** NY Times. Central Bank Tries to Halt Slide of Brazil Currency
nytimes.com
January 23, 1999
By DIANA JEAN SCHEMO
AO PAULO, Brazil -- Faced with another steep fall in the value
of its currency, Brazil's central bank used more of its dwindling
reserves of dollars Friday to buy Brazilian money in the foreign
exchange market.
The action helped stabilize the value of the currency, the real. But it did
little to calm the nerves of financial analysts and economists who are on
edge over the future course of Latin America's largest economy.
The main stock market index, the Bovespa, which has become
something of a barometer of investor anxiety about Brazil, fell 1.79
percent, its second big decline after four days of large gains.
"Confidence in the Brazilian government is at a very low level," said
Alexandre Barros, a political consultant based in Brasilia. "Internally,
people are asking what are these guys going to do."
The central bank's move reined in Brazil's currency at 1.71 reais to the
dollar, after it plunged earlier in the day to 1.90 to the dollar.
After leaving passage of structural reforms to cut government
overspending until his fifth year in office, President Fernando Henrique
Cardoso has suddenly run out of time, as the economic storms that
battered Asia and Russia now hammer Brazil. Though Brazil's Congress
passed an important measure on pension reform Wednesday night, the
expectation from financial markets is now that Brazil must take more
aggressive action to arrest its economic slide.
International investors now expect even deeper spending cuts than the
28 billion reais originally scheduled (now worth $16.5 billion), changes
in economic leadership and other more drastic measures.
The country is racing to fashion a series of policies that will allow it to
lower dizzyingly high interest rates, which most financial observers say
the country cannot sustain for more than 90 days.
Brazil's foreign reserves have now dwindled to $26 billion, roughly a
third of their level last summer. A team from the International Monetary
Fund, which is backing Brazil with a $41.5 billion standby loan, Friday
headed for talks with officials in the capital of Brasilia.
The agreement the fund signed with Brazil just two months ago has been
largely superseded by the swift unraveling of Brazil's economy in recent
weeks, as interest rates soared and a dangerous hemorrhaging of
foreign reserves -- contained by the IMF-led bailout a few months ago
-- restarted.
With important premises of the original accord not met, the IMF
agreement is being reopened for discussion. The agreement presumed
Brazil would maintain its policy of linking the currency's value to the
dollar, which it abandoned last week. Brazil also failed to meet targets
for domestic debt levels in December.
Copyright 1999 The New York Times Company
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