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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: djane who wrote (7276)	8/30/1998 7:30:00 PM
From: djane	Respond to of 22640

Global crisis holds dangers for Brazil's Cardoso Sunday August 30, 4:43 pm Eastern Time By Joelle Diderich BRASILIA, Aug 30 (Reuters) - The crisis in emerging markets could dent Brazilian President Fernando Henrique Cardoso's election prospects if he is forced to make drastic moves to protect the local currency, political analysts said on Sunday. Brazilian share and currency markets took a battering last week as investors stung by the deepening economic crisis in Russia pulled out of emerging economies to take refuge in safe haven instruments such as U.S. Treasuries. The crisis comes at an awkward time for Cardoso, who is shown in recent polls as being comfortably on course for a first-round win in the October 4 general election. Cardoso has 46 percent of the vote, compared with 22 percent for his nearest rival, left-wing leader Luiz Inacio Lula da Silva, according to a poll by private research company IBOPE published Friday. The president now faces a delicate balancing act. He must reassure foreign investors about the country's capacity to contain the impact on its economy of global volatility without making any moves that could scare voters. A cartoon published in Jornal do Brasil newspaper Sunday summed up the dilemma. It showed Cardoso on the telephone to Russian President Boris Yeltsin, saying: ''Hello, Yeltsin? Hold on to this mess until October 4!'' Political analysts say Cardoso's lead in opinion polls is likely to remain intact as long as he does not take measures that hurt the pockets of ordinary citizens. ''The crisis will have major electoral consequences only if there is a change in policy that affects prices on shop shelves,'' said Murillo Aragao, political consultant at Arko Advice. In a show of caution, Brazil this week announced a set of rules aimed at drawing dollars into the country to maintain the stability of the local currency, the real. Brazil needs to maintain a healthy pile of cash reserves to protect the real, widely considered overvalued by between 10 percent and 30 percent, from speculative attack. But the government has refrained from a repeat of the drastic measures it took during last year's Asian economic crisis, when it doubled interest rates and announced a $20-billion package of tax increases and spending cuts. The country won praise for its swift response from foreign governments and international investors, but ordinary Brazilians paid the price as the economy slowed and unemployment rose as a result of the measures. Cardoso has mostly avoided commenting on this week's market plunge but assured voters no new fiscal package was on the cards, pointing out that Brazil was just one of many countries suffering in the latest attack of global market jitters. ''We are not as worried as we were last October, when there was a (speculative) attack against Brazil,'' Cardoso said. ''The resurgence of the economic crisis in Russia will not affect the Brazilian population.'' The opposition Workers' Party is making the crisis the main theme of its campaign, accusing the government of covering up the extent of the problem and saying Brazil's current economic model leaves it too vulnerable to foreign speculators. ''The government is hiding the extent of the crisis because of its electoral ambitions,'' Lula da Silva said in a televised electoral broadcast Saturday night. Analysts said the strategy carried dangers for Lula, as he risked coming off as a messenger of doom and losing the attention of his voter base, which is more interested in hearing about social problems such as housing, education and jobs. ''Even the most unsophisticated voter perceives that Lula does not have the capacity to tackle these problems,'' said Ricardo Pedreira, political consultant at Santa Fe Ideias. ''He does not have any alternative proposals to what is being done.'' Related News Categories: international Help Copyright c 1998 Reuters Limited. All rights reserved.

To: djane who wrote (7276)	8/30/1998 7:32:00 PM
From: djane	Respond to of 22640

BIS data - Were banks caught out on Russia? Sunday August 30, 3:02 pm Eastern Time By Alice Ratcliffe BASLE, Switzerland, Aug 30 (Reuters) - New data released by the Bank for International Settlements (BIZZ.S) (BIS) appears to show that international creditors and domestic residents felt more secure about Russia than Brazil in the first quarter of 1998. Though subject to interpretation, the numbers suggest that international commercial banks reporting to the BIS on lending and deposits were caught off guard by recent events in Russia. The situation there, at least through the first quarter, thus may have been perceived as likely to stay fairly stable. The data presented in the BIS's quarterly report ''International Banking and Financial Market Developments'' will be published on Monday. It was released in advance to the press. Such data for the first quarter do not capture what happened as Russia's financial stability came under stress later on this year. But, during the first quarter at least, external assets of BIS reporting banks vis-a-vis Russia -- reflecting largely lending -- rose by a fairly big $3.26 billion, adjusted for currency moves. The BIS also noted that a renewed tightening of Russia's monetary conditions in February encouraged a reflow of foreign funds into its Treasury bill market in the first quarter. Such debt in the form of rouble-denominiated Russian GKOs has since been accorded a bleak outlook by markets after Russia's decision to restructure its short-term debt. At the same time, reporting banks liabilities vis-a-vis Russia showed a net, adjusted decline of $902 million in terms. This indicated that Russian residents actually reduced deposits held abroad in foreign banks in that period. This may have meant they expected a return to more stable conditions after Asia-related upsets, leading them to repatriate capital, albeit at a slower pace than in the fourth quarter when liabilities fell by an adjusted $2.5 billion. Brazil, meanwhile, saw large lending inflows in the first quarter, but these were likely mainly due to a technical loophole which drew short-term capital into the country. BIS first quarter figures showed reporting banks' external assets with respect to Brazil rose by $9.59 billion adjusted for exchange rate fluctuations. At the same time, residents appear to have expatriated capital in large amounts. There was a very sharp increase in deposits by Brazilian residents held abroad, based on reporting banks' liabilities vis-a-vis Brazil, which grew by an adjusted $17.06 billion in the first quarter. Such big outflows of deposits normally tend to reflect residents' worries about the economic climate in their own country, leading them to shift funds elsewhere. Although the situation in Brazil remains stable, especially compared with Russia, the BIS expressed concern about Brazil's high percentage of short-term debt. ''According to the BIS consolidated international banking statistics, 64 percent of the international banking debt of Brazil at the end of 1997 was for less than one year,'' it said. It further said this may explain the government's restrictions imposed on short-term borrowing earlier this year. Lending to the other major debtor countries in the region (Argentina, Mexico and Chile) meanwhile slackened in the first quarter. ''The downturn occurred in spite of the fact that these countries were at that time still perceived by the market to be less vulnerable to contagion from Asia than Brazil,'' the BIS said. Related News Categories: currency, international, options Help Copyright c 1998 Reuters Limited. All rights reserved.

To: djane who wrote (7276)	8/30/1998 7:36:00 PM
From: djane	Read Replies (4) \| Respond to of 22640

Brazil FinMin calls for G7 action on world turmoil Sunday August 30, 2:14 pm Eastern Time BRASILIA, Aug 30 (Reuters) - The Group of Seven leading industrialized nations must take swift action to contain the global fallout from economic crisis in Russia, Brazil's Finance Minister Pedro Malan said in an interview published Sunday. ''We are dealing with a problem which is not limited to a number of emerging economies,'' Malan told O Globo newspaper. ''It is a problem with a larger dimension, which is serious and will require concerted action by the G7, the leading countries of the world, as soon as possible,'' he added. On the weekend, G7 leaders agreed to coordinate their efforts on Russia with the European Union, and said the best way for Russia to overcome its problems was to stick to the path of reform. Brazilian share and currency markets took a battering last week as nervous global investors fled emerging markets to cover losses in other regions and take refuge in the safe haven of U.S. Treasuries. Sao Paulo's key Bovespa (^BVSP - news) index of blue chip shares last week hit its lowest level in 21 months. Malan was scheduled to attend a meeting next week of Latin American finance ministers invited by the International Monetary Fund to discuss the impact of the latest world financial turmoil on their economies. The minister said it was already apparent that recent events would result in a slowdown in global economic growth and international trade, although it was too early to predict what the impact would be on Brazil's economic growth in 1999. ''For this year, we continue with an estimate for growth of close to 2 percent. For 1999, it will depend on the capacity of the international community to respond adequately,'' Malan said. Comparisons between Brazil and Russia -- both giant emerging economies struggling to contain rampant fiscal deficits -- are unfounded because of a long-term process of restructuring which had made Brazil much safer for investors, he said. ''What sets Brazil is apart is not this or other measure, but the process of productive restructuring, of reorganization of the state, of institutional consolidation. The culture of stability is taking root,'' Malan said. The main challenge for the Brazilian government now was to reduce the nominal budget deficit, estimated at an annual 7 percent, and it was preparing a fiscal program with targets for the next three years, he added. In a separate interview published Sunday, Finance Ministry Executive Secretary Pedro Parente accused investors pulling out of Latin America because of the Russian crisis of thoughtless short-termism. ''We believe it is myopia, bad faith or even stupidity for anyone to think they have to leave other emerging markets, especially in Latin America, because of everything that happened in Russia,'' Parente told Folha de Sao Paulo newspaper. Pointing out differences with Brazil, he said Russia lacked even the basic tools to reduce its budget deficit, being burdened by many layers of government over a vast geographic terrain without the benefit of a market economy infrastructure. ''There is a form of predatory capitalism there. The lack of control is total,'' said Parente, a former International Monetary Fund consultant who has worked in Russia. More Quotes and News: BRSP BOVESPA IND (^BVSP - news) Related News Categories: international Help Copyright c 1998 Reuters Limited. All rights reserved.