Brazil officials take message directly to Wall St
Reuters, Tuesday, November 17, 1998 at 22:45
By Hugh Bronstein
NEW YORK, Nov 17 (Reuters) - Top Brazilian financial
officials sought to soothe Wall Street concerns about the
country's economic outlook on Tuesday with a presentation
emphasizing the government's access to billions of dollars in
international loans and its commitment to a stable currency.
In front of an audience of about 200 bankers and analysts,
Finance Minister Pedro Malan and Central Bank Governor Gustavo
Franco drew a picture of coming stability that will help lure
dollars back to the country after months of uncertainty.
"They put on a very convincing show," said Denis Parisien,
Latin American strategist at Dresdner Kleinwort Benson.
Investment dollars exited the Latin America's largest
economy in droves after Russia's debt default in August amid
fears that other emerging economies might follow the same path.
In a coordinated effort to lure back those dollars, Brazil
is poised to accept a $41.5 billion loan package led by the
International Monetary Fund (IMF) and to implement an austerity
program requiring Congress to pass a series of stringent tax
increases and spending cuts.
Several of the bankers and analysts who attended the
presentation at a New York hotel said they were open to the
possibility of reinvesting in Brazil, but not before Congress
acts resolutely to implement measures aimed at narrowing the
country's gaping budget deficit. Then, they said, they will
look for signs that the measures are actually helping to shore
up Brazil's finances.
One commercial banker who was in a group that met with the
Brazilian delegation on Monday said the country's ailing auto
industry was a litmus test for reinvestment.
"As commercial banks we do not know how much to lend to
automobile companies that are not making cars," the banker
said. "So if the economic programs work and the economy
revives, there will be more opportunities for us to lend money
to our good clients."
The presentation on Tuesday was the first leg of a road
show that will travel to Europe and Asia as part of the
Brazilian government's drive to bring enough private investment
into the country so that it actually won't need to spend the
money promised by the IMF.
Stanley Fischer, IMF first deputy managing director, chimed
in via telephone hookup from Munich to stress the point that
the loan program was designed to be "front-loaded," providing
money in quick order.
Fischer said that the second $9.0 billion IMF tranche,
originally scheduled for release in early February, might be
released a month sooner if circumstances demand. The first
tranche is expected to be released early next month.
"The upfront multilateral funds should alleviate concerns
about the effect of a protracted credit crunch on the
government's 1999 financing gap, which is expected to be about
$60 billion," said Siobhan Manning, Latin American debt
strategist at PaineWebber.
"Given the coordinated policy action by the Brazilian
authorities and support from the multilaterals, Brazilian
sovereign bonds are an attractive long-term play," Manning
said.
Fischer and Malan said there was no need for any sharp
devaluation of Brazil's currency, the real.
"We are not going to change our exchange rate regime," Malan
said.
Brazil's exchange rate policy allows for a 7-1/2 percent
nominal devaluation of the currency per year.
"The discussion of the exchange rate has strengthened
confidence in my mind and among members of this group about the
stability of the currency and the avoidance of a big
devaluation," Robert Hormats, vice-chairman of Goldman Sachs
International, told Reuters after Malan's presentation.
Copyright 1998, Reuters News Service |
