculation 
does not apply to them. 
Komercni says it made the 
shift in 1992 and now has met 
the Basle recommendation of 8 
per cent capital adequacy. 

But other, smaller banks face 
a brutal realisation that foil 
provisioning will totally 
exhaust their capital. Even Mr 
Kaftan admits: “There could be 
some banks in the system 
which could have negative cap- 
ital adequacy." 

Leading banks stand to gain 
from a flight of deposits to 
quality that a further wave of 
bank failures would prompt. 
But those which lend an the 
Interbank market such as 
Ceska Sparitetna will be hit 
Wood & Co says Sparitetna suf- 
fered an estimated Kc4bn loan 
loss to the three sma ll banks 
that have already gone bank- 
rupt Three more banks are 
considered at risk and Price 
Waterhouse, Sporitdna’s audi- 
tor, has commented that Ks4bn 
worth of provisions may not be 
adequate. 

Despite the prospect tf An- 
ther loan losses and a tighten- 
mg of capital 

Acs face a adequacy cal- 

dgs race a cations, Mr 

tfisation Kaftan is aria . 

nriskxiing mast that the 

- fh wir it Czech banking 

sector will 

*****“ reada the 8 per 

cent ratio by 

the time the country applies to 

join the European Union in 

1966. 

So Car, Czech banks have 
proved able to restore their 
capital through rights issues 
on the Czech stock market and 
issuance tf subordinated debt 
Komercni raised KcSbn in 
March and Ceska Sporitelna 
KcThn in September. 

Mr Ales Barabas, board 
member of Zhnotenska Baniw 


first in-depth analysis of responsible for the bank's 


between borrowing arid deposit 
rates, while felling , still - stands 
at 6 per cent Nor has* this 
implicit subsidy all . been 
frittered away on irresponsible 
lending. Better lending 
discipline is demonstrated by 
one key statistic: new loans 
after the revotation make up 90 
per cent of Komercni’s 
portfolio but only 20 per cent tf 
bad loans. 

It sounds too good to all be 


true in a region where bank 
failures and bail-outs have 
been endemic. 

Even if big backs’ bad debts 
are well covered now, they 
could easily deteriorate. One 
westerner who has worked 
closely with a large Czech 
bank says: “Success is always 
measured in terms of bigness 
or being first with a product I 
keep telling them: our job is to 
make money, we are not a 


utility. 

“There is no credit culture 
that pervades the bank. There 
is still no deterrent to making 
bed loans. Ton don't get fired 
if -it happens.” 

Ownership of stakes in 
borrowing companies can also 
be a source of potential 
problems. "Banks are wearing 
two hats here. They obviously 
take a dim' view of getting 
tough on clients when they are 


banks' portfolios they found 
that the two largest 
commercial banks had nega- 
tive capital equivalent to about 
8 per cent tf assets and were 
technically insolvent. The 
Czech National Bank refuses to 
give adjusted figures for 
capital adequacy. Mr Ota 
Kaftan, bead of supervision at 
the central hank, says only: “ft 


investment fond, says: “TO be 
honest, rm surprised that the 
rights issues are running so 
well. 1 personally would not 
participate.” But success 
breeds success, and as long as 
Czech banks can keep up the 
appearance of solidity they 
should be able to fond them- 
selves out of crisis. Ultimately, 
it is aQ a matter of confidence. 



Profile: WOOD & CO 

■ 

■ 

Honest broker 

strikes gold 


Pragma Budapest and Warsaw 
teem with young westerners 
seeking fame and fortun e cm 
the new business frontier, 
icy have taken up the latest 
reer advice: Go east, young 
an, writes Nicholas Denton. 
Only a few have struck gold, 
le tf them is Richard Wood. 


managers,” says Mr Wood. 
There are always rumours that 
brokers trade on the back of 
their clients but most believe 
Mr Wood's passionate asser- 
tion that reputation is the 
firm’s most important asset. It 
Is particularly powerful in 
eastern Eurone. where camtal- 


v 1 1 1 1 m ■ » 


* Ji j m 1 j W I'm* J \ ill’J i • * ■ i uiim ‘1 l.'mVi hi 


pnriimiflT plan and no Czech 
connections. Aged 34, he is 
now managing director and 
mnfa shareholde r of the fnffrh 
Republic’s top independent 
brokerage 


the quick buck. 

Honesty in a crooked market 
can be expensive. Wood & Go 
struck a deal to buy shares for 
a client. The seller saw the 

price was 


rags-to-riches 
story. Mr Wood 
was a 

vice-president 
at Salomon 
Brothers in 


iUV V : : ' 


} 


< } i T < C i n l 


clallsing In 
sales of fixed 


tive products. ;i 
He brought to 


Republic " bis Mdavd Wood the firm's 
last, bumper aaeot Is Rs reputation 
bonus, a rela- 
tionship with Salomon and this j 


'-a ~ * aiTTn 1 1 1 


deal and sold 
to someone 
else for 10 per 
cent more. 
Wood & jCo had 
to fink up the 


i 1 1 1 1 :: i _j 1 1 n. 


company sued, 
but could not 
convince the 
court that a 
person’s word 
should be a 


i ker estimates 
his company 
has lost $lm 
from settlement faft- 


». i ! j ( » : . i : 


fj w :7 * uT^STii i 


samum-pink shirts. 

ft has been, nonetheless, an 
adventure. What more 
dramatic time to make the 
break than New Tear’s Eve as 
1989 tuned to 1990 with 
eastern Europe’s revolutions 
playing on the television 
screens. “It was Uke gwWrtg 
on the Mayflower and going to 
Amolca except tt was only an 
hoar and a half away," says 
Mr Wood. 

When Czech voucher privati- 
sation began . Hr Wood toyed 
with the Idea of setting up an 
investment fund. Everybody 
was doing that, but nobody 
was getting set up to broker 
between the funds. That’s 
what Mr Wood dhL 

Wood ft Co’s key adv a n ta g e 
is that it is independent Otiter 
domestic broken are owned by 

banks which also control fund 
management companies. 
“Richard has been very smart 
Be has established a niche 
business as honest broker 
between the investment 
funds," says Mr Nigel Wil- 
liams, managing director of 
Creditanstalt Investment Com- 
pany, and another City boy 
who has made tt in the Chech 
Republic. 

Wood ft Co has also brought 
to the Czech BepnhUc a west- 
ern focus on the client and 
reputation. "Our Czech sales- 
people here actively develop 
relationships with Czech fond 


wlii: — 7i Hh'i -J 
i j i i fu i k'j u 

i ’ t * w i-M i :« 

• u f » B fj I f : h. - 
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» ) u i * i i i M «mI: W Z? 

[ BiUWiUi i « i 


securities,* he 

Nevertheless, 
port of call fin 
Investing in th 
He. The oompa 
handles about 
brokered equity trading, more 
than any competitor. 

In recent weeks it has set up 
operations in Warsaw. This 
pan-Slav strategy has dfe**™* 
practical advantages: Czech 
«iH Polish are similar. Ana- 
lysts can visit companies in 
the other cou nt r y and more or 
less communicate. 

Wood ft Co’s local experi- 
ence and growing regional net- 
work give it a powerful com- 
petitive edge, but eastern 
Europe's stock markets are 
maturing. At the moment, 
emerging market funds, hedge 

funds and private investors 
are the most active players. 
Over time, a wider cixde of 
institutional investors, indnd- 
tng risk-averse pension foods, 
will Include the region’s 
shares in their portfolio. 

Wood & Co will need an alli- 
ance with an international 
investment bank to reach that 
market. "Together with a 
we stern Institution we could 
do more,” Mr Wood admits. 
There have been approaches 
and he a ppears open to them. 
A tteup would dose a chapter 
in Richard Wood's east Euro- 
pean adventure. It could 
leave him seriously rich. 




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w 


FINANCIAL TIMES MONDAY DECEMBER 19 IW 


CZECH REPUBLIC 


Czech attitudes on citizenship for gypsies come under fire 

A blot on the conscience 


“The gypsies are vermin. We 
should put them on trams and 
move them out People here pre- 
fer the skinheads, ask anyone.” 

This was bow a news vendor 
reacted in the picturesque 
town of Pisck in South 
Bohemia earlier this month 
when 14 skinheads were 
acquitted over charges arising 
from the death of a 17-year-old 
Romany (gypsy) boy. Hie was 
expressing a widely-held view 
which reflects badly on the 
Czech reputation for tolerance. 

the Czech Republic enjoys a 
good press as a model of how a 
post-communist state should 


Almost all the Romany 
population, estimated at 
over 250,000, have been 
classified as Slovaks, 
although two-thirds were 
bom on Czech territory 


be run. Hr Vaclav Elans, the 
prime minister, has shown 
himself to be a hard-headed 
and sophisticated leader, fully 
alert to the country’s economic 
needs. President Vaclav Havel 
enjoys a worldwide reputation 
as a champion of liberal 
values. The country's image 
shines in a region beset by 
co mmunis t comebacks and 
re-awakened ethnic conflicts. 

However, treatment of the 
Romanies, the republic’s only 
sizeable ethnic minority, not 
just by skinheads, but by the 
government itself, is a source 
of growing disquiet. An 
American diplomat told an 


international conference in 
Warsaw In September that 
Czech policies over citizenship 
were creating “a humanitarian 
crisis in the heart of Europe". 

Since July this year, some 
100,000 Romanies have been 

stripped of their Czech citizen- 
ship. A new law, enacted after 
the split with Slovakia in 1993, 
classifies almost all the coun- 
try’s Romany population, esti- 
mated at over 250,000, as Slov- 
aks, although t wo-thi rds were 
bom an Czech ter ri tory, and 
the rest were moved from Slo- 
vakia by the communists, usu- 
ally forcibly, after the war. 
Huey were mainly employed as 
manual labour in an area 
depopulated by the post-war 
expulsion of Sudeten Germans. 

To qualify for Czech citizen- 
ship. those now classified as 
Slovaks had to meet several 
difficult conditions, including 
proof of registered residency 
and a dean criminal record. 
Many failed as they had to 
overcome a bewildering mass 
of bureaucratic hurdles and 
thousands are illiterate. 

Although the vast majority 
of Czechoslovak Romanies 
gave up their nomadic lifestyle 
about 350 years ago, they have 
continued to live on the mar- 
gins of society. Unable to form 
an effective political lobby and 
with few powerful friends, 
they have made easy targets. 

Ms Ina Zoom, of the Toler- 
ance Foundation, a Czech 
human rights group, argues 
that the citizenship law “was 
designed in a discriminatory 
way and directed against the 
Romany people”. 


Many Czechs view Romanies 
as troublemakers and 
criminals, heavily involved in 
prostitution and other 
unsavoury professions. But 
others say It is unfair and 
ironic for Romanies to be 
singled out for their supposed 
criminal behaviour, when 
Czech society as a whole is 
plagued by corruption 
scandals, and cheating and 
petty theft are widespread. 

However, Romany 
pickpocketing gangs and 
pimps tend to be visible. 
Crime committed by 
non-Romanies may be more 
sophisticated and the police 

Non-citizen Romanies 
were deprived of the 
right to vote in last 
month's local elections. 
They have also seen social 
benefits withdrawn 


are often less vigorous in their 
pursuit of it. 

Since July, Romanies 
without Czech citizenship have ' 
been deprived of some key 
rights, including the right to 
vote In last month's local 
elections. They have also 
started to see their social 
benefits withdrawn. 

Not only Czechs, but the 
international co mmuni ty at 
large has traditionally shown 
a lads of concern about the 
estimated 6m Romanies who 
now comprise the largest 
stateless minority in Europe. 
They are a distinct people who 
have preserved their own lan- 


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gnage and culture since mig- 
rating to Europe from India in 
the 10th century. But they are 
often seen in terms of crude 
stereotypes - as thieving 
vagrants, fortune-tellers or 
picturesque figures out of Biz- 
et’s Carmen. 

Recently, however, a num- 
ber of international organisa- 
tions have begun to take note 
of their plight and Czech citi- 
zenship policies are under fire. 
In October members of the US 
Congress wrote to .fib- Klaus 
urging him to secuze'a change 
in tiie citizenship law, which 
they described as “the most 
extensive revocation of citizen- 
ship since the end of the sec- 
ond world war". Mr Max van 
der Steel, the CSCE High Com- 
missioner on National Minori- 
ties, also "strongly urged th at 
such legislation be changed". 

A great cultural divide 
exists between Czechs and 
Romanies. The latter are stuck 
at the bottom of the social lad- 
der, hut so tor the government 
has brushed aside criticism. 
Mr Klaus described the con- 
gressional letter as “insignifi- 
cant. Tens, if not hundreds, of 
letters come to my desk every- 
day,” he declared. Even Presi- 
dent Havel has publicly 
defended the law. Jiri Payne, 
head of the Czech Parliament’s 
Foreign Affairs Committee, 
says: “Critics of the law don’t 
understand exactly how it is 
in our country.” 

For Mr Klaus, the primary 
motivation behind the law 
maybe a wish to remove what 
he perceives as an economic 
drain and an obstacle on the 
headlong path to prosperity. 
But there are also political 
advantages to be gained by 
pandering to the widespread 
and often crudely-stated rac- 
ism of much of the electorate. 

Opinion polls indicate 
around 75 per cent of Czechs 





IT n1 woman m Mm mm I — TMrlm fai ItiQioio 

oaiosmen on mo wnonoa unqgo in rngw 


dislike Romanies and 30 per 
cent believe they should be 
deported or isolated in ghet- 
tos. It is not uncommon tor 
bars and restaurants to dis- 
play tiie sign: “No Romanies 
served". Recently, even public 
swimming pools have started 
to ban them. 

Where the government and 
its critics differ is about what 
should be done. Romany 
groups now fear the Czech 
government may try to deport 
them. Although the govern- 
ment denies this, economic 
hardships and racism may 
force many Romanies to try to 
move to Slovakia, where the 
Czechs claim they will not 
have trouble getting passports 
smA riffawndi l p lights. 

It seems unlikely, however, 
that the new Slovak govern- 
ment, which includes anti- 
Hungarian and anti-minority 
nationalists, win show much 
enthusiasm about absorbing 
them. The danger here is that 
any border tug-of-war that 
results could well inflame 
latent Czech-Slovak tensions 
as well as harmiTtg Hip image 
of both countries. 

Tom Gross 


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to* - 86461714. 0690346; Montreal. Canada - 5MRU- 
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2500B40; MUM &Aaaa of Om - 701465, 706457; 
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Raputoc - 82567. 62755c Mu. Cadi Reputfe - 
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AuMavft. Maid - 690100; fllyM Saudi AraolB - 
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FINANCIAL TIMES 
Newsletters 

a LH Rectoemioake NunfajCtir, SofllmA Bndge. Lflndaa SE 
Restoered Nn Wfflfc V AT RcgMntm Na GB X1BS371 21. 


IWL 


S3I4AL 


success 


Bridgehead for ABB 


*nie Czech Republic has represented a special 
opportunity in central Europe tor AM Asea 
Brown Bovari, the worid’s largest power engi- 


Fbr one thing, the country Is likely to be a big 
market for the Zurich-baaed group’s products. 
Programmes to renovate power generatifHi and 
distribution infrastru cture have high priority to 
the Czech Republic. For another, the very 
strong, tradition of engineering skills to the 
country offers ABB a fresh pool of talent to add 
to its global network. 

"Then is a strong urge among the people, 
especially to Bohemia, to get back their indus- 
trial strength .” says Ur Erik Fougner, ABB's 
cacmtxy man age r in the Czech Republic. 

ABB’s advance into the republic began to 
1990, and the group has been an active partici- 
pant to the privatisation process. To date, it has 
established six operating subsidiaries mainly 
based on existing Czech companies, same of 
them in joint ventures. 

The most important .. 


■ ■ 

about the same level He expects exports to rise 
to 40 or 50 per coat of turnover and for the 
wunpimiM to become net exporters. 

ABB has transferred technology to several 
areas - boilers, turbines, coal combustion, 
medium voltage switchgear, engineering tools 
and KMieahnM fittings - to its Czech companies. 
PRS has been designated the group's single 
European supplier of waste heat-boilers. . 

The priority now Is on bringing the compa- 
nies’ p erforma nce up to western standards, to 
teems of productivity nod quality. “We are get- 
ting very c l o se , although the mix of capital and 
labour is not the same as to . the. west," Mr 
Fougner says. AH the are in various 

stages of wuming their. ISO 9001 certification, 
and all but one are expected to have it by the 
and of next year. 

ABB’s Orach companies have not been too 
badly hurt by the separation of Slovakia. Most 
of toe operations were cn the Czech side. ABB's 
Czech offices are no longer responsible for Slo 
_ vakla, although that 


of there is ABB Prvni Exports from the Czech Repuhfic now f 0 '**?* remains an 
h mgr x fra stroiiraa Brno ^ . . , 77 . ^ important market for 

(ABB PRS), based on arT ^ ount to about a quarter of turnover ^ Czech com- 

the First Brno Engi- with imports at about the same le v el pantos' products, 
neering Works, a power Relations with ABB 

engineering company dating from early in the subsidiaries to atom central and eastern Euro* 
I9to century. pean countries are at a formative stags. Poland 


ABB and PSS established their joint venture 
to April 1993, taking the core of PRS’s bailer, 
turbine and power plant operations and 3300 
employees. ABB has a two-thirds stake. 

Last year, ABB also acquired EJF, a Brno- 
based maker of switchgear for all voltage levels. 
Its other Czech subsidiaries include ABB 
Ebergo. a supplier of power transmission and 
network control systems, ABB Lummus Chemo- 
prqject. which supplies engineering services and 
ABB Elektro-Praga, a producer of household 
electrical fittings. In addition, a division was set 
up in 1991 to sell ABB’s process instrumenta- 
tion. robots and AC and -DC drives. 

Altogether, the group employs just under 
7,000 people in the Czech Republic and operates 
13 factories. No business figures have been pub- 
lished, but fifr Fougner says new orders totalled 
approximately $22Qm in the first half of this 
year, as modi as to the whole of last year. 

Except for Elektro-Praga, all of the group’s 
activity is directed at the large-scale power gen- 
eration and distribution market. It has not 
attempted to bring its railway locomotive busi- 
ness to the republic. 

Mr Fougner points out that strict new anti- 
poUution laws come into force in the Czech 
republic in 1996, so tiie potential for contracts to 
dean up or renovate existing power plants Is 
considerable. 

The group has just won an order to install its 
new pressurised fluidised bed combustion 
(PFBQ system to renovate a coal-fired plant at 
Tie bo vice, and Mr Fougner hopes for many 
more such contracts. 

The group’s Czech companies are also very 
quickly winning themselves roles within the 
overall ABB organisation. Mr Fougner says that 
exports from the Czech Republic now amount to 
about a quarter of turnover with imports at 


is the only other country with a substantial 
ABB presence, with Russia coming up quickly. 

Other targe Swiss companies have ventured 
into the Czech republic to the past few yean, 

The foods group Nestto was « ptooesr. Joining 
forces with BSN, the feeding French food group, 
to 1998 to take over the country's bfggast food 
producer, Cokoladovny, with 8,000 employees to 
IS plants ac ros s both the Chech Republic and 
Slovakia. 

Tfaftre ms spwrfftwn rt t ha tint tbftt Coko 
ladovny would be split up to a few years, with 
Nestle taking the confectionery business and 
BSN the biscuits. This has not yet happened, 
and Nestto Indicates the existing arrangement Is 
still working well 

Hotoerbank, the Swiss-based cement group, is 
one of five leading west e rn European cement 
makers that have invested heavily to the Czech 
Republic, in recent years, -partly to prevent 
exports from the country upsetting western 
European markets. 

Ceva Prachovice, the Hokforbank subsidiary, 
suffered a 1K5 per coot decline to volume sales 
of cement last year to LO&ca tonnes, and market 
conditions continue to be difficult Mr Thomas 
Schmidhdny. chairman, said last month that 
operations to eastern Europe were making only 
"a very modest" contribution to profit. 

A mare unexpected source of large Swiss 
activity in the Czech Republic is the publishing 
industry. Rtogier, one of Switoerland's biggest 
publishers, produces Blesk, a highly successful 
saucy tabloid newspaper in the republic as well 
as Profit, a popular business newspaper and 
some 20 other titles. 

Mr JQrg Marquard, another Swiss publisher 
who has expanded to eastern Europe, publishes 
Czech versions of the pop culture magazine. 
Popcorn and Divba (Girl). 


D 




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Manager of the biggest Privatization Investment Fund 

Promoter and Manager of Investment and Mutual Funds 

Aasnovka 12, 110 15 PRAHA 1 
Tel.: (422) 2481 0331 Fax: (422) 231 7816 


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The people of Moravia 


Brno, the country’s second city, aims to become a centre for 


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Where obscurity Trading post has big ideas 





seems bearable 

a ■ 

He people of Moravia, who Prague so far have been the 
inhabit the eastern part of the siting of the Constitutional 
meient lands of the Czech Court and the anti-monopoly 
crown, share some of the frus- ministry in Brno, 
trattans long fdt by the Stov- Faced with such an a&cpm- 
™ ™*y formed the tall jmxmisxog Sue, Moravians are 

o f-tne now defunct federal keeping their heads down* and 
country caned the Ctecfa and the attachment to their nro v - 
^ovak republic. _ ince’s historical legacy now 

• Here was no faint in the old appears to Ik mainly sentf- 
nanxe that Moravians also mental. In local elections in 
lived in Czechoslovakia, and November Moravians voted 
there is still no hint of their overwhe lmingly far national 


a- 

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presence m the «»«. of the 
Czech Republic. Hey appear 
resigned, to being overlooked. 
Following a brief; half-hearted 
flirtation with separatism 
after 1989, when new states 
were cropping tip all over east- 
ern Europe, Moravians seem to 
have accepted the inevitability 
of Bring in Bohemia’s shadow 
within the 


parties. 

In the city of Brno, the prov- 
ince's -capital and the coun- 
try’s second city, candidates 
representing the Civic Demo- 
cratic party (ODS) of Mr Elans 
swept into City Hall, rooting 
the four successor parties to 
the Moravian separatist move- 
ment, whose combined seats 


wxtmn me fell from 20 to 

Czech Repnb- Moravians quietly insist iv®t five* The 

^he move- ” their separate identity 

merit t ha t kept witnin tho Czech Dagmar [asto* 

alive the idea Republic vecka, is a 


of Moravian 


member 


Any city that lives is the shadow of 
Prague can count on being ignored most of 
the time. This gives an edge to Brno’s 
attempts to become a business centre in 
its own right 

For British veterans of the second world 
war, the city' is perhaps best known as the 
home of the Bren gun. His East and accu- 
rate machine gun was jest one of the first- 
class light armaments for which the Mora- 
vian capital is famous. The desire to seize 
control of the region's arms industry was 
one of the reasons behind Hitler’s decision 
to annex Bohemia and Moravia in 1938. 

He arms industry is now a shadow of 
its former self, although rebuilding a 
slimmed-down and modernised arms 
industry is again considered politically 
respectable. President Vaclav Havel's 
high-minded talk of getting rid of the 
Czechoslovak arms industry after the Vel- 
vet Revolution got short shrift in Moravia 
anti Slovakia, where the industry employs 
tho usands . 

Many of the best-Jmown names in Czech 
industry are located in Brno, facfadhig 
Zetor, the tractor maker which is cur- 
rently going through a painful restructur- 
ing process. With its long tradition of engi- 
neering skills and its endless industrial 
suburbs, the dty Is the Czech Republic's 
leading centre for transportation and agri- 


cultural machinery production. Some two- 
thirds of Brno’s workforce is employed in 
the engineering, optics and glass indus- 
tries. 

The skills base has attracted significant 
foreign investment, which is helping old 
capital-starved Industries to restructure 
and modernise. ABB, the Swiss-Swedish 
engineering giant, has invested heavily in 
Bmo in the past three years, and now 
employs nearly 6,000 people at engineering 
and electronics plants in the city. 

Internationally, Bmo is probably 
best known as central Europe’s 
largest trade fair centre 


About a sixth of Brno's 380,000 inhabit- 
ants are students at its six universities 
which means a big supply of skilled labour 
for regional industries, which also include 
mining energy and metallurgy. 

Internationally, Bmo is probably best 

known as central Europe’s largest trade 
fair centre. The city has been a trading 
post for centuries, and this year alone 
more than lm visitors have attended doz- 
ens of fairs at the 750,00Qsq metre BW 
exhibition grounds on the outskirts. He 
fairs draw exhibitors from around the 
world, with a greater number coming Grom 


the west since the collapse of communism 
destroyed the Comecon trading bloc. 

Mr Bretislav Fabian, sales director at 
BW, says the Bmo exhibitions "are as 
important for central Europe as Frankfurt 
is for the west". The highlight is a giant 
engineering fair every September, which 
this year (hew more than 3,200 exhibitors 
from 35 countries. 

The city authorities have ambitious 
plans for reviving derelict areas of the city 
centre, including the construction of a 
huge shopping and office complex that 
will mean moving the city’s mam railway 
terminus. 

A joint venture between the city, the 
technical university and the UK construc- 
tion company Bovis, part of the F&O 
group, is building a Czech Technology 
Park on a 120-hectare site on the city’s 
outskirts. Providing high-tech office space 
for new industries, it will capitalise on 
established academic-corporate links . 

He park has already secured Siemens 
Telecommunications as its first big-name 
client, according to Mr James Hoddeli of 
Healey & Baker, which is marketing the 
development but the entire S200m develop- 
ment is not expected to be finished for at 
least a decade. 



Vincent Boland Bmoe a city in the shadow of Prague 


At irinw . 

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VIJLI 


FINANCIAL TIMES MONDAY DECEMBER 19 1993 


CZECH REPUBLIC 


G uide books gushingly 
refer to Prague as the 
Golden City, but it was 
a grey and shabby place five 
years ago when it emerged 
from four decades of commu- 
nist neglect 

Apart from a six-lane motor- 
way running along the top of 
Wenceslas Square, the commu- 
nists left the city centre struc- 
turally more or less unscathed 
and spent their money building 
monolithic blocks of panelak 
high-rise apartments in the 
suburbs. 

But by the time of the Velvet 
Revolution 50 years of neglect 
bad left the city's urban fabric 
in urgent need of repair. Many 
monuments and fine buildings 
were propped up by rickety 
scaffolding whose main func- 
tion was to prevent pedestrians 
being injured by falling tiles or 
glitters. 

Now, thanks to the restora- 
tion of private property, pri- 
vate capital is leading a recon- 
struction boom. Streets that 
even two years ago were dull 
and lifeless have been trans- 
formed by new shops, restau- 
rants and cafes. The city's gen- 
erally relaxed atmosphere is 

immeasurably enhanced by its 
beauty. 

The investment is paying off. 
Tourists are flocking to the 
Czech Republic in unprece- 
dented numbers, and the 
industry has become one of the 
country's biggest foreign 
exchange earners. In the first 
nine months of this year, 
according to the Czech 
National Bank. 76m people vis- 
ited the country, more than in 
all of Last year. Tourist earn- 
ings in that period also scared 
to a record $L5lbn, compared 
to SI.57bn for the whole of 
1993. 

Tourist traffic moves in both 


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SLOVAKIA 


AUSTRIA 


Visitors numbers are swelling, says Vincent Boland 


Facilities stretched 

by the tourist rush 


directions. Czech tourists spent 
$900ra abroad over the same 
period, nearly double the 
amount in all of 1933. although 
the CNB warns that the figure 
includes for the first time the 
value of consumer goods 
brought back by returning 
locals. 

In 1989, the last year of com- 
munist control, tourist receipts 
amounted to less than $250m. 
By 1991 the figure had swelled 
to STQOm and exceeded Slbn in 
1992. Last year's receipts repre- 
sent about 5 per cent of gross 


domestic product and the pro- 
portion in 1994 is likely to be 
substantially higher. 

These figures are impressive 
for a country that on an offi- 
cial level does not take the 
tourist industry seriously. The 
Czech Tourist Authority, set 
up only last year, is run on a 
shoestring from dingy offices 
on the Old Town Square, in the 
heart of Prague’s historic cen- 
tre. It has just seven staff and 
two offices abroad, in Berlin 
and Vienna, although more are 
planned. 


Karel Nejdl, the authority's 
director, says the official atti- 
tude is that the Czech Republic 
already receives enough tour- 
ists and that encouraging more 
would simply push over- 
stretched amenities to break- 
ing point. 

The tourist industry's main 
problem, Mr Nejdl says, is not 
government indifference but a 
dearth of quality accommoda- 
tion. Prague has 38,000 hotel 
beds and can count on 12,000 
rooms in private accommoda- 
tion, but many of them axe 




JT 

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The Oicl Town Square, 


Prague: officials want to develop tourism outside the capital efty 


Mur HMkncn 


rudimentary. Plans to build at 
least two new luxury hotels in 
the city have outraged conser- 
vationists, including President 
Vaclav Havel, who has 
expressed his dismay at what 
many see as a threat to 
Prague's delicate urban fabric. 

The tourist boom has led 
inevitably to cases of over- 
charging and double booking 
and in 1993 the post-revolution- 
ary surge in numbers appeared 
to level off. Hotel occupancy 
rates last year fell to 70 per 
cent, compared to 80 or 85 per 


cent in 1991 and 1992. The 
slump was partly a reflection 
of the recession but also of 
exorbitant room prices at 
hotels that were little better 
than two or three star estab- 
lishments. Hoteliers appear to 
have learned their lesson, and 
this year prices were pegged at 
1993 levels, resulting in a rise 
in bookings. 

The CTA aims to convince 
visitors that there is more to 
the Czech Republic than 
Prague. Many Czech towns are 
following the capital’s lead in 


renovating their ancient cen- 
tres, and the country boasts 
hundreds of castles, many of 
than in excellent repair. 

The exquisite little town of 
Cesky Krumlov in southern 
Bohemia, for example, was for 
years a secret known only to 
Austrian visitors. Now it is on 
most tourist itineraries, helped 
by its designation by Unesco os 
a site of special architectural 
importance. 

The spa towns of Karlovy 
Vary (Karlsbad) and Marianske 
(Marienbad), in western 


Bohemia close to the Gorman 
border, were among Europe's 
most popular resorts in the 
days when taking the waters 
was the aristocracy's favourite 
pursuit After falling on hard 
times during the communist 
era these quaint Uttie towns 
are trying to attract the new 
Czech Mite and to wean them- 
selves off the German market 
on which they are heavily 
dependent, 

Slovakia inherited most of 
Czechoslovakia's natural 
beauty when it split from the 
Czech Republic wo years ago. 
Nothing in the Czech Republic 
matches the grandeur of the 
High Tatra mountains in east- 
ern Slovakia. The Sumnva 
mountains in southern Bohe- 
mia are scenic and climhable, 
but their skiing attractions do 
not live up to the Tatras or the 
Alps across the border in Aus- 
tria. 

There is also a downside to 
the Czech tourist boom. Locals, 
especially in Prague, complain 
that they can no longer afford 
to visit the centre of town, 
where prices have risen in 
anticipation of high-spending 
foreigners. A visitor is unlikely 
to meet an authentic native in 
the Old Town Square in high 
summer, excepting those ped- 
dling souvenirs. Meanwhile the 
Prague of bleak suburban high 
rises where the majority of the 
city's residents live is defi- 
nitely off the tourist map. 

For many Czechs, however, 
weekends and holidays mean 
retreat to the family's country 
house, which can be a palatial 
mansion or a little wooden hut 
in a secluded spot by a river. 
Living in one of the world's 
great cities is fine, but it 
means little unless one eon 
escape from it every now and 
then. 




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T hose nostalgic for the 
Prague of dissident play- 
wrights, banned books 
and smoke-filled bars fall of 
thirsty workers are in for a 
shock if they visit the Czech 
capital before tbe end of 
March. 

The government is selling a 
large slice of the local tele- 
phone monopoly to a foreign 
investor, and tbe city is awasb 
with merchant bankers and 
telecomm on ications execu- 
tives hogging the best restau- 
rant tables and talking tele- 
phone numbers into cellular 
phones. 

Tbe deal - which promises 
to be the biggest telecoms 
investment yet in post-commu- 
nist eastern Europe, is the 


high point of a process that 
has made Prague a magnet for 
investors over the past five 
years. 

This is a city where the 
stock market listings bare 
replaced the Samizdat publica- 
tion as the hottest read in 
town; where the stockbroker 
and the corporate lawyer are 
the people to see; and where a 
ticket to tbe opera still costs 
next to nothing (if the best 
seats have not been block- 
booked by a mer chan t banker 
entertaining visiting telecoms 
executives). 

None of this is immediately 
apparent on arrival at 
Prague's Ruzyne airport The 
armed soldiers, glum faces and 
long qnenes at passport con- 


Vlncent Boland’s guide to doing business in the capital 

Brokers steal the limelight 


trol suggest nothing has 
changed, and tbe drive into 
the city in an outrageously 
expensive taxi, past row after 
raw of badly constructed pane- 
laky (high-rise housing) is a 
reminder that no matter how 
much the Czechs might like to 
forget ft, this was recently a 
communist country. 

Don’t be put off. Once in 
town the atmosphere is trans- 
formed. Prague is full of ele- 
gant streets, being brought 


back to life by new shops, 
cafes and coats of paint 
The main hotels are scat- 
tered between the centre and 
the immediate suburbs, with 
the Intercontinental, dose to 
Old Town Square, and the Pal- 
ace, just off Wenceslas Square, 
being the most central. The 
Atrium and the Forum, over- 
looking the main motorway 
through the city, are also dose 
enough for a quick trip into 
the centre. 










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Get to Kn, J ^^riGr.ne3S-^fev^^ ? ?C2ECH TOURIST AUTHORITY 

. Czech his^soa culture}p)m^g^rAROMESTSKE NAM. 6 
i^T'd enjoy the exquisite beatityoT" to -J5 pp/VHA 1 
trte r c!d' Czech towns and tiie v 


’.refreshing outdoor splendour of 
'J/Gzech nature. 

Some of Europe's finest historical 
jewels await your discoveny. 
k - Cities 'ike Prague, Kutna Hora : 

. Olomouc, ana the renowned spa 
. towns of Karlovy Vary. Marianske 
. Lazoe and Frantiskovy Lazne. 

You can explore a countryside 

abundant in cast-'es, chateaux, 
lakes, rivers and forests. 
Charming mountain resorts and 
quaint recreational -areas offer 
some of the region's finest skiing, 
fishing and hunting. 

Come and taste ever one 
hundred excellent Czech beers 
or be pleasantly surprised by 
the superb quality of our 
delicious .Moravian. wines. 

Visit us once - \ 

: you'll long to comeback 


Telephone: (422) 2489 7278 
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For something a little more 
luxurious try tbe newly 
opened Grand Hotel Bohemia 
in the heart of tourist Prague. 
One of the hotel's main attrac- 
tions for business guests is a 
fax m every room, courtesy of 
communist-era telephone lines 
once used to bug visiting party 
officials. 

Tbe centre of Prague is dot- 
ted with bureaux de change, 
but to avoid exorbitant com- 
missions change money at the 
main banks. Banking hours 
are usually from 8am to 3pm. 
The Czech National Bank is 
pushing to make the currency, 
the koruna, fully convertible 
by 1995, and it has been stable 
for the past three years. Cur- 
rent exchange rates are about 
Kc27.5 to $L Kc43.5 to £1.00 
and Kcl7.5 to DM1.00. 

The telephone system can be 
hying (hence the need for new 
investment). Dialling within 
the city is easy, bnt it is more 
difficult to get through to 
other parts of the country. 
International calls are also 
straightforward but expensive. 

Czech time-keeping can he 
relaxed, but it is better to be 
on time for business meetings 
and the working day begins as 
early as 7am, although busi- 
ness meetings generally do not 
start until 9am. Bring a good 
supply of business cards as 
most people have one, invari- 
ably listing the holder’s educa- 
tional qualifications. 

Although the business lunch 
is becoming more common, 
initial discussions are usually 
held over coffee or juice in the 
office. Many Czechs are at 
least bilingual and English is 
fast becoming the lingtta 
franca among the Czech 
Republic's business commu- 
nity. 

After a day’s deal-making it 
Is wen worth a look around 
town. The Golden City, as 


Prague is known, is one of the 
most beautiful in the world, 
with perfect examples of 
nearly every type of architec- 
ture through the ages, many of 
which are being restored to 
their original splendour. 


C zech food is an acquired 
taste, with an emphasis 
on pork, game and calo- 
ries. Try Au Saint Esprit, the 
Kampa Klnb or V Zitih' for 
excellent fish (with prices to 
match), or U modre kachnlcky 
(The Blue Duck) for good 
Czech dishes. Local wine is 
cheaper than and just as good 
as many imported vintages. 
The Prague Post or Prognosis, 
both English-language week- 
lies, give listings for restau- 
rants and entertainment 
The favourite Czech method 
of relaxation is over a glass of 


beer m a pitmice (pub). Beer is 
plentiful and delicious and can 
cost as little as 25p a half-litre 
in local bars where tbe empha- 
sis is on serious drinklug 
rather than comfort 

Prague is an easy city to 
negotiate. Its network of 
metro, trains and buses is 
wen-integrated but often over- 
crowded, especially at rush- 
hour <7-8.30am and 4-fipm). 
The metro is limited but fast 
and clean, while the trams can 
be slow and smelly. Tickets 
cost KcB. the fine for not hav- 
ing one Kc200. Beware of 
taxis: tbe city’s cab drivers are 
notorious for over-charging 
foreigners, and can be rude 
and aggressive to those who 
argue over the size of the fare. 

The city is generally safe to 
walk around at night, 
although petty crime is rising. 
What comes as a shock, how- 
ever, is the rudeness of store 
staff, especially if you visit a 
tahdk, for a newspaper or 
metro tickets. Remember that 
you are only the customer, and 
therefore the least important 
person in the store. 



Names and numbers 

• Ministry of Economy (min- 
ister: Karel Dyba) Siaro 
m£stsk£ nfim. 6, 11013 Praha 
1. Tel: +423 24897111; Fax: + 
422 24812884 

• Ministry of Finance (minis- 
ter: Ivan Kottrnfk) Letraska * 
15, 11810 Praha l. Tel: +422 
24541111: FOX +422 24542788 

• Ministry of Trade and 
Industry (minister: Vladimir 
Dlouh?) Na FrantiSku 32. 
11015 Praha 1. Tel: + 422 
2SS1111; Fax +422 24811089 

• Ministry of Privatisation 
(minister: Jiff SksHAjl Lazar- 
skA 7. 11121 Praha l. 

Tel: +422 24191111: Fax +<122 
24191780 

• Czech National Bank (gov- 
ernor Jozef ToSovsky) Na Prf- 
kopi 28, 11003 Praha 1. Tel: 
+422 24411111; Fax +422 
24217885 

• (Sechin vest, tbe agency for 
foreign investment (director: 
Jan Havelka) Politickych 
VSzftn 20, 11249 Praha 1. Tel: 
+422 24221540; Fax: +422 
24221804 


Atlantik 

finanenf trhy s.r.o. 


■ 

Local Savvy, 
Global Standards 


Can a local broker in the Czech 
Republic provide both? 


Atlantik does. 


Navigating through the Czech market requires a partner who combines uncompromising 
professional standards with the local's understanding of how to get the done. 
Atlantik is one of the largest securities dealers in the Czech Republic, with strong local 
connections and international clients in London, New York, Frankfurt, Paris, and other 
financial centers. Atlantik finantnl trhy. Uniting local savvy with global standards. 


Member, Prague Stock Exchange 


Tel: (42) (5) 42 21 75 40 
Fax: (42) (3) 42 21 75 53 


GiroCredit Group 
Austria's European Bank 








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FINANCIAL TIMES SURVEY 





Monday December 19 1 994 


A watershed decision 





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T3iis baa been a year of 
drama in Sweden. 

In the space of two 
during the autumn, the coun- 
try went twice to tt&r-ppVs. 
first, in Septeoiber, thie Social 
Democratic party, led by Mr 
fngvar Carlsson, tteHpri prectlc- 
tians of & few years ago that 
the creator of Europe's rawt 
aQ*encompassmg welfare sys- 
tem was- cruznhlzng. The party, 
returned to. power after three 
years in opposition when it 

ousted the right-centre coali- 
tion headed by Mr Cad Bildt in 

a general election. 

Then, in a national referen- 
dum in November that pro- 
voked modi fire and fe»«TT^ 
the electorate voted by a 
majority of SHJZ per cent to 46.9 
per cent to join the. European 
Union, a decision which 
Twarfcpj the most significant 
strategic step by neutral Swe- 
den- since the second world 
war. 

Ah essential part of the- 
debate in both the election and 
referendum campaigns was.the 
state of the economy, which 
had injected its own sense of 
drama into the nation’s affairs. 
Although a recovery from a 
three-year recession at last 
took hold, the combined effects 
of the slump and the costs of 
the country’s big public sector 
left the state with a yawning 
budget deficit, the fastest-grow- 
ing debt in' the Industrialised 
world and more than 13 per 
cent of the workforce unem- 
ployed. 

Beyond the political arena, 
there were other dramas which 
stirred the country ter an 
unusual degree. In the sum- 
mer -the warmest and sunni- 
est since records began 
- Swedes basked, in- the glory 
of the national soccer team’s 
unexpected advance to third 
place in the World Cup, becom- 
ing the competition’s top-scor- 
ing team in the process. 

But just after the election in 
September, the nation was. 
plunged into, a stat& of shocked 
mourning by the sinking of the 
Estonia, the Baltic forty which 

foundered jpjjt storm t aking , to . 
their deaths more than 900 pas- 


The vote to join the EU now 
settled, attention will turn again 
to urgent budgetary problems, 
says Hugh Camegy 


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Stockholm Is 


sengers and crew -most or 
them Swedish. The disaster 
was unprecedented in modem 
Swedish history, striking cam- 
munities ad over the country 
much as a war might do. . 

Other events rarely experi- 
enced in Sweden have cbntrib- . 
uted to an unusual .sense of 
insecurity. In June, a young 
soldier shot dead seven people 
in a crazed shooting spree in 
the central town of Fadum ln 
November, „ a . teenager was 
beaten to death by two school- 
mates. This month, four people 
were killed when a gunman 
opened fire on a crowd leaving 
a Stockholm night cluh. 

, The combination of these ettk 
ferent events has reinforced - 


the concern of . the Social Dem- 
ocrats, in power, for more than 
50 of the past 60 years, to 
restore a sense of equilibrium 
to the country. 

The party’s instincts are 
clearly to rely on its traditional 
emphasis on creating a unified, 
egalitarian society underpin- 
ned' by the universal welfare 
system. It regarded the 45 per 
cent share of the vote it won in 
the election - one of its best 
recent results -as a dear sign 
that the electorate had rejected 
Mr BQdfs appeal to transform 
Sweden through radical, free- 
market policies. . .. 

But the challetijge Mr Caris- 
spn faces, is. to reconcile the 
defence of a welfare system 


with the cuts and reforms he 
readily acknowledges are 
required to sort out the public 
finances and return the econ- 
omy to stable,, long-term 
growth that will reduce unem- 
ployment Mr Carlsson’s imme- 
diate priority is, without doubt, 
tire state of the public finances. 
This crisis struck, ironically, 
just as the economy was pull- 
ing out of recession. An export 
boom, fuelled by the devalua- 
tion of the Swedish krona in 
late 199Q and the recovery in 
international markets, has 
delivered economic growth this 
year of about 2JS per cent after 
three successive years of reces- 
sion which shrank the econ- 
omy by 5 per cent 

This year, Sweden’s big 
international companies such 
as Volvo, Ericsson, Electrolux 
and the big forestry-sector 
operators have surged back to 
high profitability cm the back 
of the boom. Exports are set to 
continue to grow well in 1995 
and there are hopes of a mod- 
est recovery in the domestic 
economy as well, leading the 
government to forecast gross 
national product growth next 
year of 14 per cent. 

But unless the budget deficit 
is quickly brought under con- 
trol and borrowing is stabi- 
lised. there are fears that con- 
tinned high interest rates 
could precipitate a “double 
dip” return to recession. 

Mr Carlsson and Mr GOran 
Persson, his finance minister, 
have therefore set a dgadlinw 
for stopping the growth of the 
state debt - presently about 90 
per cent of GNP-by 1998 at 
the latest through a series of 
tax increases and spending 
cuts. The budget deficit in the 
present fiscal year is forecast 
at SKr201bn, or 13 par cent of 
GNP; the government has 
already announced a package 
of tax rises and savings to 
reduce the deficit by SKr57bn 
by 1998 and plans a further 
SKr20bn cuts In the January 
budget The two key questions 
are whether this will be suffi- 
cient and whether it is politi- 
cally sustainable for .the minor- 
ity government Many in : the 



Saab-Scanta aewapaca factory: Sweden’s bis Mamatlanal co mpani es have surged back to high pto O tabUfty 


financial markets are sceptical 
that the scale of the spending 
cuts will be enough in an econ- 
omy where public spending 
has reached 7D per cent as a 
proportion of GNP. They fear 
that the government has made 
over-optimistic calculations of 
the savings it expects from 
lower interest rates and lower 
unemployment, based on 
expectations of a vigorous 
recovery. They are far from 
convinced that the post-devalu- 
ation bounce in the economy 
will not turn into another dam- 
aging inflationary cycle, as 
happened in the 1980s. 

Ominously for the govern- 
ment. international credit rat- 
ing agencies are presently re- 
assessing Sweden’s sovereign 
credit rating. Moody’s, the US 
agency, has warned that it 
may shortly down-grade Swe- 
den. If it does, interest rates 
will jump and Mr Persson’s 
budget plana will be put under 
even stronger pressure. 

Tfre markets are also watch- 
mg political developments very 
carefully. Mr Carlsson is confi- 
dent the government -can get- 


its policies through the Riks- 
dag (parliament) fay charting a 
“slalom" course, seeking sup- 
port for a majority on different 
Issues from among the six 
other parliamentary parties, 
which range from the Left and 
Environment parties on the 
left, through the Centre, Liber- 
als and Christian Democrats in 
the centre, to Mr Biidt's Moder- 
ates on the right. “We are as 
secure as a formal minority 
government could be,” says Mr 
Cartsson. 

His confidence may be 
rewarded because there is a 
strong desire among most par- 
ties to see public finances 
brought back into balance But 
Mr Carlsson and Mr Persson 
first have to persuade their 
own party supporters and the 
trade unions to accept public 
sector and benefit cuts on a 
scale rarely seen before. 

The urgency of the budget 
battle has tended to over- 
shadow the watershed that will 
occur when Sweden joins the 
EU in January. Throughout 
the post-war period. Sweden 
stood To one side from western 


Europe, concerned above all to 
preserve its neutral stance 
between the Soviet Union and 
the US-led western alliance. 

With the end of the cold war, 
those concerns have largely 
melted away, allowing Mr 
Carlsson to lead his previously 
anti-EU party towards Brus- 
sels. Sweden - along with 
neighbouring Finland, but not 
Norway, which rejected mem- 
bership - will now be firmly 
sited in the western European 
strategic and economic camp. 

But Stockholm is proceeding 
cautiously. The government is 
bolding firmly to military neu- 
trality. It will take up the mini- 
mum observer status in the 
ElTs military organisation, the 
Western European Union; it 
has joined Nato’s “Partnership 
for Peace" initiative, but has 
no intention of applying for 
toll Nato membership. 

On economic co-operation, 
Mr Carlsson is being careful to 
keep his options open, ahead of 
the SlTs planned 1996 review 
of the Maastricht Treaty, 
which laid out a timetable for 
European Monetary Union. He 


Hi THIS SURVEY 

□ The economy. The bud- 

get deficit, the consequent 
expansion of toe state debt 
and unprecedented levels of 
unemployment have domi- 
nated debate about the 
economy. -.Page D 

□ European (Mon: Tho key 

question is whether deep 
divisions exposed in the EU 
debate will persist or 
whether, si time, a genera) 
acceptance of EU participa- 
tion w(0 grow Pago Bl 

□ Tourism Is one of Swe- 

den's fastest-growing sec- 
tors and ranks as the 
country’s thlrd-largost indus- 
try, generating an 3nnua! 
turnover of an estimated 
SKi98bn. Page IV 

□ Banking: In a striking, if 

lop-sided recovery, the 
banks have too much money 
and too few borrowers. Only 
two years ago they had too 
Mile money and loo many 
loans going sour Page V 

□ Manufacturing Nukistry: 

Management and employees 
ctesorve much of the crod-t 
for a transformation in indus- 
trial competitiveness since 
the earty 1990s Page VS 

□ PROFILES 

Saab-Seanb Page VI 

Siena Line Page VI 

Volvo Page VH 

Kalmar Industries..... Page VH 

□ Production Editor 
Philip 


says he favours closer mone- 
tary co-operation, but will not 
be drawn on whether Sweden 
supports an eventual move to a 
unified currency. 

With Sweden for from meet- 
ing the monetary criteria for 
Emu. its participation is some- 
thing of an academic question, 
at least until the end of the 
decade. But Stockholm will 
support moves to make 
employment conditions port of 
the Emu criteria - a concern 
that reflects Mr Carlsson 's anx- 
iety to put the fight against 
unemployment at the top of 
the EUfs agenda, alongside the 
next enlargement project to 
include central and eastern 
European nations. 



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FINANCIAL TIMES MONDAY DECEMBER .0 t»H 





- — - 


tTTI 




T hree issues have dominated what 
fogg so m athrias been an anguished 
public debate about the Swedish 
economy this year: the budget deficit, the 
consequent expansion of the state debt 
and unprecedented levels of unemploy- 
ment 

The deficit, expected to reach SKi201bn 
In the current July-June fiscal year, is 
running at about 13 per cent of gross 
national product, one of the deepest holes 
in the public finances of any European 
country. Borrowing to fill the hole has 
pushed up state debt to almost 90 per cent 
of GNP, making Sweden the world's big- 
gest sovereign issuer on international 
bond markets. This alarming imbalance, 
the legacy of a three-year recession and an 
overweighted public sector, has to a signif- 
icant degree been exacerbated by the need 
to pay for record unemployment, now run- 
ning at about 13 per cent of the workforce 
when those in government-funded training 
schemes are added to the 8 per cent of 
workers on unemployment benefit 
These are the figures which attracted 
most attention in the campaign for the 
general election in September. The precar- 
ious state of the public finances has also 
led to strong pressure from the financial 
markets for drastic measures to curt) bor- 
rowing, which in torn has put added 
strain on the economy in the form of high 
long-term Interest rates; Sweden pays a 
premium of 3.5 percentage points in Inter- 
est on its 10-year bonds compared with 
benchmark German rates. 

For Mr Gfiran Persson, the new Social 
Democratic finance minister, the tough 
task is to forge a transformation from a 


The ministry foresees stable private 
consumption despite the reduction In 
household income due to tax increases 


Ingvar Carisson . 60, took over as prime 
minister and leader of the Social Demo- 
cratic party in early 198S after the assassi- 
nation of Ms predecessor, Mr Olof Palme. 

In 1991, as Sweden spun towards a deep 
recession, he lost power to Mr Carl Bildt, 
leader of the conservative Moderate party, 
toko declared that the long dominance of 
the Social Democrats and the universal 
welfare state they had built was over. 

But Mr Carisson led Ms party back to 
power in September’s general election, 
pledged to defend the welfare model Less 
than two months later, Mr Carisson 
chalked up a second notable triumph when 
he won the battle to persuade Swedes to 
accept membership of the European Union 
in a national referendum. 

With these victories behind him , Mr 
Carisson can now turn to the urgent task of 
tackling Sweden's mounting state debt 
-soon to exceed 90 per cent of gross 
national product - and bringing down 
unemployment presently running at 13 per 
cent of the workforce. 

Hugh Carnegy asked Mr Carisson to out- 
line his government's primary objectives: 
Mr Carisson: Very clearly to stabilise the 
total defat, get over the economic crisis 
and stimulate economic growth and get 
down unemployment 
Doesn't this amount to a rather defensive 
agenda? 

I don't think so. Unemployment in Europe 
is too high and to say that we want to 


■ 

Hugh Carnegy examines the economy 

Battle to restore prosperity 


vicious to a virtuous dude where the defi- 
cit is reduced sufficiently to reassure the 
markets - thereby engineering a cut in 
interest rates which bolsters a real recov- 
ery underway in the economy at large and 
helps achieve the vital political priority of 
cutting unemployment 

But even achieving this may not be 
enough to produce a long-term solution to 
the underlying structural weakness in the 
Swedish economy that has seen almost all 
net job creation in the pest two decades 
come from the public sector as Sweden’s 
famous universal welfare model en panripfl 
Mr Persson most also engineer a reversal 
of a trend that has seen Sweeten slide gfara 
1970 from third place in the world league 
of GNP a head- then behind only toe US 
and Switzerland - to 16th place. 

On the immarfiatP task of sorting out the 
public finances, the new gove rnm ent has 
begun to get down to business. To stabilise 
the debt by the next election in 1998 at the 
latest, the target set by all mainstream 
political parties, Mr Persson 's team at the 
finance ministry calculates that the bud- 
get must be strengthened by SKr93bn. 

In early November, the first step was 
taken by a package that included tax 
Increases to yield SEr3L6bn and spending 
cuts of SEr25J3m. A further SKr20bn in 
spending cuts is promised in the January 


budget. With an estimated saving- of 
SKrl4bn forecast for the period from lower 
interest rates, this wiQ yield a Httie over 
SKrSlbn. 

Although in a minority in parliament, 
the Social Democrats have support from 
the Left party for the initial package and 
is confident of securing a majority with 
the help of right-of-centre parties for the 
next budget 

The markets have yet to be convinced. 
They will need to be reassured that the 
Social Democrats can get approval for bud- 
get cuts which will hit the party's bedrock 
supporters in the welfare system. They are 
nervous about the costs of an employment 
package also promised in the budget 
winch is likely at least to include some 
significant short-term spending. They are 
also worried that some of the min- 
istry's forecasts are over-optimistic. 

■Hie ministry is anticipating 3.4 per cent 
GNP growth in 1995. (This year, growth Is 
expected to he about &5 per cent after 
three successive years of recession.) It 
foresees stable private consumption 
despite the redaction in household income 
due from the tax increases and spending 
cute, and a fall in "open" unemployment 
to bestow 7 per cent It also foresees ixzfiar 
tion at 3 per cent, just on the upper target 
limit set by the RIksbank. 


Almost all other independent forecasts 
take a more cautious view. A central con- 
cern is that the hoped-for return to growth, 
in the domestic economy will be depen- 
dent on a significant fall in the household 
savings rate, presently standing at more 
than 8 per cent of earnings, which is 
regarded as being far from certain. 

Mr Pagroteky acknowledges that if the 
economy does not perform as well as 
anticipated, the budget calculations will 
be skewed. But he says exports, which 
have fuelled the return to growth this 
year, will continue to grow well in 1995 
and will have a growing trickle-down 
effect into the domestic economy as home- 
based suppliers of exporters benefit Cor- 
porate investment, long in recession, baa 
finally begun to grow significantly. He 
also believes households are becoming less 
savings- minded as unemployment stabi- 
lises. 

If the government does succeed in bring- 
ing the public finances under control, the 
economic debate is likely to shift to the 
deeper question of the underlying struc- 
ture or the Swedish economy. Public sec- 
tor spending has grown to account for 
some 70 per cent of GNP - easily the high- 
est level among industrialised countries. 
This wiD fall as the deficit is reduced - hut 
to get back closer to average European 


INTERVIEW: INGVAR CARLSSON 

Two notable triumphs 


attack that unemployment and do it now 
together with other member countries in 
the Union -that is not defensive. It is 
very important long term for a progres- 
sive society to solve these problems. 

The financial markets are sceptical that 
you can balance your commitment to 
defend the welfare system with the need 
to cut the budget deficit How can that be 
done? 

Let us now see what we are doing. First, 
the fanner government reduced the bud- 
get deficit by SKrlSbn. In addition to that 
we have now a proposal in parliament 
reducing the deficit by another SKr57bn 
and we have proposed to parliament the 
financing of the fee for EU membership of 
SErlBbn. And we have said in January 
there will be around SKr20bn, mainly in 
cuts. Honestly I don’t think that the mar- 
ket is aware yet of what we are doing: But 
they will see the facts. This means we will 
stabilise the total Swedish debt before 
1998 - which was what we said in the elec- 
tion campaign. I think it is possible 
already in 1997. And when the market 
sees the total effect of these proposals 


that will definitely mean a stronger cur- 
rency for Sweden and also a lower rate of 
interest 

The Social Democrats are in a minority in 
parliament How stable is the govern- 
ment? 

We have 46 per cent of the mandates and 
there are six parties in parliament - all 
the way from the conservatives over to 
the Left and the Environment parties. 
When we look, at our proposals we usually 
find at least one, and very often several, 
of the parties supporting us. We are as 
secure as a formal minority gov e rnment 
could be. I think we have very good 
chances (to survive the four-year mandate 
period). 

What role will Sweden play in the EU? 
We will be very amhrhVmc We will be 
active. We will take responsibility. We 
will accept decisions taken and follow 
them, but we will also come with concrete 
proposals, particularly to fight unemploy- 
ment in Europe and to fight environmen- 
tal problems. We will he active supporting 
the three Baltic states becoming mem- 
bers. And of course, now Norway is not 


coming in we win try to see to it that 
Norway still wifi be in dose and good 
cooperation with the EU. 

What action will yon propose that the EU 
should take on unemployment? 

I think what is in the EU Commission's 
Employment White Paper on i nvestm ent 
is a good start - inve stments in infrastruc- 
ture, roads, railroads; plus better labour 
market policies. 

I think Sweden has something to con- 
tribute here with our experience on active 
labour market policies. Instead of paying 
cash to people, put it into active mea- 
sures. We should have much more on 
education. Not just for youth and univer- 
sities, but recurrent education, bringing 
people back from the factories into educa- 
tion, giving them a better dance in lan- 
guages, electronics, infonnation technol- 
ogy and all that 

Sweden is a neutral country. After the 
end of the cold war, some Swedes argue 
that neutrality is dead - that joining the 
EU means Swedei will inevitably shift 
towards joining a western European secu- 
rity alliance. 



tf 

X^*rr- 
** 



Prime mMatar Ingvar Carisson 

No. I don't agree with that The parlia- 
ment has said - and all parties agree with 
that - that we are militarily non-aligned, 
able to be neutral in case of war In our 
neighbourhood. And that's a reality. It's a 
parliamentary decision and the govern- 
ment is sticking to that 
We are not leaving our present position 
without knowing where to go. The West- 
ern European Union as it looks today, 
with the resources it has today, is no 
alternative. I think it is not in tho inter- 
ests of Nato, it is not in the interests of 
Sweden to change the baric security pol- 


levels would require a further stage of 
reform of the public sector. 

To achieve this, tho provtous gweni- 
ment under Mr Cart Btidt. ridkatMar of 
the conservative Moderate party, advo- 
cated free market reforms to cut back 
state monopolies In the public services, 
widespread liberalisation is areas such as 
labour market regulation, lower taxation 
on capital and extensive privatisation. 

The Social Democrats, creators of the 
welfare state, have a different agenda. 
They readily accept tho need to engender 
greater private sector growth; they 
acknowledge that the public sector must 
be reduced as a proportion of the econ- 
omy, they embrace the need for open mar- 
kets and competition. 

But the)' remain committed to « strong 
public welfare system and the maint ai n - 
ance of a society where variations in 
income are smoothed out by state-directed 
redistribution of wealth. Their critics a&y 
this ultimately prevents them from tack- 
ling issues such as labour and monopoly 
market deregulation which is needed to 

unleash long-term growth. 

The government has so far put a break 
on deregulation of Sweden's energy mar- 
ket, reversed some Bildt labour reforms 
ami is hesitating over the privatisation of 
Telia, the state telecommunications com- 
pany. The former government parties may 
tacitly or even explicitly support tire 
Social Democrats in their efforts to eut tire 
budget deficit But they will certainly keep 
up the pressure on the new government to 
go further in reforming the economy in 
the battle to restore Sweden’s tong-term 
prosperity. 


icy in northern Europe. We have had a' 
very stable situation in northern Europe 
for many years with the kind of security 
policy we have had so far and I think it 
could be a dangerous policy to give Russia 
the feeling that we are encircling them.. 

Of course, we also have to say that with 
the Berlin Wall tom down in 1989 we have 
a completely new security position In 
Sweden. The old. very difficult policy for 
us between east and west - that's gone. 

We are in former Yugoslavia with more 
than 2,000 soldiers; we are actively taking 
part. So it is a different situation. But 
when you come to the core - arc we pre 
pared to give up the military non-align- 
ment - the answer is no. 

What Is Sweden's attitude towards bund- 
ing European Monetary Union? 

I am personally in favour of stronger 
co-operation in monetary policy but the 
formal position of Sweden, both tire pres- 
ent government and the former govern- 
ment, is that before saying yes to that 
cooperation we must know what it redly 
wifi mean in reality and we don't know 
that yet That is also what Germany has 
said; but I see personally that there are 
good arguments for increased co-opera- 
tion. But I don't , want to take specific 
positions. There are problems with (creat- 
ing a common currency). I think we have 
to increase co-operation but the ways and 
means to do it have to be discussed for- , 
ther. I 


to 


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SWEDEN III 


Sweden and the European Union 


KEY FACTS 


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Political passions stirred 




Area 

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Ha r ely have political passions 
been so stirred in Sweden than 
in the debate that preceded the 
referendum vote on Sunday 
November 13 to join the Euro- 
pean Union. Rarely has the 
country been so deeply split, 
geographically, demography 
cally and politically on a 
national issue. 

. The depth of Seeling an the 
losing side after the 52^-46.9 
per cent result in favour of 
membership - 0.9 per emit of 
voters cast blank ballots - was 
graphically illustrated the fol- 
lowing day in a radio confron- 
tation between Afr Carl Bfldt, 
tbs pro-EU former prime minis , 
ter, and Mr Per Gahrton, Envi- 
ronment Party member of par- 
liament and one of the Leading 
figures in the No campaign 
Mr Gahrton, asked if it was 
now time quietly to accept 
defeat, exploded into a tirade 
against what he called -the 
insults and idiotic arguments” 
the Yes side “spewed over us”. 
Turning on Mr BUdt, lie 
declared: "1 represent more 
kommunes (municipal dis- 
tricts) In this country than 
you. I represent more w orker s 
than you. I represent many 
more of the people who will be 
losers out of this." 

At least on two points, Mr 
Gahrton was right The map of 
Sweden the morning after the 
EU vote showed that the vast 
majority - geographically - of 
the country had voted No, with 
the Yes vote being carried 
thanks only to heavy Yes 
results in the areas around tha 
three main, cities: Stockholm, 
Gothenburg and Malmo. Out of 
263 kommunes nationwide, 
only 83 voted Yes. 

On the No side, the main 
stalwart groups were trade 
unionists, young people and 
women. Most worryingly for 
the newly-formed Social Demo- 
cratic gove rnment , almost half 
of all Social Democratic sup- 
porters voted No. 

The care of the No argument 
was the pw wytinn that, mem- 
bership would mutermrne Swe- 
den’s independence, compro- 
mise its military neutrality, 
threaten its cherished welfare 
system and entrench high 
unemployment because of the 
EtTs preference for freemarket 
economics. The Yes campaign. 



449,964 sq km 

— 8.75 mffion 

rang Carl Gustaf 

* Swedish Krona 

1993 S1=SKr 7.78 

Jan- June 1994 $1=SKr 7.90 


ECONOMY 



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Components of GDP (%) 1 

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Government consumption. 


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Govt bond yield (%) *. 

Trade (SKr bn) 

Current account b ala nc e * 

Merchandise exports T 

Merchandise imports *. 

Trade balance 7 

Man Hading partners (H) * 

Germany. 

UK. 

Norway. 


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186.2 

-2L2 

64.7 
ia7 

27.7 

32.7 
-28.9 

4.7 

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3J2 

38.8 
82. 

5.0 

7.0 

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55.0 


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Stoclthokn, Nouember 13: Ettnopean Union supporters ce lebrate' after S we de n voted to join the Ell fleam: 


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2.3 

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17.5 

8.1 

7.0 

11.0 

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317.9 

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UTHUAMA 


political elite and business 
leaders, argued that Sweden 
must be a full participant in 
the EC’s evolving political and 
economic structures to cement 
its own strategic and economic 
future. The key question now 
Is whether the deep divisions 
which the debate exposed will 

Some No campaigners 
are demanding another 
referendum if the EU 
goes further 


persist or whether, over time, a 
general acceptance of the 
nation's participation in the 
EU win grow. 

Some signs already suggest 
the latter. A poll late last 
month showed most No voters 
were reconciled to the Yes 
result - notwithstanding the 
reaction of senior No cam- 
paigners such as Mr Gahrton. 

hi the most northern county 
of Norrbotten, where some dis- 
tricts voted 80 per cent against 
membership, Mr Sven Persson, 
a senior official in the county 
council, commented: “Many 


Stockholm rule as almost colo- 
nial rule Now they see power 
moving even further away to 
Brussels. 1 think the day when 
we start to realise the benefits 
of EU regional funds for us. 
people will change their ideas 

- but it will take some years.” 

Still, there exists at least a 

risk that the strength of 
anti-EU feeling at large in Swe- 
den wifi make the country for- 
ever an inherently Euro-scepti- 
cal EU member. Some No 
campaigners are already 
demanding another referen- 
dum if the EU goes further in 
its move towards common 
security policies and fhfi mone- 
tary union. 

This is particularly true 
within the Social Democratic 
party, easily Sweden's biggest 
political movement. Walter 
Karpi, a professor of politics at 
Stockholm University, thinks 
the party feces a tough future 
over Europe. “Once a party 
develops a serious split like 
this it is very difficult to over- 
come it," he says. “If the bene- 
fits promised by the Yes side 

- such as lower unemploy- 
ment-are not forthcoming 


n-^iinimuj*. UilD I CO UWHW^IIb WUAIUU, tri/UUiiCUI^U. XTIOUJ ilwU l» Cu w UV8 4VI 

meanwhile, spearheaded by the people up here already regard then there are likely to be 

■■ • ii 

Relations with Norway 

Officials fear wedge 


If yoa ask officials what 
course relations between Swe- 
den and Norway will take in 
the wake of Sweden’s “Yes'* 
last month to membership of 
the European Union and Nor- 
way's rejection of member- 
ship, “status quo” is the 
untied response, writes Karen 
EosslL 

Privately, however, they 
express fears that a wedge 
, may have been driven 
between the two countries by 
the different outcomes of 
their referendums on EU 
membership. 

Norwegian officials fear 
that at some point Sweden 
win be forced to ask itself 
“What’s in it for me?” when 
deciding between Nordie 
co-operation and EU loyalty. 

For Norway, a 90-year 
union with Sweden and 
before that a 434-year union 
with Denmark, were both 
forced marriages which 
partly explains Norwegians* 
icy response to joining any- 
thing resembling a union. 
Norwegians are quick to 
point out that during both 
unions the country lost its 
identity and the people lost 
their language. 

Norway relinquished neu- 
trality following the occupa- 
tion by Nazi Germany daring 
the second world war and 
became a founding member erf 
the North Atlantic Treaty 
Organisation (Nato). Sweden, 
which was not occupied dur- 
ing the war. has maintained 
neutrality. 

In joining the EU, Sweden 
will attain observer status at 
the Western European Union 
(WEU), but the country is 
loathe to subscribe to full 
membership. Norway has 
WEU observer status. 

Norway says Sweden rdies 
on its ties to Nato. “This has 
always been vital for Sweden 
and has contributed to allow- 
ing the country to maintain 
neutrality,'' one Norwegian 
official explained. 

In 1952. the Nordic coun- 
tries established the Nordic 
Council through which 
cooperation has since been 
undertaken. Resolutions 
unanimously passed in the 
Council are binding for the 
Nordic governments but in 
some cases must be approved 
by their individual 
assemblies. Foreign policy 
and security policy fell out- 
side Nordic co-operation, 
however. 

Mr Carl Bfldt, the former 
Swedish conservative Moder- 


ate prime minister, suggested 
last month that formal Nor- 
dic co-operation be disman- 
tled in view of the broad Nor- 
dic expansion into the EU. 
Bat, Mr Ingvar Carlsson, 
Sweden’s prime minister, has 
so far resisted such amove. 

"There is a limit to what 
Sweden could do [to this end! 
if it was to do anything at all, 
because there would be a pub- 
lic outcry if Nordic co-opera- 
tion was to end... and this 
gives Norway some protec- 
tion.” a Norwegian official 
said. 

Last month, the Nordic 
Council agreed that co-opera- 
tion should be reformed to 
take into account “a wider 
international outlook”. Nev- 
ertheless, Norway fears that 
the Nordic Council might 
become obsolete, or take a 
hade seat to the EU, now that 
all of the Nordic countries 

Local Swedish authorities 
are attempting to 
persuade Norwegian 

companies to relocate 

except itself and Iceland have 
become EU members. 

One of the most significant 
achievements of the Nordic 
Council is that of joint labour 
markets, set up 20 years ago, 
and the introduction of unres- 
tricted passage between Nor- 
dic states. Swedes can work 
and five in Nor wa y or other 
Nordic countries and vice- 
versa. Officials do not foresee 
Inter ruptions in these agree- 
ments just because Norway is 
ontside the SO but both sides 
see controls at the new EU 
Swedish-Norwegian border 
being tightened. 

Swedish customs officials 
say they have received no sig- 
nals from Brussels that 
thing s should change. Hie 
Norwegians, however, fear 
that an existing drain of 
trade to Sweden at the fron- 
tier will become exacerbated 
by the new EU border. Nor- 
wegians have for years been 
mo toring to Sweden where 
food prices in particular are 
significantly lower and are 
set to decline as a result of 
EU membership. 

Local Swedish authorities 
are already attempting to per- 
suade Norwegian companies 
to relocate “just over the bor- 
der fate the EU” and advertis- 
ing campaigns spelling out 
the benefits are in full swing. 
Some local authorities are 


offering incentives such as 
free budding plots and cash 
advances towards hiring 
staff. 

Norwegian officials plan to 
increase the number of eas- 
terns officials posted at the 
frontier. Before it decided to 
become an EU member, Swe- 
den planned to cut border 
staff but it may now have to 
increase st affing - 

Norway is deeply concerned 
about domestic companies 
relocating to Sweden. 
Already, some Norwegian 
fish processing companies 
have moved to Sweden, and 
others warn they will follow 
in order to benefit economi- 
cally from not having to pay 
tariffs on processed fish 
exported between EU co un- 


processed fish exported by 
Norway to the EU is subject 
to a complex system of tar- 
iffs. But another benefit for 
companies relocating to Swe- 
den is that they can qualify 
for support from the ED’S 
regional frmd. Norway is 
therefore considering estab- 
lishing a TTee enterprise 
zone” in specific counties at 
the E0 frontiers of Sweden 
and Finland but has yet to 
give details. 

Officials in Sweden and 
Norway are disappointed 
with Norway's “No" vote. 
Sweden and Finland counted 
had on Norway joining the 
EU because it would have 
meant that one in four of the 
countries around EU tables 
would have been Nordic. The 
Nordic bloc could have 
wielded considerable influ- 
ence over EU decision-mak- 
tug. 

The Swedes and Norweg- 
ians say the European Eco- 
nomic Area trade pact, estab- 
lished in 1992 between the 
European Free Trade Associa- 
tion (Efta) - of which they are 

members — and the EU, will 
protect Norway to a certain 
extent once Sweden becomes 
a full EU member from Janu- 
ary 1. But Norwegians com- , 
cede that foreigners consider - 1 
ing investment In the Nordic : 
region will favour Sweden 
because of its EU member sta- 
tus. 

The irony of Norway’s 
refection of membership is 
that the country win become 
more dependent on Sweden to 
air Norwegian views in Brus- 
sels, a dependency which it 
has fought hard to shed since 
dismantling the ration with 
Sweden 90 years ago. 


long-term consequences 
fwfthin the party).” 

However the very threat of 
such a long-term cleavage 
undoubtedly increases the 
incentive for Mr Ingvar Carls- 
son, the prime minister, and 
his government to play an 
active role within the EU In 
the hope of gaining tangible 
results on the issues of most 
concern to them. 

Swedish officials stress then- 
wish - in league with their fel- 
low Nordic countries Denmark 
and Finland - to further the 
campaign for greater openness 
in the EU*s decision-making 
processes, to increase environ- 
mental standards; to advance 
equality between the sexes, to 


EUi— tfniigimiiiggfaG— ■ ■ ■ ■ ■ *§«•■■■■ i— i— 53i2 54«8 

Notes: 'GDP. co mp onen ts and growth-first half 94 only, 
inflation, Unemployment-average over year to October 1994. 
^Earnings, Ind. prod.-average over year to August 1994. 

‘Share prices % growth over year to end Dec 93, Nov 94. 
‘Discount rate. Bond yield-at end Dec 93, Nov 94. 

“Current account bateice Jan-Sept 1994 only. 

Trade-Exports, imports, Jan- Oct 1994 only. 

“Percentage shares of trade In 1993. 

Sources: IMF, EfU. National Institute of Economic Research. 


accelerate the integration of 
eastern and central European 
nations (including the three 
Baltic states), to cement free 
trade agreements and, above 
all, to combat unemployment 
Hie rejection of membership 
by Norway has weakened the 
potential “Nordic bloc” within 
the EU which would have been 
united in championing these 


issues - a matter of real regret 
in Stockholm. But Swedish 
ministers say they will actively 
seek to build alliances with 
other bite-minded EU members 
to form influential fronts on 
these issues. 

Mr Mats HeUstrQm, minister 
for European affairs, says it is 
a big mistake to think that 

because the anti-EU camp was 


\ * 
GERMANY 


so strong in Sweden that 
Stockholm will not be a fell- 
hearted member. “That view 
misunderstands Sweden,” he 
says. “When we enter an inter- 
national organisation, it Is 
always our intention to see 
that the organisation is 
strengthened, not watered 
down.” 

But he stresses there Is no 
preordained Swedish position 
on how the EU's structures 
should be shaped. The govern- 
ment. approaching the 1995 
Intergovernmental Conference 
that wifi review the Maastricht 
Treaty, is being cautious. It is 
sticking by Swedish neutrality, 
reluctant to be drawn into tak- 
ing a stance on a common EU 


POLAND 


security and defence policy 
whose shape is as yet far from 
clear. Likewise. Stockholm 
favours extending uo-oporution 
on economic and monetary pol- 
icy, but is holding back from 
endorsing a single currency. 

“We will ask how the Union 
can be effective in creating 
common policies to further 
progress in areas such ns envi- 
ronmental and employment 
policy - then we will ask to 
what extent the institutions 
affect these. Our approach will 
be from the substance of poli- 
tics, not from an ivory tower 
discussion about institutions.” 
says Mr Hellstriim. 

Hugh Camegy 


Licensed Price-Fighter 


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SWEDEN IV 


T ourism Is one of Sweden’s fastest- 
growing sectors and, although the 
trade is relatively young, ranks as 
the country’s third-Iargest industry, gener- 
ating annual turnover of an estimated 
SKrSBbn of which SKr2lbn is derived from 
foreign tourists. 

The attraction of Sweden has to be, 
among many things, the country's 
unspoilt environment and alluring scenery 
comprising 60,000 islands, 90,000 lakes, a 
4.725- mile coastline and endless forests. 
There are also 350 museums in the coun- 
try and a wide variety of special events 
throughout the year, 

The tourist industry peaked in 1989 
when turnover hit SKrlQQbn, but nose- 
dived by nearly SKrttttm during 199091 
when the then Social Democratic govern- 
ment led by Mr Ingvar Carisson, increased 
value added tax on tourism to 25 per cent 
in two stages. 

The VAT increase coincided with the 
onset of the deepest recession to hit Swe- 
den since the second world war. But the 
industry recovered during 1991-93 after a 
new conservative Moderate government, 
led by Mr Carl Bildt, reorganised the mar- 
keting of tourism and cut VAT to 12 per 
cent. 

These factors were aided by the start of 
a recovery in the economy which began at 
the end of 1993. 

Nevertheless, even after the rate cut, 
Sweden's VAT remains significantly 
higher than the European average. The 
Swedes argue vigorously that prices in 
their country have become competitive 
with the rest of Europe while a main prior- 
ity of marketing seeks to dispel “the 
myth" that Sweden is far too expensive to 
be considered a holiday destination by 
more than just the elite. 

"Surveys show that many foreigners 
still believe that Sweden is too expensive. 
Heavy resources are therefore being 
invested in marketing Sweden abroad,” 
the Swedish Trade Council said In its 1994 
annual report on the country. 

In the first nine months of this year, the 
number of overnight stays in Swedish 
hotels by foreigners rose 13 per cent com- 
pared with the year -earlier period, and 
industry executives are predicting that 
1994 will be a record year in terms of 
growth. Last year, foreigners' overnight 
stays alone readied 6.1m. 

During the first nine months of 1994, 
Dutch and D anish tourists accounted for 
the highest growth rate in overnight stays 
in percentage terms, rising respectively 25 
per cent and 26 per cent while US visitors 
rose by 14 per cent. 

German tourists, the largest group of 
foreign visitors to Sweden, increased their 
overnight stays by 13 per cent and UK 
tourists n per cent. 

Another indication of the strength of 
this year's activity is a forecast rise in the 
number of cruise ship passengers calling 
on Stockholm alone. It is estimated that 
international cruise ships will make 125 
visits to the capital city this year, carrying 
a total of 70,000 passengers, representing 
an increase of 10,000 passengers over 1993. 

Mr Per-Jobann Orrby, president of Next 
Stop Sweden (NSS), the Swedish Travel 
and Tourist Council, attributes the rise in 



Lake Matron: Sweden’s attiring scenery is one of Its attractions 


TOURISM 


Growing rapidly 










Passenger feny Stiver Cloud near Stockholm. Sweden has a 4,725-m3e coastflne tawii^Mtvis 


tourism's fortunes partly to Sweden's 
attractive prices - in foreign currency 
terms - since the krona was devalued by 
nearly 30 per cent in 1992. The reduction of 
VAT and a slight recovery of the economy 
are also considered significant 

NSS reckons that sterling buys 15 per 
cent more in Sweden since the devalua- 
tion, while the purchasing power of the US 
dollar has risen 18 per cent and the Ger- 
man mark 30 per cent 

But the Swedes probably also have thetr 
next-door Nordic neighbours to thank for 
foreign interest following Norway's suc- 
cess in arranging the Winter Olympics ear- 
lier this year. 

For more than two weeks in February, 
hours and hours of pristine, sunlit “Scan- 
dinavian" winter images were broadcast 
worldwide from Lillebammer in Norway. 
Such coverage undoubtedly had a spill- 
over afreet for Sweden and must have 
improved the country's standing as a tour- 
ist destination. 

The Olympics boosted Norway’s tourist 


industry by as much as 5 per cent this 
year but it would be difficult to quantify 
the effect it had on Swedish tourism. 

According to Mr Jan Brfinnstrfim, man- 
aging director of Image Sweden, the state- 
backed agency which promotes Sweden 
internationally, recent studies revealed 
that about half the foreign tourists visiting 
Sweden do so as part of a Scandinavian 
tour. But, he said, there were no plans for 
a joint Scandinavian tourism marketing 
effort and, in the long-run, he saw few, if 
any, benefits from such a scheme. 

Another important factor which has 
undoubtedly lifted the awareness of Swe- 
den abroad is the apparent success of the 
big overhaul of the organisational struc- 
ture of marketing services for tourism. 
The Swedish Tourist Board was disman- 
tled and Image Sweden established 
together with NSS. Image Sweden pur- 
chases marketing services from NSS for an 
estimated NKr60m annually. 


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CORPORATE FINANCE 


Christopher Brown -Humes examines energy P°Hgy 


Nuclear deadline looms 


Sweden is a country with one 
of the safest nuclear power 
industries In the world- and 
yet it has eomnztted itself to 
phasing out nuclear power 
entirely by the year 2010. Per- 
haps only in a country of such 
dosed euyiromnental ideal- 
ism could so dramatic a move 
be contemplated when 
nuclear power accounts for 
dose to 50 per cent of electric- 
ity production. 

Nuclear power has been a 
hot potato in Swedes for 20 
years. The issue has nagged 
away with varying degrees of 
intensity in the political 
d eba te, even helping to decide 
the outcome of one general 
election. 

It has gained added urgency 
every time there is a nuclear 
spillage beyond Sweden's bor- 
ders, such as the 1979 Three 
M2e Island disaster in the US 
and the Chernobyl disaster in 
the Ukraine in 1986. Now, as 
the 2010 deadline looms, a 
new urgency has developed 
and a new political crisis may 
be in the offing. If the final 
deadline is to be met, a date 
for the phase-out of the first 
of the 12 reactors has to be 


have all tied themselves to predicted to rise over theu«t 
the anti-nuclear mast More two years- Next yrar. nnewar 


Importantly, the Social Demo- 
cratic prime minister, Mr 
Ingvar Carisson, is personally 
committed to the phase-out, 
saying 2910 Is H a realistic 
commitment” Hk party, how- 
ever, is split on the question. 


electricity output cc old reach 
69.0 TWb, 48 per cent of the 


total. - 

This is a Imge bole Cor oth» 

power sources to fill- The di> 
fieri ty has been exacerbated 
because '‘renewable" energy 


B HUB*™. ----- - 

The 2010 date was set by sources such as wind, somr 
parliament in I960 after a energy and biomass have no 


national referendum in which become as commercially Tifr 
Swedes voted to dismantle ble as was expected at u*e 


their nnHgflr industry. The 
date chosen was 25 years 
after the last of Sweden's 
reactors was commissioned in 
1985. Why 25 years? Because 
that was assumed to be a 


time of the 1980 referendum. 

In fact, Sweden is being 
forced to try ami reconcile a 
number of mutually incom- 
patible objectives. It wants to 
be rid of nuclear power, but it 


q uri ^ r plant's technical life- is not prepared to dam more 


span just .... 

because it is - 

the standard P° wer ,ncl1 

depreciation are convir 
period For 2010 dea 

Swedish ^ 

nuclear assets. 

The issue 

again came to the fore in the 
late 1980s when parliament 
decided to dismantle the first 
two plants in 1995 and 1996. 
However this commitment 


Power industry experts 
are convinced that the 
201 0 deadline will be 
dropped 


rivers in the 

north of the 
try experts c0l mtry to 

id that the increase 
ne will be hydro-power 

. generation, it 

160 cannot insist 

■■■■iMHaro on renewables, 
but it knows that f alling ba ck 
on coal and gas would 
increase carbon dioxide emis- 
sions. Finally, it wants to 
maintain internationally com- 


was sidestepped as part of a petative energy prices and 
three-way accord between the protect jobs. 


fixed soon. 

In many countries, the 
practicalities of the matter 
would decide the issue- Most 
of Sweden's unclear power 
plants are nowhere near the 
end of their technical lives. 
Replacing them would be 
extremely costly, there are no 
easy alternatives, and there is 
an obvious risk of higher elec- 
tricity prices. 

But in Sweden there is a 
strong political will to phase 
out the controversial energy 
source completely. The Cen- 
tre, Christian Democrat, Left 
and Environment parties 


Social Democrats, the Centre 
Party and the Liberals in 
early 1991. The 2010 target, 
however, remained in place. 


In other words, there are no 
easy answers. Heavy invest- 
ments in coal and gas-fired 
power plants look to be the 


The importance of nuclear only realistic alternatives, but 


power to Sweden is not con- 
tested. Last year it generated 
58-9 terawatts of power, or 
AU& per cent of the country’s 
electricity needs. Hydro-elec- 
tric power produced 73.3 
TWh. or 52 per cent 
Ironically, the improving 


that could cost the country a 
staggering SKr200btu accord- 
ing to some estimates. 

The problems might eventu- 
ally be eased by a broad 
deregulation of the Swedish, 
Nordic and even north Euro- 
pean power m a rkets. Bat the 


efficiency of Swedish nuclear Social Democrats have just 
plants and the expected re- postponed deregulation of the 


commisstaaing of a {riant that 
has been out of service means 
the nuclear contribution is 


Swedish market, which was 
due to take effect on January 
1 1995, and the deregulation 


of the north European market, 
still looks to be some way off. 

For the moment, the issue 
is again on hold, A commis* 
slon has been established to 
man out a realistic Swedish 
energy pd*** covering every- 
thing from nuclear power to 
deregulation. Its task will he 
to detail the costs and envi- 
ronmental implications of the 
(Afferent solutions before the 
end of next year. 

Power Industry experts are 
convinced that the 2010 date 
will be dropped. “I have never 
thought the politicians would 
go ahead with the phase-out," 
says Dr Karl-Axol Edln. presi- 
dent of Ten Cum, a Stockholm 
energy consultancy, "The 
safety of nuclear power has 
increased more than tenfold 
since the referendum and 
energy sources like wind- 
power and biomass are not 
going to fill tiie gap-" 

The assessment may well be 
correct - bnt that does not 
mean there will not be 
another political crisis over 
the issue or that one or two 
nuclear plants will not be sac- 
rificed along the way. 

Mr Sigfrid LeijonhofVud, 
author of A History of Swedish 
Nudear Power, believes there 
could be another referendum 
on the issue. Alternatively, he 
suggests the deadline could 
be postponed as a gesture to 
some future political partner, 
such as the Liberals, if the 
minority Social Democratic 
government was ever forced 
Into a coalition. Bnt Mr Lei- 
jonhnfvnd notes that Mr 
Carisson is "morally bound" 
over the 2010 deadline and 
believes it could even prove to 
be the issue on which the 60- 
year-old party veteran eventu- 
ally decides to step down- 


Karen Fossli reports on the Greens 


Exploiting their leverage 


After failing to break through 
the required 4 per cent thresh- 
old to enter the Riksdag (par- 
liament) during the last three- 
year session, Sweden’s fledg- 
ling Environment Party (Miljo- 
partiet) - popularly known as 
the Greens - captured 5 per 
cent of the vote in the Septem- 
ber elections and see the par- 
ty’s future going from strength 
to strength. 

The Greens find themselves 
back in parliament for the sec- 
ond time since they were 
formed in 1981 as the country's 
first new political party in 70 
years. Their roots are in the 
so-called "alternative move- 
ment" which emerged in the 
1370s to champion the causes 
of not only the environment, 

1 bnt also peace and womens’ 

; equality while opposing 
nuclear weapons and energy. 

They first entered the Riks- 
dag in 1988 for a three-year 
parliamentary term, backed by 
a vote of 5.5 per cent Bnt in 
1985, the Greens scored at local 
level, winning 237 seats on 148 
local councils which they tri- 
pled three years later to 698 
seats on 260 out of 284 councils. 
They also forged ahead at 
regional level in 1988, when 
they won 101 seats and repre- 
sentation on all 25 county 
councils. 

There were teething prob- 
lems in the early days as the 
Greens seemed more a curios- 
ity than anything else. But 
important political events such 
as the Rio Conference on the 
environment in Brazil in 1991 
has boosted the credibility of 
Green parties worldwide with 
their main cause having been 
elevated to the international 
agenda. 

In Sweden, the Greens' plat- 
form has changed little over 
the past 10 years, although it is 
now presented in a less idealis- 
tic and less fundamentalist 
tone. Among other things, they 
favour energy taxes - so-called 
environmental taxes or Green 
taxes - as a means to make 
pollution expensive, promote 
recycling and reduce traffic. 
They support a 35-hour work 
week so that more people can 
be put to work - Sweden's 
present 13.8 per cent unem- 
ployment rate is unprece- 
dented since the second world 
war. They continue to push for 
rapid closure of Sweden's 
nuclear power plants and ada- 
mantly oppose plans for a haz- 
ardous waste disposal facility. 

“Our return to the Riksdag 
did not represent the protest 
vote which some claim. . . it 
meant that when we were out 
of parliament the last time, 
people genuinely missed the 
fact that environmental issues 
had disappeared from the 
debate," said Ms Marianne 
Samuelsson, 49, a mother of 
three, joint leader of the 
Greens and an MP. 

“When we were in [the Riks- 
dag] before, the other parties 
saw benefits to gain votes by 
elevating environmental issues 
to thetr agenda. This was 
superficial. What happened on 


the environment front during 
1991-94 when we were out? 
Very little, if anything - and 
this did not go unnoticed by 
the electorate, particularly by 
women and youth," she mid. 

It was primarily womai and 
tlie youth vote which propelled 
the Greens back into the Riks- 
dag this year. Ms Samuelsson 
concedes that the Greens lost 
out in 1991 because of ineffi- 
ciency and disarray: “We sim- 
ply did not have our act 
together." But Greens through- 
out Europe hit a five-year low 
after 1988 which coincided with 
a right-wing wave of politics 
and from which they managed 
only this year to recover. 


During the period when 
it was out of power, the 
party reorganised and 
did some soul-searching 


according to political analysts. 

Sweden's Greens ran on an 
anti-European Union ticket for 
the September elections and 
this undoubtedly shored up 
their support ahead of Swe- 
den’s November referendum on 
EU membership which was 
opposed by almost half the 
electorate. 

During the period when it 
was out of power, the party 
reorganised and did some deep 
soul-searching to regain its 
confidence which was battered 
by the 1391 defeat 

“The leadership in Sweden of 
the Green party has become 
more seasoned, more experi- 
enced and less fundamentalist 
than their earlier years. They 
have shown that they are a 
party with whom political 
deals can be struck,” said Pro- 
fessor Soran Holmberg. at 
Gothenberg University where 
he is department head of politi- 
cal science and head of a spe- 
cial election studies team. 

The Greens' joint male-fe- 
male party leadership is meant 
to demonstrate that party com- 
mitments also twr- |nrto gender 
equality. Ms Samuelsson 
became co-leader of the party 
in 1992 together with Mr Birger 
Schlaug. The Greens have the 
highest proportional female 
representation in the Riksdag 
of any national party. The 
party holds 18 seats and is rep- 
resented on 16 parliamentary 
committees. 

The Greens are also mem- 
bers of the 20-countiy Euro- 
pean Green Party Federation, 
and have endorsed its pro- 
gramme which rejects the 
Maastricht Treaty and the 
Western European Union. With 1 
Sweden's slim Yes vote on EU 
membership, the Green party i 
intends, through, the federa- 
tion, to make its voice heard in 
Brussels, because the party has 
little faith that Ms Anita Gre- 
din, Sweden's EU Commis- 
sioner, will make environmen- 
tal issues a priority. 

*Tm disappointed that Swe- 
den did not get a person in 
Brussels who is engaged in 
environmental issues - Anita 


Gredin simply is not," said Ms 
Samuelsson. 

"The situation in Europe is 
developing one way - the 
wrong way. There is more traf- 
fic and more chemicals. . . the 
list goes an... and this cannot 
continue if we have any con- 
science at all about leaving the 
earth in reasonable shape for 
coming generations," she said. 

The Greats advocate a refer- 
endum throughout the Nordic 
countries in either 1996 or 1997 
on the ElTs next phase of eco- 
nomic and monetary union. 

"Basically, we oppose the 
EtTs common economic and 
monetary policy - not all coun- 
tries are equal - and as for the 
WEU, tins is not a peace organ- 
isation. After the US, the EU is 
the world's second-biggest pro- 
ducer of weapons. This means 
weapons will remain high on 
the EU's agenda because 
Europe’s economies depend on 
their production for revenue. 

"Sweden has WEU observer 
status which me ans it will 
have access to an WEU infor- 
mation, undermining- the gov- 
ernment’s claim of being ‘alli- 
ance-free’. This also raises 
questions over the govern- 
ment's stand on a future com- 
mon EU military force, 


although the prime minister 
has suggested a referendum 
may be needed," Ms Samuels- 
son said. 

Professor Holmberg believes 
that the Greens' anti-EU stance 
win benefit the party in the 
long run. “They were helped 
by the ’EU dimension' and the 
ongoing [EU1 debate in Sweden 
will help their future as they 
try to slow Sweden's integra- 
tion into Europe. Their main 
political competition is the Left 
party who they will always 
have to look over their shoul- 
der to monitor. . . both of these 
parties have the most volatile 
voters in Sweden," he said. 

The Greens believe their 
return to the Riksdag will 
strengthen the party's ties to 
the ruling minority Social 
Democratic party. 

“They depend on the Left 
{party] for support for all the 
budget cuts and other propos- 
als to reduce the deficit They 
won’t get support from the Left 
on many of their plans... 
which means they will have to 
rely on us," Ms Samuelsson 
said - a reminder that Swe- 
den’s political situation gives 
the Greens a degree of leverage 
in the Riksdag which they aiw> 
to exploit 


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delivered to your home or office every working day. 

311 su ‘**rtta S In me 
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Please call (08) 79i 23 45 
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Financial Times. Europe's Business Newspaper 


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financial times Monday December 19 1994 



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N o other Swedish industry had 
more at stake in the country’s 
European UWon referendum 
than the forestry sector. Even peo ple 
. not (Erectly Involved tn the industry 
-the country's biggest net export 
earner - agreed that Sweden's palp 
ind paper companies had much to 
. lose if the country had stayed outside. 

"Par the forestry industry a ‘No’ 

■ would have a catastrophe," says Mr 
- Ame Martensson, chief executive of 
Svenska H anddabanken. 

■ -The EU is the Swedish forest indus- 
try's biggest market by for. About 30 
per cent of its existing capacity is 
located outside Sweden wi thin eu 
borders. But the EU is al«n an impor- 
taut market for many of the country's 
■ other multinationals, so It is not sim- 
ply a question of access. 

What distinguishes the fo re s tr y sec- 
tor is the continuing environmental 
debate, covering everything from 
wcyding and waste management to 
clear-cutting (the practice of com- 
pletely clearing whole snathes of for' 
; est land at one go) and eco-labdhug. 

. The Swedes felt they simply had to 
- have a direct say in shaping policy in 
issues of such commercial im portant 
to their companies. 

The nightmare scenario for Swe- 
den's pulp and paper sector would be 
an EU forestry policy that coupled 
maximum stress on recycling with 
maximum emphasis an the preserva- 
tion of existing forest areas. 


Christopher Brown-Humes reports on the forestry industry 

EU vote was critical 


At its most extreme, that could 
mean Sweden having to import recy- 
cled fibre from the continent to meet 
EU rules on paper content Or it could 
mean Swedish companies being ban- 
ned from clear-cutting. Rules such as 
these, were they ever to be enforced, 
could raise costs in a country with 
erMUTgh natural handicaps already in 
the form of slow tree growth and ipng 
distances to markets. It could also 
hinder the access of Swedish compa- 
nies to their main markets. 

Swedish forestry executives say 
they have nothing against recycling, 
but they want a balanced view of its 
rela tionsh ip with virgin fibre. 

"Virgin fibre and recycled waste 
paper are two important components 
in the same system," says Dr Jan 
Remrdd, (Erector-general of the Swed- 
ish pulp and paper association. He 
also advocates a broader view of 
waste management, giving greater 
emphasis to en e r gy recovery thi n 

been the case unto now. "There are 
limrt-g to the amwmit of times paper 

can be recycled sometimes the 
distances involved do not make it 
worthwhile. It would be a better idea 


to take out the energy instead, produ- 
cing heat and electricity which saves 
coal and oil." he says. 

Ftetsed as they are by the outcome 
of the EU vote, it is already clear that 
membership will cany a cost for the 
forestry groups. Mr Gfiran Persson. 
Sweden’s finance minister, has 
announced a series of new corporate, 
energy and environment taxes to help 
fund the estimated SKrSObn annual 
cost of Swedish EU membership. 

Stora, Europe’s biggest pulp and 
paper group, believes the measures 
will add as much as SKr230m to its 
annual costs, including the impact of 
higher social security charges. 

But there is surprisingly little 
grumbling. That has probably got a 
lot to do with the fact that Sweden’s 
pulp and paper groups have enjoyed a 

much better 1994 than they expected 
now that a strong cyclical recovery in 
the sector is under way. Profits have 
grown as rising prices and strong 

demand have driven up capacity util- 
isation and sales. The weak krona, 
costcutting and lower debt burdens 
have also contributed to the upturn. 

Prices are increasing far virtually 


all grades of paper and paperboard 
- althnngh the impact has yet to be 
fully felt in companies’ profit-and-loss 
accounts. Long fibre pulp prices have 
doubled in little more than a year and 
are set to reach $750 per toniw by 
January 1. Prices for fine paper, 
which has a high pulp contort, have 
also climbed sharply, as have prices 
for sawn timber. In other segments, 
such as publication papers, the 
impact has been modest although big 
price rises are on the way. 

A picture of an industry making 
a rapid return to health, after 
three difficult years between 
1991 and 1993, emerged at the nine- 
month stage. Stora announced a 
profit of SKr2.04bn, seven times 
higher than the SKr294m profit 
achieved In the same 1993 period. 
MoDo swung to a profit of SKri.Oibn 
from a SKr427m loss while SCA lifted 
profits to SRrLSSbn from SKrTSSxa. 

The industry expects even better fig- 
ures next year because of higher 
prices. With balance sheets also in 
much better shape, companies are 
starting to expand again, either by 


acquisition or by building new capac- 
ity. MoDo has announced 5Er3bn of 
new investments, including a 
SKr&lbn outlay on a new newsprint 
machine at its Braviken plant in Swe- 
den. Stora Is considering a SHrSEbn 
investment in a new board machine. 
AssfDom&n has agreed to buy MoDo 
Packaging In a deal worth SKrlJfen. 

Industry estimates suggest Swedish 
companies will invest as much as 
SKrSbn in 1995, about the same 
amount as they invested annually in 
the late 1980s ait the last cyclical peak. 
This makes investors nervous because 
the downturn that struck the industry 
in 1991 was caused more by overcapa- 
city than weak demand. 

During the late 1980s and early 
1990s, Swedish forestry groups 
invested heavily in the UK, Germany 
and Prance because they wanted to 
establish themselves close to their 
wain markets. In the present expan- 
sion phase, there are signs that a 

greater proportion of investments will 
be concentrated at home. 

This trend undoubtedly reflects the 
productivity gains achieved in the 
Swedish forest industry over the past 
few years. Dr Semitid says the new 
competitiveness and the need to 
exploit virgin fibre resources make it 

natural for the expansion to be in 
Sweden. "There is a need for more 
fresh fibre in the system and the 
waste paper trend is balancing out," 
he says. 



Holman plant, part of tha MoDo group, at Nuikophg fVtum r*. 


T wo yean ago Swedish banks had too 

little money and too many loans 
going sour. Today they have too 
much money and toe few people w a nting 
to borrow ft. 

It is 'a striking recovery, if a r ather 
fop-sided one. Healthy p rofi ts are being 
made again but only because there hag 
been a sharp drop in the volume of the 
c redi t loses which crippled the sector two 
years ago. Underlying results have actu- 
ally deteriorated because of low credit 
demand, narrower margins and reduced 
profits from bond trading. 

The pattern is clear from the results of 
two of Sweden’s leading private-sector 
banks, Skandinaviskn EnsMlda Banken 
and Svenska IfandeMwiftwi SE Wwnlran 
made a nine-month profit of SKrZ£7bn, a 
huge impr ov e ment an SKr71m a year ear- 
lier, after credit losses shrank 44 per cent 
to SKr4J!5bn. But the result before loan 
fosses, after stripping out hefty capital 
gains, was down 17 per cent on 1993. 

Handelsbanken achieved a SKr3.18bn 
profit -a 148 per cent improvement on 
last year, lids was because a 59 per cent 
drop in credit losses to SKi2.14bn offset a 


BANKING 


Too much money: not enough borrowers 


19 per cent fell in underlying results. 

The drop in loan losses has been fuelled 
by Sweden's economic recovery and low 
short-term interest rates. As for the 
underlying performance, Sweden’s banks 
are partly the victim of their own caution 
and partly of tee general state of the 
Swedish economy. 

Having been brought to their knees two 
years ago by reckless l-wdtog to an over- 
heated property sector, they are now con- 
trolling their risk exposures more care- 
fully. 

At the same time, customers have tided 
away from taking out new loans because 
of weak private consumption, vary Ugh 
long-term real interest rates and reduced 
tev incentives. 

The problem is that the banks have 
never been in a better position to land 


money. They have strong capital ratios 
after the recapitalisation p rogra mm es car- 
ried oat last year and, doe to high per- 
sonal savings levels, deposits are accumu- 
lating all the time. This means that after 
being undercapitalised two years ago, 
they are now dose to being overcapital- 
ised. But if they are not to turn away 
deposits, they have to do something with 
their surplus liquidity. This has forced 
than to compete aggressively to lift mar- 
ket share- hence the narrower margins 
- and expand their investment portfolios 
at a time when the securities market has 
been turbulent 

This strategy has had painful conse- 
quences, particularly became of this 
year’s bond market turmoil. Bond trading 
profits are down sharply from last year’s 
levels, and investment portfolios have 


S 


tockholm, built on a 
string of islands and 
promontories where the 
Baltic Sea meets the MSlaren 
lake, is a beautiful city by any 
standard. Its wealth of hand- 
some architecture and grand 


Travellers’ guide 


catch out an unwary traveller. 
How to get about: Beware the 
Middle Eastern-style bazaar for 


waterfronts makie.it one of taxis .at Stockholm's main 
’■'mathero 'Arlanda 'alrport Most taxi 


the centres. 

- 'fiie relative compactness of 
fee heart of Stockholm Tnaara 
feat even a busy business visi- 
ter can savour much of what it 
■has to offer. But to most out- 
tiders it is stfil an expensive 
‘place with quirks that can 


companies offer a reduced rate 
for the 40km ride to central 
Stockholm - of not more than 
SKr300-but you have to fix 
the fare in advance. If the 
driver runs the meter, you will 
pay up to SKr600. 

For those not pressed for 





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The Swedish Bonk 


time, the regular bus service to 
Centralen, fee central rail sta- 
tion, costs SKiSQ. If you stay in 
town, many appointments will 
be wifein wanting' distance of 
your hotel If you are anxious 
to cut taxi costs, the Tunnd- 
bana underground system is 
simple to use, efficient and 
cheap. 

Where to stay: If you want to 
stay on the waterfront, the 
prime hotels are the Grand, fee 
Strand and fee Diplomat All 
are within a short and pleasant 
walk of the main government 
offices and business area of the 
city. Two other big city centre 
hotels, the Sheraton and Royal 
Viking, can claim a waterfront 
view, but in reality are 
hemmed in by busy thorough- 
fares. For something cheapo: 
and with more character try 
the Lady Hamilton or fee Lard 
Nelson on Gamla Stan, the old 
town. 

Where to eat: If you are a fen 
of saittinn and herring, Sweden 
is fee place for you. Otherwise, 
standard fere fends to be dull 
A good value option for lunch 
offered in dozens of restau- 
rants is Dozens Rdtt- a set 
menu, usually including a light 
beer, for SKr45-SKr50. Lunch- 
hour in Sweden is noon-lpm. 

Stockholm also boasts a 
range of quality, up-market 
restaurants. The Smorgasbord 
at the Grand Hotel is justly 
famous for its sumptuous 
spread. The QperakSIlaren at 
the Opera is good, but at 
lunchtime the Opera Bar is 
cheaper and more fun. 

Two good restaurants in 
beautiftil settings are the Ulla 
Wlnblad on Djurgarden and 
fee pricey UTriksdals WSrdshus 
an Edsviken. Be warned, how- 
ever, that beer, wine and 
spirits prices in all restaurants 
are very high. 

Where to go: In summer take a 


boat trip to the faiamiig. Look 
for the ferry company informa- 
tion and ticket offices in front 
"of the Grand Hotel (for the 
archipelago) and the City Hall 
(for fee MSlaren). Vaxholm in 
the archipelago is a good desti- 
nation for a day, or half-day 
trip. 

Take a lake steamer to the 
royal palace at Drottninghnlm 
for a summer treat and go to 
the opera at the 18th century 
Drottningholms Slottstea- 
ter-but tickets for the opera 
are hard to get at short notice. 

There are several good muse- 
ums in Stockholm. In the city, 
Gamla S tan, the old town 
perched on an island, is a 
charming jumble of narrow 
streets and old houses where a 
little exploration will turn up 
interesting antique shops. 
Other tips: Always check 
museum opening times in 
advance; Swedish tourist 
attractions have an irritating 
habit of being closed in the 
summer because all fee locals 
are on holiday, and restricted 
in the winter because it is not 
holiday time. 

In early August, Stockholm 
hosts its annual water festival 
- which is great ftm, but also 
highly disruptive to normal 
business in the city centre. 

hi July, fee city is all but 
dead as Swedes go on holiday 
en masse. Do not plan a busi- 
ness trip then. 

In winter, there is no decent 
downhill skiing in the Stock- 
holm area -hut if you are a 
skater, visit in January and 
February. You could be in for 
the treat of your life - skating 
on the lakes and the sea. 

Finally, there is still a state 
monopoly on the retail sale of 
aloohoL If you want to buy it, 
look for branches of the Sys- 
tembolaget. They are only 
open to 6pm on weekdays and 
are shut at weekends; most do 
not take credit cards. 

Hugh Camegy 


Hit if DM e 




flfifce 


‘bribe 



Qpaesais Svenska-18, is an offshore mutual fond designed for 
investors seeking a professionally managed investment vehicle 
in the Swedish equity market The investment universe of the 
Fund consists of 18 large companies trading on Stockholm 
Stock Exchange, totalling a market capitalization in excess of 
SEX 650 billion. 

Qfiacstus Svenska-18 uses a proprietary, quantitative analysis 
system developed by Quaestus for its investment decisions. 

For Prospectus and Inf ormation: 

Quaestus SA 

25. route Jean-Jacques Rigaud 
CH-1224 Chtee-Bougerles 
Geneva Switzerland 

Phone : -nil 22 349 5900 Fax 441 22 349 6060 


been hit by the difference between market 
and purchase prices. The investment per- 
formance does not feed through directly 
into the profit-and-loss account - as it 
does in Denmark - but it does affect 
equity and capital cover. 

Results are expected to improve farther 
next year. Credit losses should continue 
to fell, even though short-term interest 
rates are on the rise a gain- Loan demand 
should also increase, particularly because 
of higher investments by the country's 
big exporters. However, state tax 
increases and spending cuts to curb the 
country’s budget deficit will again hit pri- 
vate consumption, curbing loan demand 
from the household sector. 

Banks are not just looking to more 
robust loan demand to boost their busi- 
ness. Services are being widened to 
include life insurance and more sophisti- 
cated hwwltiwg products. SE Banken, for 
example, has bought the Diners Nordic 
credit card operation and set up an Inde- 
pendent 244urnr»*day telephone banking 
service. Handelsbanken has become the 
first Swedish bank to develop a flexible 
occupational pension scheme. 

But competition is increasing. One of 
Sweden’s leading In surers, Skandia, has 


set up its own banking unit and the Post 
Office Is offering a broader range of bank- 
ing services. 

Competition within the Nordic region is 
also intensifying. Both SE Banken and 
Handelsbanken are building up tbeir 
operations in Finland and Norway. Other 
Nordic banks are also planning to set np 
brandies in Sweden. The increasing cross- 
border competition was the main reason 
that four of the region’s top banks broke 
np a 10-year co-operation venture, Scandi- 
navian Banking Partners, daring fee sum- 


T: 


'be government has still not made 
any move to remove the blanket 
guarantee which it pot on the entire 
banking system in late 1992 at the height 
of the banking crisis. There are several 
reasons for this. 

• One is that credit losses, though fall- 
ing. are still not back to pre-crisis levels. 
Handelsbanken 's loan losses are still run- 
ning at 1 per cent of total lending, four 
times the level in tie late 1980s. In addi- 
tion, Fferenlngsbankmi, one of the main 
fernire, is still not back in fee black. 

• Secondly, Swedish longterm interest 
high, and they are likely to 


remain so until the markets are convinced 
feat the government has got the state 
debt under control. 

• Thirdly, the backing is supporting the 
tusks* credit ratings. 

• Finally, the support has helped to sort 
oat the banking crisis debris. For exam* 
pic, when Sccurum, the state-owned 
entity set np to liquidate the failed loans 
of Nordbanken. arranged a SKrSObn refi- 
nancing in the autumn, its task was made 
easier by implicit backing from the Swed- 
ish state. 

The banking crisis cost the Swedish 
state aboat SKrSSbn in cash support. 
Some of this will be recovered by fee 
gradual dismantling of Sccurum, Its sister 
Retriva (the “bad bonk” for Gota Bank), 
and the return of Nordbanken to the pri- 
vate sector. 

Nordbanken, which collapsed into state 
arms in 1992 as the biggest casualty of 
the crisis and has since been merged wife 
Gota Bank, is due to be re-privatised some 
time next year. 

Seen rum’s progress over the past year 
shows that the legacy of the crisis is 
likely to be much shorter than was at first 
expected. The unit, which has converted 
virtually all of its sour loans Into assets, 
seems likely to complete Its liquidation 
programme within 10 years, having 
already sold SEr9bn out of SKrSlbn 
worth of assets. It would like to have 
returned at least SKrlObn to fee Swedish 
taxpayer by the end of fee process. 

Christopher Brown-Humes 


Alfred Berg 


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S aab-Scania. the Swedish 
vehicle and aerospace 
group, Is at last starting 
to produce the sort of returns 
that its owners, the Wallen- 
bergs. must have hoped for 
when they bought the group in 
1991, reports Christopher 
Brown-Homes. 

Profits have surged fids year, 
after two dismal years in 1992 
and 1993, driving the broader 
recovery of investor, the key 
Wallenberg holding company 
which wholly owns the group. 
In the first nine months. Saab- 
Scania achieved an operating 
income of SKi23bn, a spectac- 
ular Increase from only 
SKrl08m in the same 1993 
period. 

Spectacular, perhaps, but a 
performance nevertheless 
which mixes “wine with 
water, M according to Mr Lars 
Kylberg, Saab-Scania chief 
executive. 

The "wine" is Scania, the 
world’s fifth-largest truck 
group, which has benefited 
from a strong revival in 
demand and soaring sales. 

The “water” is the group’s 
commercial airline business 
which has suffered heavy 
losses amid plunging sales and 
orders. 

The commercial aircraft divi- 
sion is, undoubtedly, the 
group’s immediate headache 
because this year it is only 
likely to sell 15 of Its turbo- 
prop aircraft, against the 50 
which it needs to seU to break 


Profile: Saab-Scania 


Profits have 


surged 





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even. 

The group produces two air- 
liners, the Saab 340. which can 
seat 20-39 passengers, and the 
Saab 2000, a newer model seat- 
ing 40-59 passengers. 

General market overcapacity 
has caused problems not just 
fbr Saab-Scania. but for many 
of its competitors. Indeed, it is 
this general state of distress 
that leads Mr Kylberg to 
believe that a far-reaching 
solution - nothing short of an 
European Airbus-type consor- 
tium in turbo-props - might be 
possible. “If I had a single New 
Year wish, this is what I would 
really like to happen in 1995,” 
he says. 

The members of Mr Kyl- 

berg’s mini-Airbus consortium 
would be Saab-Scania, British 
Aerospace, ATR, the French- 
Italian group, and Germany’s 
Deutsche Aerospace. Forging a 
collaboration would provide 
Europe with real clout in its 
battle with overseas competi- 
tors such as Canada's Bomba- 
dier and Brazil’s Emhraer, he 
argues. 

But there is a long way to go 
and even if agreement can be 


v , r*’#\ 


S&flb-Scanb's Aircraft mnubcflntoo plant at Unhopbig 


TbnyAmm 


reached between the four par- 
ties, the European competition 
authorities may not like it If 
the venture falls, Mr Kylberg 
maintains that Saab-Sc ania 
can still soldier an on its own, 
although it is not a prospect 
which he relishes. 

Apart from anything else, he 
feels the group Is at a competi- 
tive disadvantage because it 
cannot offer some of the export 
credits and other soft financing 
mechanisms that its rivals can. 

Saab-Scania is also seeking 
to bufld a strong international 
alliance for its fighter aircraft, 
the JAS 39 Gripen. The prcrject 
has been hit by delays and 
cost-overruns, and last year 
suffered the trauma of a high- 
profile crash during a Stock- 
holm air display. 

The group has a healthy 
order book from the Swedish 
air force fbr the a ir craft, a mul- 
ti-purpose reconnaissance and 
attack fighter, but full com- 
mercial success will only come 
with export orders. That is 


why Saab-Scania wants an 
overseas partner. 

The company in question is 
almost certain to be British 
Aerospace. The two companies 
have talked for more than a 
year and a final agreement in 
the form of a sales and market- 
ing joint venture is likely to be 
announced during the spring. 

BAe has a strong historic 
position in a number of the 
markets which Saab-Scania 
would like to penetrate, includ- 
ing Middle Eastern and Far 
Eastern countries. 

The British group’s help in 
producing an “expert” version 
of the aircraft, which could be 
adapted to loral conditions, is 
also being sought. 

Saab-Scania is definitely not 
seeking a partner fbr its Scania 
bus and track division, which 
has consistently proved to be 
one of the world's most profit- 
able operations in this field. 
Scania has a number of basic 
strengths, including modular 
construction (using the same 


core module for different truck 
models) and a strong dealer 
organisation. 

In the past year these advan- 
tages have been enhanced by 
the weakness of the krona and 
recovering demand and the 
group has best able to take 
market share. European pro- 
duction has doubled to 140 
trucks a day from 70. 

Underscoring the upturn, 
Scania's sales surged 34 per 
cent to SKrl&Bbn in the first 
nine months while its order 
intake jumped 61 per cent to 
29 J00 trucks and buses. The 
unit's operating margin 
reached 14 per cent, about 
twice the level of Volvo 
Tracks, a highly-regarded com- 
petitor. 

Scania’s achievements are 
the more remarkable for the 
fact that it has not produced a 
completely new model for 
many years, contenting itself 
instead with a gradual refine- 
ment of existing models. Mr 
Kylberg declines to discuss 
industry rumours suggesting a 
new model may come as early 
as next year. 

Scania's present production 
and sales strongholds are 
Europe and Latin America. It 
has consistently shied away 
from the North American mar- 
ket, saying its sixth manufac- 
turing plant -it has three In 
Europe and two in Latin Amer- 
ica - is likely to be in Asia. 
“We see Asia as our third 
region,” says Mr Kylberg. 

Saab-Scania retains a 50 per 
cent stake in Saab Automobile. 
This is essentially a financial 
investment because manage- 
ment is carried out by the 
other joint owner. General 
Motors. 

There have been rumours 
that Saab-Scania will sell out, 
but Mr Kylberg denies it. “We 
have a good cooperation with 
GM and wish it to stay like 
that,” he says. 

Besides, the group is at last 
earning money from Saab, 
which win make its first profit 
for six years in 1994. 

Mr Kylberg does not believe 
the group is spreading itself 
too thinly by operating in so 
many sectors with huge capital 
requirements. He says vehicle- 
making is the group's tradi- 
tional business - Scania is 100 
years old and Saab is more 
than 50 - and that is where its 
expertise lies. In other words, 
he is happy with the basic 
structure of the group. 

The only difference is that 
by the year 2000 he hopes to 
have several strong interna- 
tional partnerships in place to 
share some of the burdens. 




j ■■ , 

,******■ 




Hie secret weapon fci Stem's andomy: an artist's i mpr es sion of the ffSS High sp e ed Sea Service feny which W® helve normal trevei tfctwe 

Profile: Stena Line 


7*iY 

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A remarkable comeback 






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For a company was in crisis and 
making heavy losses only three years ago, 
Stena Line, the world's biggest ferry oper- 
ator, has staged a remarkable comeback. 
Despite difficult market conditions in 
both its Scandinavian and UK markets, It 
is heading for a record SKrSOOm profit in 
1994 and it is once again planning signifi- 
cant fleet investments. 

The severe difficulties experienced ear- 
lier in the decade were caused by the 
company’s $570m purchase of Sealiwk, 
Britain’s second-biggest ferry operator, in 
1990- The move left it with huge debt-ser- 
vicing costs and a need to undertake 
important restructuring in the newly-ac- 
quired operation. The Gothenburg-based 
company even threatened to dose Sealmk 
entirely, hardy 18 months after the pur- 
chase in a move to force unions to accept 
drastic cost-cutting. 

If Stena ever shared the widespread 
view that it had overreached itself, these 
days it has no such doubts. Mr Bo Leren- 
ins. Stena Line president, says “It was a 
bold move, but strategically it was defi- 
nitely the right one." What has changed is 
not just the outlook for Stena Sealmk, but 
the broader financial recovery which the 
whole group has staged over the part 
three years. 

It got out of its crisis by hacking bade 
costs, launching a hefty rights issue and 
convertible loan, and reigning in invest- 
ments. Together with rising profits and 
increasing cash Sow, the group has been 
able to pay a substantial part of its debt 
It is now confident of getting its eqmty-to- 
assets ratio hade to the pre-Seaftnk pur- 
chase level of 30 per cent by early next 


Stena today carries more than 14m pas- 
sengers a year on 15 routes in 32 vessels. 
The irony is that the UK routes have 
ended up supporting the group at a time 


when its Scandinavian business has suf- 
fered from recession and the weak Swed- 
ish krona. Passenger numbers on UK 
routes rfimhpd 10 per cent in the first 
eight months of this year, while Scandina- 
vian routes saw a L4 per cent decrease. 

Conditions in both markets have been 
difficult. In the UK there has been a price 
war in the run-up to the foil start-up of 
the Channel Tunnel. In Scandinavia, con- 
sumer spending 1ms fallen and there has 
been a sharp fall in travel on some routes 
in the wake of the Estonia tragedy. 

Given that Stena has some 34 per cent 
of the British passenger shipping market 
-second only to P&O - it cannot afford to 
be complacent about the Channel TunneL 
Its main UK route, Dover-Cabds, will be 
competing head-on with tunnel traffic. 

Stena Is sceptical about Eurotunnel’s 
assumptions that it will eventually gain 
some 30 per cent of freight traffic and 50 
per cent of cars os short-sea cross-channel 
routes, but it is basing its strategy on 
them nevertheless. 

One solution would be for it to seek an 
extensive collaboration with P&O, 
although this would have to meet with 
the approval of the relevant competition 
authorities. In any case, ft exp e ct s the 
overall market to grow, helped by eco- 
nomic growth to both Britain and France. 

Nordic ferry traffic has beat hit bard by 
the sinking of the ferry Estonia, which 
capsized in heavy seas to September with 
the loss of more than 909 lives. Stena has 
suffered less than other stopping groups, 
partly because it does not operate in the 
Baltic Sea where the tragedy occurred. 
The company’s passenger volumes to the 
Swedish and Norwegian markets feU by 
12-14 per cent during October and Novem- 
ber, although there are now signs of 


bracing itself for sane tough awr Uttfcp 
regulations to the wake of the tragedy. 
Although these wUi add to coato, ft 
believes the Impact will be neutral .to 
competitive terms because rivtte vrtll 
have to implement the same measures. . 

The secret weapon In Stena's arm oury 
is undoubtedly Its revolutionary BBS 
Highs peed sea Service protect, which ft 
has developed with its main owner. Stena 
AR. Three fast ferries, which will halve 
normal travel times, have been ordered 
from a Finnish yard and a fourth is 
planned. “We are quite convinced that 
this will change ferry traffic a great 
deal.” says Mr Lerezdus. However, sane 
observers regard the project as techni- 
cally risky, and at a total estimated cost 
of SBWbn, it is certainly an ambitious 
investment 

It is the first time that high-speed fas 
ties will be able to carry lorries, traUets 
and buses alongside passengers and care. 
The boast is that they wifi offer a degree 
of comfort and reliability w hi ch present 
Cart vessels, such as catamarans, can not 
The first of the Finnish-built vessels, 
which will each be able to cany 1,509 
passengers, is due to enter service across 
the Irish Sea next September. 

A lot is riding on the success of the 
ships, not least because they are an ele- 
ment to the group’s overall strategy of 
enhancing the transport-derived portion, 
of its revalues. The tin'll to gradually 
reduce the company's dependence on 
dutyfree sales which are due to be phased 
out under European Union rules to 1999. 

Already Stena baa reduced the propor- 
tion of on-board Income (Including duty- 
free) as a p e rcent a ge of total operating 
income from 55 per cent to 1988 to lass 
than 35 per cent today. 


Stena, like other ferry operators, is 


Christopher Brown-Humes 



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Profile: Volvo 


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Firmly embarked 
on new strategy 


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"Firing on all cylinders.” "Up 
to speed again.” “Back in top 
gear”. To the relief - and pride 
- of most Swedes, the motoring 
metaphors hare been flowing 
thick and fast this year for 
Volvo, the country's biggest 
manufacturer. 

Thanks to a dramatic recov- 
ery in profits, memories of the 
ignominious collapse at the 
end of 1993 of Volvo’s plans to 
merge with France's Renault 
have faded fast Volvo returned 
a 12-fold growth in pre-tax prof- 
its in the first nine months , of 
the year to record a surplus of 
SKrl2.7bn, on turnover of 
SKrll&Zbn. 

Under the energetic Mr 
SSren Gyll, the chief executive 
who has emerged as the new 
dominant figure in Volvo, the 

company is 

firmly 
embarked on a 
new strategy to 
focus on its 
core vehicle- 
making 
operations. By 

the end of 1998, it intends to 
lave sold off ail its nonrcore 
assets, raising a total of some 
SKrttbn to finance the future 
development of cars and 
trucks. 

Today, there is a widely-held 
view in the industry that Volvo 
Truck Corporation is already 
in strong shape. At the nine- 
month stage, worldwide unit 
truck dales were up 38 per cent 
at 49,400, delivering a jump in 
operating profits to SKr2.7bn 
that produced an operating 
margin of seven per cent 
The big question mark, how- 
ever, hangs over the future of 
Volvo Cars, the biggest divi- 
sion by sales value and the real 
heart of the company in the 
eyes of a nation which has 
always regarded Volvo as Swe- 
den's industrial flagship. 

The car corporation also pro- 
duced a big improvement in 
the first nine months: unit 
sales, at 289,600, were up 18 per 
cent; operating profits went 
from near break-even to 
SKrl.95bn. But Mr Gyll was 
quick to admit that the operat- 
ing margin of 4 per cent, 
achieved as Volvo approaches 
the top of the business cyle, 
fell far short of the 7 per cent 
average he says the car divi- 
sion needs to achieve over a 
complete cycle. 

Uncomfortably for Volvo, it 
is setting out to achieve fins as 
a niche player in the. world- 
wide car industry at a time 
when the trend among its com- 
petitors has been towards 
building volume.. 

Volvo is now one of the 
world's smallest producers of 
mainstream vehicles, with a 
basic range of just three cars 
in the 900, 800 and 400 series. 
Many in Sweden who argued 
against the merger with Ren- 
ault said Volvo should set out 
to become a “Swedish BMW”. 
Within months of Volvo 


Volvo has to decide 
whether to make a 
belated response to 
four-wheel-drive vehicles 


si cm, are well aware of this 
background. But they argue 
that there are still opportuni- 
ties for a man uf act u rer of Vol- 
vo's size -Mr Mohlin says he 
is aiming for optimum output 
of 500,000 cars a year -given 
its powerful brand name and 
the vital ability of smaller 
manufacturers to use modem 
production techniques to be 
more responsive to customer 
demand. 

On the marketing front, Mr 
Mohlin intends to stretch Vol- 
vo's traditional appeal to fam- 
ily car buyers - primarily 
through its famously roomy 
estate cars -to what he calls 
“pre-family” and “post-family” 
buyers. The intention is to 
build on Volvo’s reputation for 
safety, reliability and environ- 
mental friendli- 
ness to 
embrace at the 
same time 
greater “drivea- 
bility", with 
more emph a si s 
on perfor- 
mance. The implication of this 
for production is for sportier 
models, with more attention to 
interior comforts. Volvo is not 
about to abandon estate cars, 
but it will concentrate harder 
on producing attractive 
saloons that get away from the 
“boxy and boring” image of the 
past -and give greater added 
sales value. The trail has 
already been blazed to some 
extent by the successful 850 
model; one in four 850s sold are 
the turbo-engined version. 

Volvo also has to decide 
whether to make a belated 
response to the inmaiia made 
into the estate car market by 
four-wheel-drive vehicles and 
“people carriers". Although no 
definite decision has been 
announced, all the indications 
are that Volvo will not attempt 
any significant extension of its 
basic production range. 

Rather, Mr Mohlin says, 
Volvo will probably cut down 
from three basic “platforms” 

- or chassis - to two; the 800 
and the medium-small sized 
400 series. The 400 series is pro- 
duced in the Netherlands in a 
joint venture with Japan's Mit- 
subishi. From these, Volvo will 
seek to produce a more varied 
range of models. 

“‘We know it is possible to 
develop more cars from a sin- 
gle platform. The trick is to 
utilise common components, 
but to differ entiate the prod- 
ucts,” Mr Mohlin says. 

He says the aborted merger 
with Renault has cost Volvo 
more than a year in its vital 
programme to develop new 
models. This has increased the 
pressure to produce a success- 
ful formula that will carry 
Volvo over the next downturn, 
in the cycle and prove that it 
can thrive as an independent 
carmaker. 

The headline writers will be 
no less ready with their cliches 


» ' V / 

:: % 


. t !y- 

■ ^-« ■ 
i: 


that path, however, if it fails. "Volvo stalls' 
the German carmaker . itself. > “Breakdown*; and “Running 
opted to make a quantum leap' out of fuel” are' the banners Mr 
in its volume output by buying Gyll and Mr Mohlin are deter- 
Britain’s Rover. mined to avoid. 

Mr Gyll and Mr Per-Erik .. , ^ 

Mohlin, head of the car divi- Hugh Carnegy 



anagement and 
employees in Swedish 
man ufacturin g indus- 
try deserve much of the credit 
for a tr ansf ormation in the 
country’s industrial competi- 
tiveness since 1 the early 1990s r 
but their own efforts' mid gov- 
ernment policy^ vrfll ; -dicfatte 
whether farther progress cast 
be made. 

Two important factors have 
- transformed the competitive- 
ness of Swedish Industry, 
according to Mr Magnus Lem- 
mel, director-general of the 
Federation of Swedish Indus- 
tries. The first is the Swedish 
krona’s de facto devaluation of 
25 per cent in the past two 
years, which has restored man- 
ufacturers’ ability to compete 
in the European market 
The second change, says Mr 
Lemuel, is a big increase in 
industry’s productivity over 
the past few years. In the long 
term, this is more important 
be says. The krona may rise in 
value, but the effects of 
increased productivity win 
endure. 

The increase in productivity 

has come through a mixture of 
government and industry 
efforts. Cuts in sick-leave bene- 
fits made by the former, pre- 
1991 Social Democratic govern- 
ment had a very important 
effect, reducing absenteeism by 
about 20 per cent 
Since then, the recession 
across much of Sweden’s 
industrial sector - whether 
export-oriented or reliant on 
the domestic market - has led 
to big reductions in employ- 
ment “We are now producing 
more, with much less labour,” 
says Mr LemmeL 
Prompted partly by the 
downturn, important internal 

improvements in man nfaptarr- 


Andrew Baxter reports on manufacturing industry 

Big productivity increase 


ing have 'come, with better 
mana gement,- logistics, and 
flow of goods, all designed to 
raise productivity. Labour- 
management relations are 
much improved, and discus- 
sions are conducted in a good 
atmosphere, be says. 

Mr Lemmel might be expec- 
ted to promote Swedish indus- 
try's achievements but his 
views are corroborated by 
observers of the Sweetish 
industrial scene. 

Mr John McDowalL a British 
Steel executive director, has 
been making monthly trips to 
Sweden in the past year as 
chairman of A vesta Sheffield, 
the Anglo-Swedish stainless 
steel producer. He says he is 
very encouraged by the compa- 
ny’s productivity improve- 
ments and the positive attitude 

of workers and trade unions. 

Mr Lemmel is now looking to 
Sweden’s new minority Social 
D em ocratic government to “do 
the right things” to ensure that 
the business climate remains 
favourable. A crucial factor, he 
says, will be the extent to 
which reductions in the budget 
deficit are achieved through 
spending cuts rather than 
increased taxes, and judgment 
day” will be January's budget 

“So far, the emphasis has 
been on raising taxes, but the 
balance needs to be changed,” 
he says. Increased taxes an 
employment, for example, 
would hamper industry's abil- 
ity to grow. 

The recent retrenchment and 


reorganisation in Swedish 
industry, and the current atti- 
tude of multinational compa- 
nies to manufacturing there, is 
well illustrated by the experi- 
ences of two companies with 
deep Swedish roots, but whose 
global headquarters are 
abroad. 

Asea Brown Boveri, Europe's 
largest electrical engineering 
group, employs about 27,000 


But it stresses that the weak 
krona is only part of the story. 
A special export campaign, and 
Swedish ABB's much-admired 
T50 customer focus pro- 
gramme, presided ewer by Mr 
Bert-Olof Svanbolm, its chief 
executive, have laid the inter- 
nal foundation for success. 

As an example of what the 
process has achieved, it cites 
ABB Stal in Finspoug, which 


SWEDEN'S INDUSTRIAL REVIVAL 

(percentape change per yaari 



industrial 

Unit labour 

Industrial 



. productivity 

costs 

production 

1985 


+1.6 

494 

+2.0 

1886 

% 

+1J9 

+&2 

+1.2 

1987 


♦1.7 

+4.5 

+2.4 

1988 


+1.4 

+5.2 

+2 3 

1989 


+3.1 

*73 

+1.0 

1990 


+1.6 

+8.5 

-as 

1991 


+0.9 

*7.6 

-5£ 

1992 ■ 

« 

48.7 

-3-6 

-0.7 

1993 


+9.1 

-6.7 

+1JI 

1994* 


+3,6 

+0.1 

+9.0 

1995* 


*23 

+2.6 

+/.a 

NeM'Bnoat 


SdmtiftMontiM 




people in Sweden, a reduction 
of about 3,000 since 1990-91. 
The reductions, it says, took 
place mainly in those busi- 
nesses affected by the domestic 
recession, notably in the con- 
struction market 
As a manufacturing base, it 
says. Sweden's situation is now 
very favourable. “We have a 
cost base that makes us very 
competitive in the interna- 
tional market, not least thanks 
to the krona situation.” 


in 1990 supplied six gas tur- 
bines worth about SKrSOOm. 
Next year's target is deliveries 
worth SKr2bn, equivalent to 25 
gas turbines, with a workforce 
that has increased by only 15 
per cent 

ABB Sweden echoes Mr Lem- 
mel by calling for the public 
finances to be put on a sound 
basis, and warning of the vital 
importance that the continuing 
positive development of indus- 
try is not hindered in any way. 


Meanwhile VME Group, the 
Brussels-based producer of con- 
struction equipment, has 
reduced its Swedish workforce 
from about 6,500 in 1989 to 
4,400, and closed three plants, 
at Lands krona, Lund and Kar- 
Iskrona (the last two came 
with the acquisition in 1991 oT 
Akermans, the hydraulic exca- 
vator producer). 

Hie closures were part of a 
worldwide reorganisation in 
response to the recession, says 
Mr Tuve Johannes son, presi- 
dent and chief executive. They 
were accompanied by signifi- 
cant restructuring of the facto- 
ries that remained, to increase 
productivity and shorten lead 
times. 

With a reduced manufactur- 
ing base, the recent upturn in 
sales has lead to a dramatic 

improvement in profitability. 

in the form of a S200m turn- 
round out of the red over the 
past two years. 

Mr Johannesson says that 
Swedish industry was “com- 
pletely lacking in realism" in 
the late 1380s and early 1990s. 
and “only started to sober up 
during the recession." Now, he 
says, there is good reason to be 
“fundamentally positive” about 
Sweden as a country in which 
to invest and manufacture. 

He too, though, is worried by 
the new government's atti- 
tudes to business taxation, and 
the possibility of increased 
income tax. 

Another concern, says Mr 
Johannesson, is the possibility 


of renewed "Imported infla- 
tion” because of raw material 
shortages and the present 
weak currency. Increased infla- 
tion would automatically stim- 
ulate a renewed debate on 
wages, and a return to bad 
habits. 

Any rise in the krona over 
the next few years - as a 
result, perhaps, of tough action 
to control the budget deficit 
-would reduce the cost of 
industry's imported raw mate- 
rials. That would partially off- 
set the reduced benefits for 
exporters, which in turn would 
encourage manufacturers to 
continue raising their produc- 
tivity. 

The bright outlook for manu- 
facturing, notwithstanding the 
concerns about government 
policy, has been enhanced by 
last month's referendum on 
Sweden joining the European 
Union. 

Large international compa- 
nies such os ABB and VME say 
the positive result has removed 
a risk that would have had to 
be assessed when making a 

long-term investment decision. 

Slowly, investments in Sweden 
would have declined in favour 
of EU countries. 

In terms of business opportu- 
nities, though, the real benefi- 
ciaries are likely to be Swe- 
den's smaller engineering 
sub-contractors, says Mr 
Thomas Older, president and 
chief executive of Svedafa 
Indus! ri, the big mineral pro- 
cessing and construction 
equipment group. 

"It would have been very 
ensy for us to have slowly 
moved more manufacturing 
into other countries," he says. 
“Our sub-suppliers at home 
would have been the ones to 
suffer.” 


R ecent events at Kalmar 
Industries, based at 
Ljungby In southern 
Sweden, provide a classic 
example of the changes that 
Swedish industry has under- 
gone as it grappled with reces- 
sion and aimed to increase its 
productivity and co m pe ii tive- 


Profile: Kalmar Industries 


Master of its own destiny 


Hie company is the world’s 
largest producer of heavy lift 
trucks - the kind that can pick 
up and stack huge laden ship- 
ping containers - and also 
sideloaders and light- 
and medium-sized lift trucks 
(forklifts). 

It has 500 workers at 
Ljungby and 250 at nearby 
Ltdhult, where Sweden's first 
lift trucks were developed at 
the end of the 1940s- with the 
help, initially, of a local black- 
smith. Its biggest Swedish 
competitor in heavy lift- 
trucks, Svetruck, is also based 
in ljungby. 

Since 1990, rest r uct uri ng 
has dominated the agenda at 
Kalmar. It has reduced the 
worldwide workforce by 27 per 
cent to 1450, with the bulk of 
the cuts outside Sweden. Pro- 
duction of Irion sideloaders 

The flotation has come 
against a backdrop of 
much better financial 
performance 

was moved last year from a 
plant near Stuttgart to Swe- 
den, involving the loss of 180 
jobs in Germany. 

In the UK, where Kalmar 
bought Coven try-Climax in 
1987, production of the Climax 
range of tight trucks for the 
UK market was discontinued 
in 1992, and is now outsourced 
to US and Japanese suppliers. 

At home, emphasis has 
focused on boosting productiv- 
ity. Absenteeism has been 
sharply reduced, co-operation 
between unions and manage- 
ment has replaced confronta- 
tion, teamwork and flexibility 
are the buzzwords. 

Bringing manufacturing 
back to Sweden from Germany 
was thus a sign of confidence 
in the ability to manufacture 
competitively at Ljung- 
by- helped. naturally, by the 
devaluation of the krona in 
late 1992. It also helped fill 
spare capacity caused by the 
recession, which prompted a 
sharp ff n H in demand in a nmn- 
her of important product and 
geographic markets. World- 
wide sales fell from £KrL82bn 
in 1990 to SKrl.36bn in 1992, 
turning a profit of SKr59m, 
after financial items, into a 
loss of SKr34m. 

There was an im p roveme n t 
last year, especially on the 
heavier side iff the business, 
and sales of SKrl.6bn pro- 
duced a profit of SKr34m after 
financi al items. So, in mid-Jan- 


uary, when Mr Jonas Svantes- 
son joined the company as 
president and chief executive, 
he found it in good shape. 

“A lot of restructuring had 
been done, and the workers’ 
loyalty and ambition was very 
strong,” he says. "I thought 
that if everyone could be 
pointed in fbe same direction, 
it had enonnotis potential." 

Jus t two months after Mr 
Sv an t e sson arrived at Kalmar, 
he was told that its then 
owner, Svedala, planned to 
dispose of the company. 

In late spring, the lift truck 
producer was floated on the 
Stockholm Stock Exchange, 
and now has some heavy- 
weight UK institutions among 
its shareholders. 

The chan ge in st atus is seen 
as a new beginning for Kal- 
mar, which became caught up 
in some of the big recent cor- 
porate deals in Sweden and 
was often too small a part of 
its parent companies’ business 
to be given much priority. 

Procardia, the former state- 
affiliated holding company, 
sold then loss-making Kalmar 
to the engineering group Com- 
ponents in 1989, but Compo- 
nents was itself purchased by 
Svedala two years later. 

Mr Svantesson welcomes 
Kalmar’s new freedom to 
make decisions as master of 
its own destiny, without hav- 
ing to refer them to a parent 
c o mpa n y. Workers’ loyalty to 
the success of the company is 
now much greater, he says, 
and in any case same of Urn 
expected synergies between 
Svedala and Kalmar had not 
materialised. 

The flotation has come 
against a backdrop of much 
better financial performance, 
with pro fi ts of SKrllOm after 
finan cial items for the first 
nine months of the year, com- 
pared with just SKrlOm a year 
earlier. Improved profitability 
has spruced up the balance 
sheet, with net debt falling 
from SKr275m at the end of 
last year to SKrSTm. 

The light and medium sized 
truck business has improved 
sharply, catching up with the 
heavy side, but there is still 
room for farther improvement 

For the future, Mr Svantes- 
son’s strategy for Kalmar is to 
keep it in tift-trucks, seeking 
protection from some of the 
vagaries of the market by 
bunding a balanced business 
rather than diversifying out of 
materials handlliig . 

First he wants to build up 
the non-cyclical parts of the 
business. Already, 5D per cent 
of Kalmar's turnover relates to 



Kalmar is the world’s largest producer of hsarvy Oft trucks - which pick iqs and stack laden 


container handling, in ports 
and terminals, which Is dod- 
cydical. The forestry and steel 
sector markets account for 40 
per cent, but are very cyclical. 

Mr Svantesson has impor- 
tant geographic targets too. 
North America accounts for 5 
per cent of sales, but be aims 
to grow that to 15 per cent 


The company is looking 
closely at how to expand in 
the three leading Latin Ameri- 
can markets of Brazil, Argen- 
tina and Chile, but the big 
growth prospect is Asia, he 
says. 

The region accounts for 13 
per cent of sales, but this 
could grow to 20 per cent, says 


Mr Svantesson. China's huge 
planned expansion of port 
capacity is potentially good 
news for Kalmar’s sales of con- 
tainer-handling lift trucks, but 
other Asian countries also rep- 
resent te m p t in g prospects. 

At present, Kalmar is happy 
to be manufacturing all its 
machinery in Sweden, 


although production In Asia is 
not ruled out if demand war- 
rants ft 

With 90 per cent of its sales 
outside Sweden, the krona’s 
devaluation has helped sales 
of light and medium -si zed 
trucks, where competitors typ- 
ically produce in countries 
with strong currencies such as 
Japan and Germany. In con- 
trast, Kalmar's competitors on 
the heavy side are mainly 
from nations with weak cur- 
rencies such as Finland, Italy 
or Sweden itself. 

Along with many Swedish 
businessmen, though, Mr 
Svantesson is In favour of a 
stronger krona - which would 
be a sign that the g o v e r nm ent 
is grappling with the budget 
deficit Also, he notes, 55-80 
per cent of the production 
value of Kalmar’s lift trucks 
products is bought in from 
suppliers, and half of that 
comes from abroad. 

If the krona does rise, Kal- 
mar will have to continue rais- 
ing productivity to remain 
competitive in overseas mar- 
kets. Mr Svantesson makes 
clear that the company will 
not be resting on its laurels: 
farther efficiency gains can be 
made at the Swedish plants 
through improved production 
flows and other changes 
- without huge investments, 
he says. 

Andrew Baxter 



Investor is based in Stockholm, 
Sweden, with offices in London 
and Hong Kong, i n v e stor is one of 
Sweden's largest listed companies, 
its share has been traded on the 
Stockholm Stock Exchange since 
1916 and quoted ‘on SEAQ Inter- 
national in London since 1992. 


Active ownership 

Investor is an owner of major, internationally well-known 
industrial corporations, all parr of the so-called Wallenberg 
sphere. 

Investor’s policy is one of long-term investments and active 
ownership. 

Investor’s largest holdings are in the pharmaceutical com- 
pany Astra and wholly owned Saab-Scania, manufacturer 
of buses, trucks, aircraft and automobiles. 

Other major holdings include the business group Incentive, 
a large owner of ABB; Europe's largest forest products 
company ST ORA; and telecommunications company 
Ericsson. Also in the portfolio are SKF, roller bearings; 
Electrolux, household appliances; and Atlas Copco, 
compressor technology. 



S-103 32 Stockholm, Sweden. Telephone Inc. +46-8-614 20 00 


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The last flight back 


a ■ ■ 

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