Currency fall increases fears over Brazil debt. Real reaching 3/USD by years end. The good thing about the 'Big Banana', a.k.a Brazil, is that it has only one problem: ECONOMY.
Ohter countries have sets of problems. Religious, languages, miniorities, bad negighbors, enemies, refugees, bad geography, etc, etc. So, in the Big Banana, you just have to have money, then the economical problem is solved.
Currency fall increases fears over Brazil debt
By Geoff Dyer, Richard Lapper and Raymond Colitt in São Paulo
Published: September 23 2001 22:08 | Last Updated: September 23 2001 22:19
Brazil's currency has reached a record low as its economic malaise has intensified in the wake of the attacks in the US and increased pressure on already fragile public finances.
Heavy intervention by the central bank on Friday did not prevent the Real from slumping to its lowest level ever to the dollar of R$2.835, a 2 per cent drop on the day which brought the total depreciation since the start of the year to 30 per cent.
Facing a growing sense of unease, Pedro Malan, finance minister, admitted the short-term outlook was difficult but said that the currency weakness would not create an unsustainable debt burden.
"The debt will not get out of control," he said. "It is reasonable to have a temporary increase in the debt-to-GDP ratio given the succession of shocks we have faced, but we are confident that the ratio will stabilise."
Even before the attacks, the Brazilian economy was feeling the effect of a series of unexpected events, including the threat of economic chaos in neighbouring Argentina, the slowdown in the world economy and the home-grown energy crisis. A recession is now forecast in the second half of the year.
With about 25 per cent of the domestic debt linked to the dollar, the debt-GDP ratio is forecast to grow from 48 per cent in January to about 56 per cent by the year end. The root of the currency weakness, according to most analysts, has been the large current account deficit that leaves the economy vulnerable to external shocks. Some local economists are beginning to discuss more radical measures to halt the decline in the Real, such as capital controls.
Economists expressed considerable concern about the debt situation but added that it has not yet reached crisis point.
"We are not heading for a disaster in terms of the public accounts or external financing," said Jose Julio Senna at MCM Consultores.
The government had considerable room for rolling over the domestic debt because of the highly liquid local bond market, he said, and the public sector's external debt was relatively small.
According to Drausio Giacomelli, economist at JP Morgan in New York, recent events had brought "worst case scenarios for public debt dynamics to the fore". Debt default, however, remained only "a remote possibility".
The principal uncertainty facing the debt was the result of next year's presidential elections. The leftwing Workers Party (PT), which in the past has proposed renegotiating external and domestic debt, is well ahead in the polls.
However, Aloizio Mercadante, one of the architects of the PT's economic strategy, said: "There is no proposal from the PT to suspend payments on the debt." |
