As an addenda to my post #136 here is the latest from Paul Erdman.
For Private Use Only
(C) Worth
South America
By Paul E. Erdman, CBS MarketWatch
Last Update: 1:32 PM ET Sep 22, 1998 StockWatch
SAN FRANCISCO (CBS.MW) -- A decade or so ago I wrote a novel, "The Panic of 89." The starting point of the story was our banks' huge overexposure in Latin America. When the Latins reneged on their debts, faith in our banks was lost, and financial carnage ensured.
It has been said that this was not my greatest literary triumph.
Be that as it may. We seem to have backed ourself into a similar position in the 1990s. Which may prove just one thing: that bankers don't read bad novels.
However, today's numbers are even more worrisome.
In Brazil alone, U.S. banks have a $27 billion exposure. But the banks' direct exposure is dwarfed by the exposure of bondholders. During the 1990-97 period, Brazil, Argentina and Mexico placed abroad nearly $200 billion in bonds, which, according to Moody's, equals about 45 percent of the total issued by all emerging markets during this period. Total Latin American external debt now equals $678 billion.
Some $80 billion in Brazilian foreign debt is coming due during the next two months. With all of Latin America now facing huge current account deficits, the legitimate question arises concerning the region's ability to come up with the dollars necessary to both pay for imports and meet its external debt service obligations.
Fearing the worst, money is now fleeing Brazil at the rate of $1 billion a day. This reminds one of similar capital flights from Mexico in December, 1994 and from Russia in July of 1998. Both were precursors of major financial crises.
It took commitments of $50 billion from the IMF and the U.S. Treasury to bail out Mexico. This time we are probably talking twice that much. But this time, conditions are different: the IMF is running out of money and the U.S. Treasury is running out of support for such bailouts.
No wonder the stocks of our banks and investment banks, almost all of which have their necks stuck way out south of the border, have taken such a beating. And for those of you who have invested in an international bond fund, you might be wise to check it out today. You have no doubt already taken a big beating. But there is worse to come.
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