Telebras (TBH) & Brazil Message Board

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Strategies & Market Trends : Telebras (TBH) & Brazil

TBH 1.100

+15.5%

Nov 11 3:59 PM EST

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To: RockyBalboa who wrote (7039)	8/22/1998 1:19:00 PM
From: MGV	of 22640

Rising spreads in brady bond market makes it more difficult - or expensive - to lend from abroad. So it could make sense to devalue at once ( after the October election?) to ease the current budget deficit and the necessary future financing of it in $ terms. The question is at which extent a devaluation is sufficient to have some effect on public financials and recent trade deficits. You make some very salient points. Of course Brazil is devaluing the real presently, it has been doing it systematically and persistently. It likely will not deviate from its present course to devalue more drastically before the elections unless there is an externally driven currency crisis. I don't think there will be but its not a slam dunk either. the implications of that event are so grave for Cardoso and Brazil that if it happened TBR probbaly would go to 60ish (and be substantially less fo a bargain as it is today at 85). After the elections, there likely will be a managed devaluation, in excess of the regular systematic devaluation program. I think the process will be this: First, Cardoso fights hard for social security and other structural reforms that would go to the cause of the currency pressure (large current account deficit). That will be the priority action. After the smoke clears on the reforms, and only then, will there be a currency devaluation. It makes much more sense to do it that way because the devaluation ultimately is a function of the reform success. Cardoso is eminently sensible in the field of macroeconomics. He understands that devaluation treats only the symptom (with significant and deleterious side effects!)and reform treats the cause. If he is successful in enacting SS reform (and therefore reducing the current account deficit and currency pressure) the implications for TBR will be tremendously positive. I guess that is obvious to everyone here. If it was, excuse me for stating the obvious.

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