Electronic Telegraph, UK
Brazil begs for lifeline as its economy sinks
By Christina Lamb
BRAZILIAN officials are desperately trying to secure $100 billion (œ60 billion) in the United States to save the country - and the whole of Latin America - from the threat of bankruptcy.
Investors have taken out more than $30 billion (œ18 billion) out of the country in the past six weeks as Brazil has become the latest casualty in what some observers are calling the worst international economic crisis for decades.
Latin America's largest country is now in danger of defaulting on its debts - hitting banks worldwide. The government has increased interest rates to 50 per cent to try to stem the financial haemorrhage.
With presidential elections due next Sunday, President Fernando Henrique Cardoso is trying to avoid devaluing the real, the currency he created after taking office in 1994 to defeat hyper-inflation. In an attempt to contain panic, his staff has been urging the media to play down the gravity of the crisis. But despite its damage-control efforts, papers such as the Rio de Janeiro-based Jornal do Brasil have been warning readers of apocalypse.
Newspapers are full of advertisements from people selling cars and luxury items and restaurants are empty because people are eating at home to save money.
Ken Baxter, a Rio-based merger and acquisitions adviser said: "Everyone's worried sick. We may not go broke, but we've just woken up to a two or three-year recession." Facing a total debt of $294 billion (œ175 billion) - of which œ28 billion matures next month - Brazil's Finance Minister, Pedro Malan, has spent the past week pleading with the International Monetary Fund, the Group of Seven leading industrialised countries and Washington for help to shore up the embattled currency. He is in daily contact with Alan Greenspan, the chairman of the United States Federal Reserve, and other American officials.
However, Washington's failure to cut interest rates this week to ease the economic crisis prompted the Brazilian stock market to fall further after a 30 per cent drop so far this year.
Rodrigo Fiaes, the head of equity research at Banco Icatu, said: "If Brazil goes, then Argentina goes, and if Argentina goes, then Mexico goes. This would be disastrous for the US and the world economy and we could see chaos and meltdown of wealth in a very short time."
American banks will be hit badly if Brazil defaults, and US firms rely on the region as a big export market. The fear is that Washington is too distracted by its president's domestic difficulties to pay serious attention to Latin America, and that officials will be reluctant to commit so much money to one region. Giving Brazil
even a quarter of what it is seeking would drain what little resources the IMF has left, and some people are giving warnings of throwing good money after bad. Brazil has been sucked into the crisis which began in Thailand last year, then spread across east Asia and on to Russia.
Fearing further problems in "emerging markets", investors pulled money out of Brazil, the world's ninth largest economy. This hit Argentina, which sends a third of its exports to Brazil.
Last week, the financier George Soros gave a warning that the global capitalist system was in danger of imploding. In testimony to the US Congress, he said there was "general panic" in Latin America.
Stephen Rose of UBB Capital Markets said: "The one advantage that Brazil has is that it is so important to America." But he pointed out that any lifeline for Brazil would need to be more than $50 billion (œ30 billion) to make a difference, and that confidence had been so badly hit that investors were unlikely to return quickly.
Brazil is also a lot healthier than Indonesia and Russia. But it has a serious weakness: a fiscal deficit which has doubled to seven per cent of gross domestic product in the past year.
President Cardoso, a social democrat, has promised budget cuts and might be able to take advantage of the crisis to push them through Congress. After slashing inflation from 3,000 per cent to three per cent a year, he is now facing a crisis not of his own making. Strangely, the situation seems to have boosted his standing:
Brazilians see him as a safer pair of hands than his socialist opponent. |
