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Mon, Dec 22, 2003 - Page 12 News List

Italy rides to Parmalat's rescue

TURNING SOUR The Italian prime minister said his government would do everything possible to safeguard the jobs of the food and dairy product company's employees

NY TIMES NEWS SERVICE , PARIS

Italian Prime Minister Silvio Berlusconi said Saturday that the Italian government would not allow the bankruptcy of Parmalat, the giant Italian dairy foods group that shook investors last week with the disclosure that an account supposedly containing almost US$5 billion did not exist.

In Milan, Italy's financial capital, officials said a judicial investigation would be opened to examine possible charges of fraud and providing falsified information to auditors.

At a news conference in Rome, Berlusconi said the Italian government would strive above all to save the "operational part of the company, to safeguard its jobs, and to distinguish the financial side from its business."

Berlusconi, who together with business associates has faced numerous legal challenges to his own vast media empire, also pledged an overhaul of Italy's regulatory framework.

"The system we have inherited does not work," he said.

Parmalat, which teetered near default all week, shocked financial markets on Friday when it said documents showing that the equivalent of US$4.8 billion held by a Cayman Islands affiliate had been declared inauthentic by the Bank of America. The documents had been used by the auditing firm Grant Thornton to certify last year's accounts at the affiliate.

Italian newspapers quoted Economics Minister Giulio Tremonti as describing Parmalat as "Europe's Enron," referring to the collapse two years ago of the huge US energy group. The missing US$5 billion dwarfs a US$1.2 billion accounting scandal at the big Dutch retailer Ahold earlier this year that was often compared to the Enron affair for its combination of questionable business and accounting practices.

Parmalat, which is based outside Parma, an ancient Roman city famous for its ham and cheese, was built into one of Italy's most important multinational groups by Calisto Tanzi. But Tanzi was replaced on Monday last week as chairman and chief executive by a specialist in corporate turnarounds, Enrico Bondi. On Friday, Bondi convened a board meeting and announced afterward that the company would cooperate in any judicial investigation.

Berlusconi said Tremonti would develop a rescue plan and proposals for regulatory reform, which could be presented to the Cabinet as early as tomorrow.

Parmalat could put wind in the sails of proposals Tremonti has made in the past to create a single authority out of the current patchwork of oversight bodies. Notable resistance has come from the Bank of Italy and its chairman, Antonio Fazio, who would lose control of some aspects of bank oversight. Since the introduction of the euro and the creation of the European Central Bank in Frankfurt, the national central banks have lost many powers.

For Berlusconi, the Parmalat affair is potentially damaging. Last week, legislation his center-right government enacted to overhaul the national television system was vetoed by the Italian president, Carlo Azeglio Ciampi. Berlusconi owns the country's largest private television company, and critics said the new legislation favored his interests. Moreover, the Italian economy has been challenged in recent months by the growing industrial might of China.

Cirio, another big Italian food company, defaulted on securities about a year ago, and its founder and chairman, Sergio Cragnotti, is under investigation on fraud charges.

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