Nancy
Here's something on Brazil
Brazil in Economic Showdown
By PETER MUELLO
The Associated Press
RIO DE JANEIRO, Brazil (AP) -- The revival of an old political grudge in Brazil is threatening to derail attempts to pull the world's eighth-largest economy out of its financial crisis.
Gov. Itamar Franco, leader of Brazil's third-wealthiest state, is challenging President Fernando Henrique Cardoso and his plan to slash a $65 billion budget deficit and shield Brazil from a financial meltdown.
On Wednesday, two days after taking office, Franco declared a 90-day moratorium on the state's debt payments to the federal government, claiming an ''absolute lack of money.''
The Sao Paulo Stock Exchange, Latin America's largest, shed Wednesday's gains and plunged 6.7 percent Thursday before recovering slightly at closing.
The price of Brazil's debt bonds also fell, a sign that foreigners see higher risk in investing here. Investors have been skittish since the market crisis that hammered Asia and Russia shifted here.
Since last July, nearly $40 billion left the country amid fears that Brazil wouldn't be able to cover its budget deficit and might default on loans.
Cardoso, who was overwhelmingly re-elected to a second term last October, pledged to trim $23 billion off the deficit in 1999. International lenders approved a $41.5 billion aid package if the government meets its targets. About $1 billion was awarded Thursday.
But Franco's moratorium could make it harder for the government to meet its goals.
''This will certainly damage Brazil's situation, especially in terms of image,'' said Antonio Correa de Lacerda, head of the Federal Economy Council. ''A moratorium will lead to a loss of credibility and to greater difficulties in attracting foreign capital.''
Franco says the terms negotiated last year require the state of Minas Gerais to pay $67 million a month, or 11 percent to 13 percent of monthly revenue. The state's total debt is about $15 billion, to be repaid over 30 years at reduced interest rates.
Other governors are following Franco's example. Gov. Olivio Dutra, of the far southern state of Rio Grande do Sul, says his state's debt is ''unpayable.'' Others plan to seek better terms if Franco gets them.
The federal government says that states benefited by renegotiating their debts. Minas Gerais alone saved about $315 million this year.
If Franco breaks the agreement, the government could retaliate by withholding federal funds earmarked for his state.
''Agreements were made to be kept,'' said Finance Minister Pedro Malan.
Underlying the confrontation is a grudge that began in 1994, when then-President Franco gave then-Finance Minister Cardoso the task of ending 2,700 percent annual inflation.
The result was the Real Plan, which was so successful that it propelled Cardoso to the presidency that year. Franco, known for his mercurial moods, never forgave Cardoso for not sharing credit.
''Franco takes it personally,'' said Murillo Aragao, a political scientist with Arko Advice consultants in Brasilia, the capital. ''He feels he was treated unfairly, when actually he should be grateful.''
AP-NY-01-08-99 0419EST
|
