FOCUS-Brazil reserves seen steady despite outflows
Reuters, Wednesday, August 19, 1998 at 18:43
By Noriko Yamaguchi
SAO PAULO, Aug 19 (Reuters) - Brazil's international
reserves are expected to remain stable despite a huge daily net
dollar outflow of $963.8 million on Tuesday, Central Bank
officials said on Wednesday.
"We can assume that the reserves will be maintained at
levels around $70 billion," the Central Bank's foreign
operations director Demosthenes Madureira Pinho Neto told
reporters after a meeting of bank directors in Porto Alegre.
Brazil's foreign exchange market on Tuesday registered its
biggest daily net drain of the U.S. currency since October 28,
when the outflow totaled $2.89 billion. The country was roiled
by turmoil in Asian financial markets then.
Forex dealers said Tuesday's big one-day outflow was mainly
linked to the repayment of short-term loans known as "63
Caipira", which were raised in foreign markets to finance the
country's agricultural industry.
To assure that the outflows should not alarm investors, the
Central Bank's president Gustavo Franco told reporters at the
same conference that the outflows were, "completely within
expectations due to maturing 63 Caipira.
"A decline in reserves of one, five, 10 billion dollars is
no problem whatsoever," Franco said.
"We know that a good part of what has come into the
reserves has come in through the 63 Caipira short-term funds
and money that can leave at any time," he added.
The short-term loans are put together by Brazilian banks to
finance the country's agriculture, but late last year the
Central Bank also allowed these funds to be invested in dollar-
indexed debt in a bid to attract foreign capital amid Asia's
financial crisis.
Pinho Neto said a total of $5 billion was expected to flee
the country in the next two months because of these loans.
On Wednesday, dealers speculated that forex contracts may
post a further daily net outflow about $200 million. They said
the Central Bank may have intervened in the forex market
through federal Banco do Brasil (SAO:BBAS3) to support the local
currency, the real, amid these expected outflows.
Central Bank officials would not confirm the operations,
which have been spotted repeatedly since last week.
Meanwhile, Pinho Neto said the recent outflows would be
offset by an inflow of about $4.5 billion linked to proceeds
from last month's privatization auction of Telebras (SAO:TELB4).
The government sold off 12 units spun off from the
telephone holding for a total of $19 billion on July 29 and the
winning bidders are required to pay 40 percent of the total
amount, or about $7.6 billion, this year.
Brazil's forex market posted a record daily net dollar
inflow of $2.985 billion immediately after the auction on July
31, as investors started paying for their Telebras purchases.
International reserves stood at $70.06 billion by the end
of June.
Of the current reserves, Pinho Neto said: "The level of
reserves is comfortable and we will use them as instruments (to
protect the currency) if we deem it necessary (amid turmoil in
Asian and Russian markets)."
Copyright 1998, Reuters News Service |
