Battered Brazil Urges Rich Nations To Solve Crisis
05:27 p.m Sep 21, 1998 Eastern
By William Schomberg
BRASILIA (Reuters) - The Brazilian government Monday urged rich nations to tackle an international financial crisis that threatens to cripple Latin America's powerhouse economy, with possibly worldwide repercussions.
''Until now, political will has not corresponded to the magnitude and gravity of the situation,'' Foreign Minister Luiz Felipe Lampreia told world leaders in the opening speech of the United Nations General Assembly.
''The crisis will not resolve itself. We must join together to face it,'' Lampreia said.
Back home, Finance Minister Pedro Malan hit on the same theme in a speech to concerned businessmen in Rio de Janeiro.
''The world has been slow in preparing itself for the challenges that the moment requires,'' Malan said. ''I have no doubt that at the next meeting of the International Monetary Fund there will be a coordinated attempt to balance things out.''
Finance ministers meet later this month at the IMF to discuss the world economic situation following Russia's devaluation in August that sent investors into a panic and plunged emerging markets everywhere into chaos.
Brazil has one of the world's 10 biggest economies but was particularly hard hit in the fallout from the Russian crisis, mainly because it depends on increasingly scarce foreign capital to cover a huge budget deficit.
Economists fear that should Brazil be forced into a currency devaluation, the domino effect might not only tip the rest of Latin America into recession but also hurt world trade.
About 20 percent of U.S. exports go to Latin America.
Fears of a devaluation in Brazil reached fever pitch recently, as dollar outflows averaged $1.5 billion a day in the first two weeks of September.
Although outflows have slowed since, thanks in part to a drastic hike in interest rates to nearly 50 percent a year, foreign exchange traders predicted that between $500 million and $700 million would leave the country Monday.
Share prices on the Sao Paulo stock exchange fell more than 7 percent in early morning trade, matching other markets around the world, and were down about 4 percent by mid-afternoon.
The United States has said it will back Brazil -- where U.S. banks hold investments totaling $39 billion -- and local officials have been talking with the IMF about possible financial support involving the World Bank, the G-7 nations and other lenders.
Finance Minister Malan stressed that Brazil was not seeking a bailout similar to the emergency packages put together last year for several Asian economies and more recently for Russia.
''At no time have we talked about a rescue similar to what happened in the Asian countries that involved millions of dollars after the crisis occurred,'' Malan said in his speech
Monday. ''We want a preventive operation, not a rescue.''
He also repeated his view that the U.S. Federal Reserve would cut interest rates later this month, a move that could free up billions of dollars for higher-return emerging markets.
''It's disingenuous to think the president of the Fed would anticipate a reduction in rates...it's only going to happen on the 29th,'' Malan said, referring to the next meeting of the U.S. central bank's policy-making body, scheduled for Sept.
29.
Battered markets across Latin America slumped again last week after Federal Reserve Chairman Alan Greenspan gave no hint that the world's rich nations were planning to cut rates.
Many economists say Brazil's priority now is to reach the Oct. 4 presidential elections without plunging deeper into crisis, and then announce painful austerity measures to show the IMF and the rest of the world that it merits their support.
President Fernando Henrique Cardoso is widely expected to win a second term, thanks mostly to his success in slashing inflation from 5,000 percent in 1994 -- when he was elected -- to an estimated 1 percent this year.
''They're going to have to come up with some pretty major announcements on the Monday (after the Sunday elections),'' said Diniz Pignatari, head of foreign exchange at ING Barings bank in Sao Paulo. ''But if it's not convincing or feasible, the markets are not going to like it one bit.''
Copyright 1998 Reuters Limited. |
