Emerging debt ending lower, Brazil worries linger
Reuters, Monday, January 11, 1999 at 16:46
NEW YORK, Jan 11 (Reuters) - Emerging market bond prices
fell for the fourth consecutive session Monday amid continuing
concerns over whether Brazil's states will pay their debts,
traders said.
"Brazil has become the poster child of emerging markets,"
said Michael Casey, portfolio manager at Federated Investors,
noting worries about the political difficulties facing fiscal
reform in Brazil, where Minas Gerais, the nation's
third-largest state, has declared a moratorium on debt payments
to the federal government.
The moratorium sparked concerns about payments on the
state's Eurobonds. Those concerns persisted on Monday, despite
a reassuring comment by the vice governor of Minas Gerais,
Newton Cardoso, on $108 million in Eurobonds due Feb. 10. He
said "it will be paid."
Investors also worried about whether other Brazilian states
would relax their fiscal discipline. "Several governors have
come out in support of Cardoso," said Paul Dickson, analyst at
Lehman Brothers Inc.
Benchmark Brazil "C" bonds <BRAZILC=RR> ended 1/2 point
lower at 56-1/2, traders said. But some money managers bought
Brazil bonds on the view that the market may be making too much
of the trouble with the states.
Analysts said the critical issue is for the government of
President Fernando Henrique Cardoso to push for approval of the
financial contributions tax, known as the CPMF tax. So long as
Brazil can meet its fiscal targets, the political noise
surrounding the states should become somewhat obfuscated,
analysts said.
Earlier, Lacey Gallagher, director of Latin American
sovereign ratings at Standard & Poor's, said the outlook on
Brazil would remain negative for the next few months.
Speaking on Reuters Television, Gallagher said it was
critical for Brazil to push the fiscal reforms despite all
obstacles.
Meanwhile, Venezuela Finance Minister Maritza Izaguirre
said the government of that nation would try to cut its fiscal
deficit and obtain a roll-over of financing with multilateral
institutions including the International Monetary Fund and the
World Bank.
Venezuela discount bonds <VENDCB=RR> dropped 1-7/8 to
64-7/8 in lines with declines with the broader market.
Traders said a weaker dollar also hurt emerging market
bonds.
Copyright 1999, Reuters News Service
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