Brazil reserves stabilizing - cenbank chief Franco
Reuters, Sunday, October 18, 1998 at 12:27
SAO PAULO, Oct 18 (Reuters) - The huge dollar flight that
was rapidly draining Brazil's international reserves has come
to an end, the president of Brazil's Central Bank told O Estado
de S. Paulo newspaper in an interview published Sunday.
"We are still going to see a little loss of reserves, but
nothing that worries us. That's over," Gustavo Franco said.
"The trend is toward stabilization."
More than $30 billion has fled Brazil through its foreign
exchange markets since the beginning of August, dragging
reserves down to about $45 billion from $70 billion in the same
period.
Investors began taking their money out of Brazil after
Russia devalued its currency, concerned that Latin America's
biggest economy -- which also has a bloated fiscal deficit --
could be forced into the same action.
Faced with a dollar hemorrhage that averaged about $1.5
billion a day in early September, the Central Bank hiked
interest rates up to almost 50 percent. The measure, combined
with expectations that Brazil will soon receive an
international support package, has helped slow dollar flight,
but has not stopped it.
Franco said, however, that virtually all of the speculative
money that had pumped up reserves in the last year had already
fled Brazil, so that flows should stabilize now.
"There was a big outflow of hot money, another on
arbitration (of debt yields), principally before interest rates
were raised," Franco said.
He said ongoing negotiations with the International
Monetary Fund and other agencies for a support program could
help deter capital flight. The IMF has said aid hinges on
Brazil putting together a fiscal adjustment program.
"The conclusion of understandings with the IMF will
qualitatively change the panorama of international markets for
emerging markets and Brazil," Franco said. He said reserves
could still show almost negligible losses due to negative
external circumstances.
Recently re-elected President Fernando Henrique Cardoso
told his economic team to put together by Oct. 20 a package of
spending cuts and tax increases aimed at reining in the fiscal
gap, which has topped 7 percent of gross domestic product and
paving the way for the international support.
A group of Brazil's economic advisors is currently in
Washington, reportedly outlining the measures to the IMF.
Cardoso may not announce the program, which is likely to
include unpopular taxes, until after run-off gubernatorial
elections on Oct. 25.
Franco said he does not expect Cardoso to face huge hurdles
getting the belt-tightening measures through Congress, as some
analysts have suggested.
"A sense of urgency naturally exists in all of society and
its representatives," he said.
Franco also reiterated that the fiscal adjustment will be
made without any changes to the foreign exchange policy. He
said Brazil does not plan to speed up the depreciation of the
real against the dollar -- which is currently at about 7
percent a year -- nor does it plan a big one-time devaluation.
"In doing what we must from the fiscal point of view, I do
not see any reason to mess with the foreign exchange policy,"
he said.
shasta.darlington@reuters.com))
Copyright 1998, Reuters News Service |
