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Subject: BusinessWeek's International Alert: 2 April, 2001



=========================================== 
BusinessWeek,s International Alert 
A Preview of Major Stories and News Exclusives 
in Tomorrow,s International Editions of BusinessWeek 
http://www.businessweek.com/ 
===========================================

THIS WEEK: 

- Europe and U.S. Cover Story:? Alan Greenspan*Feeling the Heat 
- Asia Cover Story:? Asia,s Big Chill 
- Asia Is Catching The Japanese Disease 

ALSO IN THE 2ND APRIL ISSUE OF BUSINESS WEEK 

- Has Germany Jumped the Rails? 
- Commentary:? The European Central Bank Needs to Cut Rates Too 
- The White Knight, Domingo Cavallo, Rides Again in Argentina 
? 

Does someone forward BusinessWeek,s International Alert to you? 
Get your own free copy every week: send your name, company name, title and 
email address to: robert_pondiscio@businessweek.com 
? 

U.S. and EUROPE COVER STORY(ALAN GREENSPAN: FEELING THE HEAT 
Can he fight off a new economy recession? 
By Peter Coy in New York, with Rich Miller in Washington, Linda Himelstein 
and Jim Kerstetter in San Mateo, Jeff Green in Detroit, Marcia Vickers and 
Pete Engardio in New York, and bureau reports 

Federal Reserve Chairman Alan Greenspan has guided and presided over the 
longest economic expansion in the history of the U.S.? But now, the 
75-year-old Greenspan faces an agonizing challenge: an abrupt economic 
slowdown that neither he nor anyone else fully understands. All of Greenspan,
s training and experience have taught him how to cope with conventional 
downturns. And so far, he,s dealing with this one in the conventional manner*
by cutting short-term interest rates in quick but measured steps. That may 
well prove to be the right course. But there,s a risk that this downturn is 
different and that far steeper cuts in interest rates are needed to keep the 
New Economy from tumbling into a long and painful recession. 
In short, Alan Greenspan is feeling the heat of a market in tatters and an 
economy that, by some measures, appears to be on the brink. And after riding 
triumphantly astride the economic boom times, his very legacy is suddenly at 
stake. 
? 

ASIA COVER STORY: ASIA,S BIG CHILL 
Caught between Japan,s weak-yen policy and the steep U.S. downturn, the 
region,s fragile economies may see their recent gains swept away 
By Brian Bremner in Tokyo, with Frederick Balfour in Bangkok, Michael Shari 
in Singapore, Moon Ihlwan in Seoul, and Pete Engardio in New York 

The U.S. is clearly worried about Japan falling into a catastrophic slide.?? 
But, Washington may not have a clear view of another huge problem: How 
decisions in Tokyo could undermine the precarious economic state of other 
Asian nations.?? In South Korea and also in Southeast Asia, the export-led 
recovery of the past two years is starting to slow because of the downturn in 
the U.S. economy.?? Growth in Korea, Thailand, Malaysia, Singapore, and 
Indonesia is expected to slow this year to between 3% and 4%.?? The last 
thing these economies need is to compete for a dwindling export market with a 
Japan now reliant on a weaker yen.?? Many of the economies of East and 
Southeast Asia are trying to shake off a triple blow: The U.S. slowdown is 
putting a dent in exports.? Second, Japan is yanking investment from the 
region, and now there,s the yen threat.? Finally, China is soaking up a 
growing slice of foreign investment, a trend that will accelerate once it 
enters the World Trade Organization. 

? 
ASIA IS CATCHING THE JAPANESE DISEASE 
Commentary by Pete Engardio 

It,s a terrible malady for young economies.? The symptoms: banks that have 
money but don,t lend.? Lots of exports but no profits.? A teaming workforce 
with dim prospects.? Politicians who know urgent measures are needed but who 
won,t act. Call it Japan disease ) and it,s starting to set in across the 
once-booming emerging markets of East Asia.?? Unfortunately, East Asia has 
not used the nearly four years since its financial meltdown wisely.? Lulled 
by a U.S.-driven export boom and a short-lived bounce in equity markets, the 
region has failed to finish the reforms that could have cleansed their 
financial system of billions of dollars of nonperforming assets.??? Most of 
Asia can arrest Japan disease before paralysis sets in. But politicians seem 
to have lost their will to force sales of distressed assets, close failed 
banks, and open their markets wider to foreign investors. 
? 

HAS GERMANY JUMPED THE RAILS? 
Germany,s stalled reforms are slowing growth 
By Jack Ewing in Frankfurt, with Christine Tierney in Frankfurt and Carol 
Matlack in Paris 

Since its last recession ended a decade ago, the Germany economy has 
struggled to get out of first gear.? Growth averaged a mediocre 1.4% in the 
l990s.?? Economists, business people and politicians thought the sorry 
performance was a temporary product of West Germany,s costly and badly 
managed reunification with the ex-Communist East.? But what if they are 
wrong?? There have been worrying economic indicators, including nine months 
of sinking business confidence, an uptick in unemployment and a collapse in 
car sales.? Germany,s 82 million people account for a third of gross domestic 
product among euro countries.? No regional boom is possible without them.? 
Optimists think its slower growth is a temporary effect of economic malaise 
in the U.S., Japan and other world markets.? Pessimists think the problems 
relate to Germany,s persistent welfare state, its coddled workers, maybe even 
its risk-averse culture.?? Some tough times lie ahead ) for Germany, and for 
the entire Continent. 
? 

RATES: EUROPE NEEDS A LIFT-OFF, TOO 
Commentary by David Fairlamb 

The economy of the 12-nation euro zone is slowing, just like its counterparts 
in the U.S. and Asia. But don,t look to the European Central Bank to follow 
the U.S. Federal Reserve with interest rate cuts just yet. The monetary 
conservatives who dominate its 18-member governing council see their role as 
fighting inflation rather than stimulating growth. So with prices rising at 
an annualized 2.6%*well above the 2% upper limit the ecb says is consistent 
with price stability*the central bankers aren,t in a rush to push the price 
of money down below the current 4.75 But there are plenty of reasons why it 
should. A cut now would give the European economy a much needed boost. Euro 
zone growth peaked at only 3.5% last summer and will likely fall to 2.8% for 
all of 2001.? Tax cuts worth 0.8% of the euro zone,s gross domestic product 
have bolstered domestic demand a bit, but not enough to make up for the 
effects of the global slowdown. The ECB insists Europe won,t be badly hurt by 
the economic downturn in the U.S. and East Asia. But businesspeople aren,t 
convinced. 
? 

THE WHITE KNIGHT RIDES AGAIN IN ARGENTINA 
But can Domingo Cavallo cure what ails the economy? 
By Colin Barraclough in Buenos Aires, with bureau reports 

On Mar. 20, Argentines awoke to the news that the 54-year-old Harvard 
University-trained economist who rescued their country from hyperinflation 
more than a decade ago was back in his old job. Cavallo is the third man to 
hold the post of Economy Minister in as many weeks.? To win the support of 
opposition politicians, Cavallo must take a different tack than L?pez Murphy. 
Cavallo has already abandoned his predecessor,s plan to push through 
draconian spending cuts. Instead, he aims to narrow Argentina,s fiscal 
deficit by $3 billion this year by rekindling growth, thereby boosting tax 
collection. Possible measures include cuts in some corporate tax rates to 
promote the reinvestment of profits, and a reduction in banks, reserve 
requirements, which would free up money for loans. 
? 

WHO,S KILLING ERICSSON?? ITS OWNERS 
Shareholders have no say under its ownership system 
By Stanley Reed in London, with Ariane Sains in Stockholm 

Sweden,s Ericsson has just two main owners, the Wallenberg family and a group 
of holding companies and a fund connected to Handelsbanken, a Stockholm bank, 
maintaining an iron grip with a minimal amount of capital.? They do so by 
holding Ericsson A shares, which have 1,000 votes more than the B shares of 
which foreign shareholders have a majority.?? Now that Ericsson is struggling 
in global markets, a quick turnaround is needed.? The current two-tier stock 
system should be reviewed. 
? 

THE BANK OF JAPAN,S REAL MESSAGE: REFORM NOW 
Commentary by Brian Bremner in Tokyo 

On Mar. 19, Bank of Japan Governor Masaru Hayami appeared to abruptly reverse 
course by announcing measures that will effectively drive the overnight call 
rate back down to zero and pump up the money supply to push the consumer 
price index up. Markets are now abuzz with speculation that Japan will 
deliberately ramp up inflation past 3%, and that Hayami is a convert to the 
cause of fast reflation. But Hayami has not given up on the other part of his 
agenda: to press for real restructuring inside the banks and corporations. So 
Hayami is signaling that he will ease up on his hard-money ways in exchange 
for some real action by the banks: &While we are doing our part, we hope the 
government and the financial system will do what,s necessary on their side,8 
says Deputy BOJ Governor Yutaka Yamaguchi in an interview with BusinessWeek. 
? 

RUMBLE OVER TOKYO 
As Airbus aggressively pitches its superjumbo, Boeing moves to protect its 
turf 
By Stanley Holmes in Seattle, with? Chester Dawson in Tokyo and Carol Matlack 
in Paris 

For nearly 50 years, Boeing and Japanese airlines JAL, All Nippon, and Japan 
Air System have had a fruitful business relationship, thanks in part to the 
aircraft maker,s deference to Japanese customs. Boeing,s planes now account 
for 84% of Japan,s commercial fleets, the world,s third-largest national air 
market after the U.S. and China. From 1970 to 1998, jal alone spent $14.4 
billion on those planes. But that lead is now under fierce attack from Boeing,
s archrival, Airbus Industrie. Japan has become the key battleground as the 
European aircraft consortium seeks to launch its superjumbo A380 jet, which 
can hold 555 to 800 passengers. The Airbus offensive will force Boeing, which 
recently announced it will move its headquarters out of Seattle as part of a 
major corporate overhaul, to fight like never before. 
? 

IS A NEW WAR BREWING IN THE BALKANS? 
International Outlook by Christopher Condon in Budapest, with Ren,e Cordes in 
Brussels, Heidi Dawley in London, and Stan Crock in Washington 

It,s another Balkans mess, and it could prove to be a dangerous test for 
President George W. Bush and the 37,000 NATO troops stationed in Kosovo. 
After six days of fighting between insurgents and Macedonian forces near the 
city of Tetovo from Mar. 14-19, NATO officials announced plans to bolster 
patrols on the Kosovo border with Macedonia.? Both European and U.S. 
diplomats hope Macedonian forces will subdue the rebels. But if the fighting 
keeps up, pressure will grow on NATO to play a more active role. That could 
involve a controversial decision to send NATO troops to combat rebels in 
Macedonia. Washington, however, wants to avoid an escalation.? Still, 
strangely, NATO troops could find themselves increasingly under fire from the 
very people they were sent to protect*ethnic Albanians. With no quick 
solution to the latest Balkan conflict in sight, that,s not a pleasant place 
to be. 
? 

SWISSAIR: PINNING ITS HOPES ON +SUPER MARIO, 
The new CEO will have tough time fighting the flag carrier 
By Christine Tierney in Frankfurt and Carol Matlack in Paris 

It has been a shock to investors to witness Swissair,s mounting disarray.?? 
SAirGroup,s CEO Philippe Bruggisser, who had charted the expansion strategy 
that plunged the company into the red last year, has been jettisoned.? Then 
Moritz Suter, the airline division chief bailed out, and then 9 of the 
company,s 10 supervisory board members quit, including Chairman and interim 
CEO Eric Honegger.??? Enter Super Mario.? The new CEO, Mario Corti, is the 
chief financial officer of Swiss food giant Nestle and the only board member 
left at the airline.? It,s not that SAirGroup,s expansion strategy was 
totally flawed.? SAirGroup went wrong when it invested heavily in second-tier 
partners, many of which are in trouble.??? Corti is expected to unveil a new 
strategy in a special shareholders, meting in September. 
? 

RUSSIA: A LITTLE-KNOWN PLAYER,S GRIP ON NATURAL GAS 
Gas supplier Itera,s clout extends across the old Soviet empire 
By Catherine Belton in Moscow, with Dan Carney in Washington 

Western investors ) especially energy giants ) are likely to be hearing more 
about a mysterious Russian company called Itera.? It is the fourth-largest 
holder of gas reserves on the planet with a virtual monopoly on gas trading 
in two key former Soviet republics, Georgia and Ukraine, that lie at the 
gateway for transporting the region,s energy resources to the West.?? Itera 
President Igor V. Makarov says he holds the key to the Caspian for any 
foreign energy company wanting to get a foothold in the region ) considered 
one of the hottest oil plays anywhere.? &Today, we are the only company that 
can turn joint ventures with U.S. enterprises into real businesses,8 he says 
) and that,s quite a claim.?? But even as Itera seeks recognition and funding 
from the West, law enforcement officials in Europe and the U.S. are 
scrutinizing Itera's activities for possible money-laundering.?? Itera,s rise 
from barter trader to global-gas giant is raising questions inside Russia, 
too. 
? 

A SOCIALIST WHO,S BETTING ON THE NEW ECONOMY 
President Lagos talks about how to keep Chile on track 
Q&A with Mexico Bureau Chief Geri Smith and Chile correspondent Louise Egan 

Ricardo Lagos, the first Socialist to rule Chile since the 1973 military 
overthrow of Salvador Allende, recently completed his first year in office, 
amid growing concerns that the country,s much-vaunted economic &miracle8 is 
losing its luster. Lagos, 63, who holds a doctorate in economics from Duke 
University, says that Chile, which led Latin American nations in adopting 
free-market reforms two decades ago, must now bet big on attracting high-tech 
industries. He also is pushing hard to seal a free-trade agreement with the 
U.S. On Mar. 19, Lagos sat down with Mexico Bureau Chief Geri Smith and Chile 
correspondent Louise Egan in his office in La Moneda, the presidential 
palace, to discuss his plans for what remains of his six-year term. 
? 

INDIA: DON,T LET SCANDAL DERAIL REFORM 
Commentary by Manjeet Kripalani 

The Indian government stands on the brink of collapse. The event that did the 
damage: a sting operation by an online magazine, which caught leading 
politicians and military officials on camera accepting bribes in connection 
with what they thought were military contracts. Defense Minister George 
Fernandes has since quit, along with the head of the Bharatiya Janata Party. 
Raucous opposition legislators closed Parliament for six days, insisting that 
the government step down.? The administration should be embarrassed. But it 
would be a huge mistake for the opposition to initiate a new era of political 
turmoil. The principal casualty would be much needed reform.? Yet India 
desperately needs to get its house in order. Last year, it took in only $2.6 
billion in foreign direct investment.? Most important are the proposed 
reforms of the labor laws, which for the first time would permit companies 
with fewer than 1,000 employees to hire and fire without government 
permission. Freed from these restrictions, business owners could invest in 
promising new ventures, instead of wallowing in sunset industries. So instead 
of seeking to stall change, the opposition would do well to embrace it. 

--------------------------------------------------------- 
BusinessWeek presents: 
e.biz Live: Europe 
7-8 June, 2001 
The Hilton Hotel, Park Lane, London
 

For program details or to register, visit our website at 
conferences.businessweek.com/2001/ebizeu or call +44 (0) 207 251 2030. 

Future BusinessWeek Executive Programs: 
- Telecom Summit 2001: Broadband Connections, April 25 - 27, 2001 ) The 
Fairmont Hotel, Dallas, Texas 
- The BusinessWeek CIO Summit: Bridging the Technology/Strategy Divide, May 
10-11, 2001 --Boston, MA 
- Breakthrough: A CEO Retreat, June 27-29, 2001 -- Rancho Bernardo Inn, San 
Diego, CA 

For more information see http://conferences.businessweek.com/ 

--------------------------------------------------------- 
? 

INTELLECTUAL PROPERTY: NEW ANSWERS TO NEW PROBLEMS 
Economic Viewpoint by Jeffrey E. Garten 

For more than a century, our system for protecting intellectual property 
rights has fostered the creativity of artists and inventors. But now it is 
being challenged by two major global forces: the Internet, which can act as a 
gigantic international copying machine, and a global health crisis in which 
patented miracle drugs are too expensive for developing countries. It is time 
to reexamine how the intellectual property rights regime works.?? There are 
many issues to be addressed. Is there a way to better codify the space for 
private use and experimentation on the Internet? Should governments use their 
powers of eminent domain to buy up critical pharmaceutical patents and better 
distribute the underlying products? There may be much better approaches than 
these, but relying only on relentless enforcement of existing laws isn,t one 
of them. 
? 

PATIENCE INVESTORS, THE FED IS NOT DONE 
But economic data, not the stock market, will dictate policy 
Business Outlook by James C. Cooper and Kathleen Madigan 

At nine yards long, the Federal Reserve,s oval table is too big for poker. 
But on Mar. 20, policymakers entered into a high-stakes game. The pot: an 
economic rebound in the second half.? At its second policy meeting of 2001, 
the Fed lowered its benchmark federal funds rate by a half-point, to 5%, 
eschewing Wall Street,s clamor for a supersize cut of three-quarters of a 
point.? In effect, the Fed made it clear that it will not follow the stock 
market,s timetable for policy decisions. The Fed,s action implicitly says 
that economic conditions did not justify a larger, more radical move.? 
Investors were so focused on the idea that &size matters8 that they 
completely ignored the meeting,s most obvious positive: The Fed left open the 
door for more cuts*perhaps even before its next meeting on May 15.? The key 
remark was: &In these circumstances, when economic conditions could be 
evolving rapidly, the Federal Reserve will need to monitor developments 
closely.8 That language should sound familiar. It is similar to what the Fed 
said after its Dec. 19 meeting, prior to the surprise intermeeting cut on 
Jan. 3. It,s Fedspeak for: &We may not wait until May 15.8 
? 

A DEFINITE +SELL,?? GIMME 100 SHARES 
Brokerage calls keep missing the mark ) and then some 
By Mara DerHovanesian in New York 

Who says you can,t make money by following a Wall Street analyst,s 
recommendations? Just do exactly the opposite of what they say, and you,ll 
make out like a bandit.? And we,re not talking about the stocks these 
analysts are plugging, either. Granted, the Street has a tough time telling 
investors to sell stocks anyway, but when they do, you,d think it would be a 
no-brainer to pick a loser in this bear market. Instead, these calls are 
defying gravity.? BusinessWeek takes a look at how Credit Suisse First Boston 
has fared with its sell recommendations so far this year. First, only 11 U.S. 
stocks of 1,328 stocks Credit Suisse covers are on the sell list, according 
to Zacks Investment Research. The irony is that many of those stocks have 
outperformed the company,s buy recommendations. Credit Suisse isn,t the only 
one with egg on its face. UBS Warburg has four current &reduce8 ratings on 
the 1,015 U.S. stocks it covers. Three of those*KMart, DaimlerChrysler, and 
New Plan Excel Realty Trust*are up 64.2%, 9.3% and 17.9% this year through 
Mar. 20. 
? 

DON,T BET THE BANK ON EARLY-HOURS TRADING 
Conventional wisdom aside, futures aren,t crystal balls 
By Pallavi Gogoi in Chicago, with Susan Zegel in New York 

By jumping in early, are fund managers helping to shape market trading that 
day? Not really. The small group of big investors around the world who trade 
in stock index futures prior to the U.S. markets opening aren,t even setting 
the stage for whether the equity markets will rise or fall in the first 15 
minutes of trading. Contrary to the conventional wisdom, repeated daily on 
CNBC, Bloomberg Radio, and local TV and radio stations*that the futures 
predict the day,s market performances*an examination of the data by 
BusinessWeek shows hardly any correlation. That may come as a big surprise to 
market players who,ve been taking it as an article of faith that the futures 
offer a solid guide to the day,s trading. To some longtime traders, the lack 
of predictive power in the futures is not so surprising. They say the number 
of investors playing the markets in the big index contracts is small. 
Nonetheless, some investors swear by them. 
? 

NO CARTWHEELS FOR HANDSPRING 
Rich rivals race to erase the company,s handheld edge 
By Cliff Edwards in Mountain View, Calif. 

The handheld market has become one of the fastest-growing corners of techdom. 
Researcher IDC expects sales of the gizmos to soar 52% annually until 2004, 
to $10.7 billion from $2 billion in 2000, far outstripping PC growth. And 
Handspring is becoming a player to beat. In the past 18 months, the company 
has sold more than 1 million of its Visor computers, giving it 28% of the 
handheld market in February, up from zilch a year earlier. Now, Handspring 
has to deliver a convincing second act*something it,s attempting with its new 
Visor Edge, introduced Mar. 12. Problem is, the company may be losing its 
innovation lead. Handhelds are outgrowing their roots as electronic 
organizers and mutating into Net appliances and wireless communication tools. 
That could tip the advantage to players using Microsoft,s PocketPC operating 
system, a slim variant of Windows that makes the Palm operating system 
Handspring uses look long in the tooth. 
? 

A GRAB FOR CONTROL OF FORMULA ONE 
Upfront by Christine Tierney 

Mercedes and Ferrari, the carmakers with the leading auto racing teams, are 
threatening to quit Formula One and form an alternative racing group if they 
can,t buy in. The brouhaha comes as control of the Formula One holding 
company is about to change hands, from F1 supremo Bernie Ecclestone to German 
media magnate Leo Kirch.? But the Euro racers want a stake, too. The group, 
also including BMW, Jaguar, and Renault, had been talking to Ecclestone about 
getting into the biz themselves before Kirch came on the scene. They worry 
Kirch will try to boost his KirchPayTV network by restricting Formula One 
races, which are now on commercial channels, to the pay channel. The 
carmakers have invested billions in Formula One, and they insist the event be 
professionally run and freely broadcast to give them maximum public exposure. 
Mercedes chief J_rgen Hubbert expects negotiations with Kirch to begin soon: 
&We,ve sent a clear message.8? If Kirch balks...well, there,s always the 1978 
precedent in the U.S., when team owners broke from the U.S. Auto Club to form 
Championship Auto Racing Teams. 
? 

HANDBAGS, COGNAC ) AND WATER 
By Gerry Khermouch 

What,s the latest trend item for your Louis Vuitton bag? Glac,au Vitamin 
Water or Fruit Water. The chic-set drinks, which sell for about $1.50, are 
made by tiny Energy Brands in Whitestone, N.Y. And they were the? last of the 
up-and-coming &healthy8 beverages available to be snapped up after others 
(Gatorade, SoBe, and Snapple) were bought by beverage giants such as 
PepsiCo.? But now France,s lvmh Mo%t Hennessy Louis Vuitton is buying into 
Glac,au*its first drinks foray beyond champagne and cognac. Both sides are 
keen for cross-promotions linking the low-cal Waters to Givenchy fashions, 
tag Heuer watches, and the group,s other luxury brands.? Neither side would 
give details, but sources say LVMH put up $5 million for a minority stake and 
a board seat. The cash will fund Glac,au,s expansion to the rest of the U.S. 
? 

U.S. NEWS IN BUSINESSWEEK,S INTERNATIONAL EDITIONS 

WILL REFIS HELP REFLOAT THE ECONOMY? 
Equity into Cash(So far, homeowners are spending, not paying down debt 
By Stephanie Anderson-Forest in Dallas with Ann Therese Palmer in Chicago, 
Douglas Robson in Silicon Valley, Laura Cohn in Washington, D.C. and bureau 
reports 

Thanks to competition among mortgage lenders, falling transactions costs, and 
a push from the Federal Reserve to trim interest rates, mortgage rates are 
way down. Rates on 30-year fixed mortgages have dropped from a five-year high 
of 8.64% in May to 6.82%*near the lowest level in two years. And that,s 
spurring a refinancing boom. Though there are risks in the boom*overindebted 
homeowners could be taking on too much debt*for now, many economists argue 
that it is offering a much needed boost to consumer spending. And that could 
give a hand to the ailing economy as well. &This is the best way to get money 
into people,s purses and pocketbooks immediately,8 says Mark M. Zandi, chief 
economist at market forecaster Economy.com Inc. 
? 

SURPRISE*THE TECH INDUSTRY IS A CYCLICAL 
Meltdown Redux: 1985 was bad, but this time more industries are affected 
By Peter Burrows, with Jim Kerstetter and Linda Himelstein in Silicon Valley 

It,s a frightening picture, all right. Hordes of brash high-tech startups, 
all intent on grabbing a 20% share of vast emerging markets, getting 
massacred, their dreams crashing back to earth. Even the most respected tech 
companies are being forced to lay off staffers and slash spending as earnings 
fall miles short of analysts, projections. The press is stuffed with scary 
&end of history8 articles about the death of the tech revolution. Venture 
capitalists, who just months before were throwing around money like so much 
birdseed, are nowhere to be found. Sound familiar? All this happened back in 
1985, in what was then the biggest tech meltdown ever. Yes, as the world has 
again learned painfully, tech can be a very cyclical business.? 1985 offers a 
reminder that stretches of tech prosperity have always been sandwiched 
between deep, painful valleys. Thanks to the cash pumped into everything from 
fiber-optic parts to huge computers in recent years, this could be the 
deepest valley yet. 
? 

WHILE WASHINGTON FIDDLES( 
Why the Beltway hasn,t gone into panic mode 
Commentary by Lee Walczak, with Rich Miller, Howard Gleckman, Richard S. 
Dunham, and Lorraine Woellert in Washington D.C., and Ann Therese Palmer in 
Chicago 

What,s Washington doing while the world,s financial fabric frays and risks of 
a painful U.S. downturn grow? Debating. Mulling. Maneuvering. Even as an 
increasingly urgent chorus of voices outside the Beltway insists that the 
Bush Administration and Congress need to come up with a fiscal stimulus 
package pronto, few in Washington are acting with anything remotely 
suggestive of impending danger. Instead, Bush continues to push for a tax cut 
that most agree won,t benefit the economy for at least a year, and Congress 
is content to play political &gotcha.8? Bizarre as it may seem to many with 
business ties, the gulf between the real economy and Washington,s insular 
political culture has seldom been greater. Up to now, many of the city,s pols 
seemed confident that a benign spirit*Saint Alan of C Street*would ward off 
the evil of a recession. But over at the Federal Reserve, Greenspan,s halo 
has slipped.?? Bush,s advisers are having intense discussions over what one 
aide describes as a &rifle-shot8 rate cut that would provide quicker 
stimulus. Also being explored: a one-time tax rebate that could put money 
into consumers, hands fast. 
? 

A &FIRST FRIEND8 WITH CLOUT 
Commerce Secretary Don Evans, longtime ties to Bush give him unusual access 
By Paul Magnusson in Washington 
? 
Commerce Secretary Donald L. Evans has two jobs in Washington. The official 
one comes with a government limo, a spacious paneled office, a tropical fish 
tank, and a $3 billion budget. The second is a round-the-clock role as First 
Friend.? That easy intimacy makes Evans, 54, potentially one of the most 
powerful Commerce chiefs in many years. As Bush,s campaign chairman, he 
raised a record-breaking $100 million for his pal, a job that put the Texan 
on a first-name basis with many corporate chieftains. But in his first major 
interview, the Commerce Secretary insists that he,s leaving the world of 
political fund-raising behind. His new concerns: helping to sell the big Bush 
tax cut, battling unfair trade practices abroad aimed at industries such as 
steel and aerospace, and boosting the government,s long-range research 
efforts. 
? 

END OF THE CEO GRAVY TRAIN? 
Surprise! Exec pay seems to be slipping*though some underperformers are doing 
remarkably well 
By Louis Lavelle in New York 

For many of the nation,s chief executive officers, 2000 will likely be a year 
to forget. After nearly five years of double-digit growth in CEO 
compensation, early indications are that their pay actually fell last year. 
Of the 130 corporate proxies so far available for the biggest U.S. companies, 
the compensation of the 15 best-paid CEOs shows the slowing economy has taken 
a toll on earnings. When salary, bonus, and options exercised last year were 
taken into account, compensation for those CEOs fell nearly 5% from 1999. The 
reason: The market,s nosedive made it a bad time for many corporate kingpins 
to exercise their options, often the largest part of remuneration.? According 
to a proxy analysis by Standard & Poor,s Institutional Market Services, a 
division of The McGraw-Hill Companies, total compensation for the 15 highest 
earners averaged $88.7 million, a $4.4 million drop. 
? 

THE BEST SHAREHOLDERS CAN GET? 
The AG-Prudential deal isn,t sweet, but there,s no white knight in sight 
By Emily Thornton, with Pamela L. Moore in New York and Heidi Dawley in 
London 

Ever since American General Corp. Chairman and CEO Robert M. Devlin first 
announced a stock-swap with British insurer Prudential PLC on Mar. 12, then 
valued at $26.5 billion, Wall Street has thought that the Houston insurer,s 
shareholders were getting the short end of the stick. Prudential,s stock 
price has tumbled 16% since, and American General,s about 4%, thus crushing 
the premium American General shareholders will receive to 5% from 22%. And 
that could put the kibosh on the merger.? Clearly, this is not what 
shareholders hoped for. Still, this deal may be the best shareholders can 
get. When the Prudential deal was first announced, Wall Street was abuzz with 
rumors that heavyweights such as Sanford I. Weill at Citigroup or Maurice R. 
&Hank8 Greenberg at American International Group? Inc. might swoop in with a 
counterbid. Unlikely, say investment bankers, because American General has 
had informal talks with both in the past two years. Devlin insists 
discussions were never serious enough to reach his board. 
? 

SOUTHWEST: AFTER KELLEHER, MORE BLUE SKIES 
Southwest,s model shone in an embattled industry*and it looks brighter than 
ever 
Commentary by Wendy Zellner 

In three decades of building low-fare legend Southwest Airlines Co., CEO 
Herbert D. Kelleher has made nary a misstep. Until Mar. 19, the one chink in 
his armor appeared to be the question of how Southwest would replace him. 
Finally, the answer: Two Southwest veterans steeped in the company,s 
traditions will man the controls.? On June 19, James F. Parker, 54, general 
counsel, and Colleen C. Barrett, 56, executive vice-president for customers, 
will become CEO and President, respectively. And as Parker and Barrett might 
tell you, they are inheriting a devilishly simple playbook: Keep costs down. 
Focus on customers. Keep employees happy. And keep it simple. While Southwest 
has tweaked its formula over the years*adding more long-distance flights, for 
instance*it,s still mainly a point-to-point, short-hop airline that uses one 
aircraft type to simplify training and maintenance. 
? 

BUYING A NEW PC?? NOT SO FAST 
Upgrading to Microsoft,s coming XP system will be such a challenge that it 
makes more sense to wait until new computers come with it 
Technology & You by Stephen H. Wildstrom 

Microsoft Corp.,s Windows XP, which is just entering its final stage of 
large-scale field testing, is the most important consumer software product to 
appear since the Windows 95 operating system. The prospect of waiting for XP 
poses a difficult choice for anyone in the market for a new computer. Nearly 
all consumer PCs sold today are outfitted with Windows ME, the last gasp of 
the Windows 95 line. It seems reasonable to buy a new computer with Windows 
ME and move to XP when it,s available. But I don,t recommend it. Why? The 
upgrade will be challenging. Even moving from Windows 95 to 98 was often 
difficult, and going from ME to XP will be a much bigger transition. 
Microsoft and battered computer makers will hate me for saying this, but I 
suggest that you make your old computer last nine more months or so until XP 
is ready. 
? 

CAN GM,S JOHN DEVINE KEEP HIS PROMISE? 
The new CFO pledges bigger earnings, but much depends on building sales in a 
slowing economy 
By David Welch in Detroit 

Only someone as confident as John Devine, the new vice-chairman and chief 
financial officer of General Motors Corp., would promise that America,s 
largest auto maker will earn $2.3 billion this year, about a third more than 
some analysts predict. And only someone as respected as Devine would be taken 
seriously. 
Chief Executive G. Richard Wagoner Jr., a 23-year GM veteran, broke with 
tradition by hiring Devine*rarely has GM gone outside to fill a senior job. 
Devine could even become chief operating officer in the next few years, 
according to GM insiders. As one board member puts it: &You don,t bring in a 
guy like John Devine and expect it to be business as usual.8 Good thing for 
GM. The company that once was regarded as the country,s most innovative 
carmaker has been in decline for three decades. Its U.S. market share has 
fallen from 33% in 1995 to 28% last year.? A lot has to go right at GM*and in 
the economy*for Devine,s predictions to come true. 
? 

THE SEC IS TOO HUSH-HUSH 
Commentary by Christopher H. Schmitt 

When the Securities & Exchange Commission issued rules in January to shore up 
the independence of outside directors who oversee mutual funds, some SEC 
watchers were caught by surprise. Why? One reason: The commissioners didn,t 
meet in public. Under former Chairman Arthur Levitt Jr., the SEC went out of 
its way to shake up the status quo and avoid donning the mantle of apologist 
for the industry it oversees.? And yet the SEC hasn,t changed its own 
practices much. There,s more that needs fixing than the SEC,s nonmeeting 
meetings. In a confusing process closed to public view, the SEC handles 
thousands of exemption and guidance requests each year. It,s supposed to make 
them*and its replies*public, though it doesn,t always do so promptly. Of 
course, there is a need for some confidentiality*and exemptions and guidance, 
too. But that doesn,t mean the SEC can,t be more forthcoming about its 
business. 
? 

McLATTE AND CROISSANT? 
Upfront by Michael Arndt 

Just when it? seemed McDonald,s couldn,t possibly cram another restaurant 
into the U.S., the burger giant has come up with a new way to expand: coffee 
bars. BusinessWeek has learned McDonald,s will open its first,? McCaf,, in 
Chicago,s Loop in April. It will sell pastries, perhaps prewrapped 
sandwiches, and premium coffee.? Sound familiar, Starbucks fans? But whether 
aficionados will give up their grande skim latte for a McCappuccino is a good 
question. McDonald,s won,t say how many McCaf,s it plans, but based on their 
success overseas, the rollout could be swift and wide. There are 300 McCaf,s 
in 17 countries, from Australia and Japan to Brazil and Greece. Each sits in 
or near a McDonald,s, with its own staff and equipment. In the U.S., look for 
comfy couches, too. 
? 

The following stories have been posted on BusinessWeek Online 
http://www.businessweek.com/ 
? 
EURO-TECH: Will Americans Answer This Call? 
By Stephen Baker 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010321_069.htm
Phone service in the U.S. is good. So good that many Americans have little 
incentive to embrace wireless 
with Europe's fervor 

REPORTER'S NOTEBOOK: What's French for Dimpled Chad? 
By Carol Matlack 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010321_277.htm
Parisians may be right to think Palm Beach can't happen here. Still, you have 
to wonder why they ended up counting votes on cell phones 

ONLINE ASIA: The Curse of Dr. M 
By Bruce Einhorn 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010319_935.htm
Malaysia's Mahathir has been so bad for his nation that his name has become a 
verb, meaning "to wreck a country's fortunes" 

NEWS ANALYSIS: Here Come Talk 'n' Toss Cell Phones 
By Olga Kharif 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010322_621.htm
Sensing a big potential market, two companies are hoping to add a new kind of 
disposable to your shopping list 

STREET WISE: Eight Options for Amazon 
By Amey Stone 
http://www.businessweek.com/technology/content/mar2001/tc20010322_039.htm
From partnering with Barnes & Noble to bringing in Jack Welch, here are some 
ideas that could help the e-tailer become profitable 

NEWSMAKER Q&A: Why the Fed Didn't Go Further 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010320_645.htm
S&P's Michael Englund explains the probable reasoning behind the half-point 
rate cut and says April could see more easing 

NEWS ANALYSIS: A Downturn in CEO Pay, Too? 
By Louis Lavelle 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010320_205.htm
Early results for 2000 show the slumping market is slowing the growth of top 
bosses' take-home, which might even decline 

NEWS ANALYSIS: AOL Time Warner: Who's Laughing Now? 
By Amy Borrus in Washington 
http://www.businessweek.com/bwdaily/dnflash/mar2001/nf20010319_866.htm
The newly merged company is -- all the way to the bank -- while its critics 
and rivals eat its dust, and a lot of crow 
? 

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