Brazil's Senate Probe Founders On Lack Of Evidence
By ADRIANA ARAI
Dow Jones Newswires
BRASILIA -- Just as quickly as it emerged to threaten an incipient
recovery of investor confidence, a Brazilian Senate investigation into
alleged banking sector irregularities is moving off the radar screens of
financial markets.
One month of sessions and testimony from 18 people on actions by the
central bank and several financial institutions around the time of the
mid-January devaluation of the real have produced a lot of noise but
little evidence of wrongdoing.
An appeal by President Fernando Henrique Cardoso to Senate leaders late
last week, asking them to end the investigation within 120 days - the
minimum term possible - helped further ease concerns.
"When there's talk, but no proof, accusations fall into a black hole,"
said Eduardo Rezende, director with Dreyfus Brascan Asset Management in
Rio de Janeiro. "There's nothing out there involving (Finance Minister
Pedro) Malan, Cardoso, or (current central bank head Arminio) Fraga."
With no bombshells, the market is able to maintain focus on a series of
positive macroeconomic numbers.
Inflation, which many thought would spiral out of control with the
depreciation of the real, is now forecast to end the year in the single
digits, compared to an initial forecast of 17%. And the economy is
expected to contract around 2%, down from initial projections of 4%-6%.
"The market is taking (the investigation) in stride," said Kevin Beck, a
banking sector analyst at Fleming Graphus in Rio de Janeiro. "No
evidence of an insider-information corruption scheme has been found, so
markets went back to the facts: no inflation, valuations are cheap,
recession will be milder than expected, foreign money flowing in."
Brazil's Sao Paulo Stock Exchange index has risen 10% since April 14,
one day before the investigation began, and is currently riding a
four-session winning streak. The real has given up 27% of its value
against the dollar since the exchange policy shift, but has held steady
since the investigation began.
Even out of the limelight, the Senate investigation will drag on, with
the testimony of former central bank international affairs director
Demosthenes Madureira de Pinho Neto scheduled for 1900 GMT Tuesday.
On Thursday, Salvatore Cacciola and Luis Antonio Goncalvez, owners of
Banco Marka SA and Banco FonteCindam SA, respectively, are slated to
appear before the Senate at 1300 GMT. The central bank rescued the two
tiny banks in the middle of the devaluation, ostensibly to prevent a
system-wide banking crisis.
The bailout, which resulted in a loss of 1.567 billion reals
($1=BRR1.65) for the central bank, has so far been the
only issue to raise Senators' eyebrows. There's consensus in the Senate that
the operation was improper, and legislators are expected to recommend punishment
for central bank officials involved in the rescue - all former employees. The
committee's findings and recommendations are sent to federal prosecutors, who
then take the matter to court.
Thursday's testimony will put an end to the first part of the inquiry,
which centered on banking irregularities. The committee will then move
on to a handful of other charges, including tax evasion and insider
information leading to windfall profits for several banks. Senators have
hinted that tax evasion will be the inquiry's next step.
Analysts have expressed concern that a protracted investigation could
delay much-needed structural reforms due to come before Congress in the
coming months. The government hopes to make significant progress this
year on tax reform, enabling legislation for administrative reform and a
second phase of pension system reform.
"The main lingering worry about the Brazilian economy at the moment is
the comfort with Brazil's fiscal situation in the near term because of
the emergency fiscal measures (that were taken last October)," said Luis
Fernando Lopes, chief economist at Chase Manhattan in Sao Paulo.
The fiscal stabilization plan introduced by the government last year
aims to trim BRR28 billion from bloated government accounts in 1999.
"What will Brazil's fiscal situation look like in the year 2000?," Lopes
said, adding that even short-term investors need to know what the
situation will look like when the one-off impact of the fiscal measures
ends.
Speaking in New York Tuesday, Cardoso said he's confident that tax
reform will get through Congress before the year 2000.
Senators will also vote Tuesday on a request from government opposition
parties to subpoena Malan, who has denied any knowledge of the bailouts
of Marka and FonteCindam.
Testimony taken by the federal police - which is carrying out a separate
investigation into the central bank actions - showed that Malan was
present at a meeting when former central bank president Francisco Lopes
discussed aiding the banks with other officials.
"We must clarify what happened that day, regardless of whether Malan was
or not informed of the operation," opposition Senator Eduardo Suplicy of
the Workers' Party (PT) said Monday. "Finding out why the minister was
never told about the transaction is also important," he added.
Government-allied Senators, however, made it clear that Malan won't be
subpoenaed.
"Malan is above suspicion. Any attempt to subpoena him won't work,"
Senate president Antonio Carlos Magalhaes said Monday. Magalhaes, of the
largest allied Liberal Front Party (PFL), is deemed Congress' most
powerful and influential voice.
Late Monday, Malan expressed indignation at two local media reports over
the weekend stating that he knew about the Marka/FonteCindam rescue
operation, based evidence gathered by the federal police.
The finance minister sent a letter to Justice Minister Renan Calheiros
demanding an official position with respect to the reports. "In the
eventuality the federal police officially confirms its convictions, I
request that you instruct them to immediately release the evidence and
proof upon which they based their conclusion that was transmitted to the
press," Malan said in the letter.
Calheiros then replied, saying that "the depositions contain no allusion
to your knowledge of (Marka/FonteCindam) negotiations."
Cardoso also expressed support for the finance minister in New York.
"There is no issue at all. (Malan) isn't implicated," Cardoso said.
"Malan is a serious and responsible man and a devoted public servant."
Cardoso stressed that his government is supporting the ongoing
investigation.
-By Adriana Arai; 55-61 965-6883 or 321-1224. |
