WRAP: Brazil Stocks Plunge, Rates Soar;
Govt Action Awaited
By GERALDO SAMOR
Dow Jones Newswires
RIO DE JANEIRO -- For Brazil's financial markets, every day of the
recent turmoil has been a day of reckoning - and Thursday's session only
seemed to bring the country closer to the abyss.
Stocks plunged from the opening bell and triggered two circuit breakers in
the Sao Paulo Stock Exchange - Latin America's largest - as the leading
Bovespa index shed 15% in late trading.
Meanwhile, interest rate futures soared.
In Sao Paulo's Commodities & Futures Exchange, or BM&F, annual rates
on the November contract for one-day CDs shot up to an intraday high of
48.04% before retreating to 43.20% in late trading. At Wednesday's
close, the projected annual rate was at 34.08%.
Dollar futures also plowed ahead. The October contract gained as much
as 0.17%, valuing the dollar for delivery on Sept. 30 at BRL1.1878. In
late trading, though, the dollar gave up almost all those gains, inching up a
mild 0.01% to BRL1.1859.
Some traders think the Central Bank may boost overnight lending rates to
defend the currency. The monetary authority currently lends to banks at its
assistance rate, known as TBan, of 29.75%.
Traders say the Central Bank may either stop lending at that rate or charge
higher rates.
"It's going to depend on which rate they want to boost, but at this point
this is not a matter of interest rates anymore, it's a matter of credibility," the
trader said.
Indeed, despite the government's firm commitments to defend its economic
program, credibility continues to ebb a week after Moody's Investor
Services questioned Brazil's fundamentals and downgraded its debt. On
Thursday, two other agencies ganged up on the country.
Standard & Poor's revised to "negative" from "stable" the rating outlook
on Brazil's long-term unsecured foreign currency debt and its long- and
short-term real-denominated debt. But, unlike Moody's, S&P's reaffirmed
its actual ratings for Brazilian debt.
Hours earlier, Duff & Phelps Credit Rating Co. had also lowered its
outlook for Brazil.
Credibility is what Brazil lost when it failed to contain its public deficit over
the past four years, analysts say. The most recent figures of that policy flop
came out Thursday.
Brazil's nominal public sector deficit climbed to 7.3% of gross domestic
product in the first half of 1998 from 6.5% in the first five months of the
year. The public sector debt jumped to 38.1% of GDP in June from
36.9% in May, Central Bank data showed.
On Tuesday, the government announced it was cutting BRL4 billion from
this year's expenditures and would announce a three-year deficit-reduction
plan by Nov. 15.
"I don't know whether the government understands how grave the situation
is," said one Brazilian banker working for a Wall Street investment firm.
Finance Minister Pedro Malan swears he does.
Malan, who appears puzzled at the markets' dismal reaction to Tuesday's
measures, took to the airwaves Thursday, telling a news radio show that
the market's turbulence derives from "collective irrationality" and that
"there won't be any kind of change in the government's policy in relation to
the exchange rate."
To judge from the markets' behavior, however, the government will have
to take further action to halt the escalation of bad sentiment.
"This is an extremely delicate moment and it requires energetic measures,"
the banker said. "If the government doesn't take these measures now it will
have to take them later with $15 billion less in reserves."
He said the measures mean steeper and more specific budget cuts as well
as a boost in government revenues.
"What they did was too little too late," he said.
And holding up the fort of currency stability is costing a lot. A Central
Bank director said the country's reserves fell to $55 billion Wednesday
from $70 billion at the end of July.
-By Geraldo Samor; 55-21-580-9394; gsamor@ap.org |
