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To: Mark Bartlett who wrote (18362)	9/10/1998 3:16:00 PM
From: Gary H	Respond to of 116795

Last TED spread was 84.5

To: Mark Bartlett who wrote (18362)	9/11/1998 2:08:00 AM
From: Alex	Read Replies (1) \| Respond to of 116795

Brazil on Edge of Financial Chaos And real on verge of devaluation BRAZIL'S government and financial markets were in turmoil yesterday as the country faced the prospect of devaluing its currency and a return to the economic chaos it has struggled so hard to escape. Trading was stopped on the Sao Paulo stock exchange yesterday morning after the market dropped 10 per cent in one session. On Wednesday $1.1 billion (œ687 million) in foreign reserves left Brazil as the government fought to protect the real. Their efforts, however, were looking increasingly desperate as Brazil became the latest and potentially biggest victim of the global economic collapse. Brazil's $60 billion in foreign currency reserves had been drained at the rate of $1 billion a day since the beginning of September. An export stimulus and budget-cutting package announced by the government on Tuesday has not stemmed the flow. With elections on Oct 4, President Fernando Henrique Cardoso and his government have been reluctant to introduce the harsh economic measures that might restore international confidence in Brazil - but only at grave short-term cost to voters. The sudden end to years of loose capital has exposed Brazil's continued failure to implement the fiscal reforms, which might have made it more resistant to the present situation. Expectation has suddenly had to take note of reality and it is proving to be an ugly experience. The collapse of Russia's economy, which is roughly the same size as that of the Netherlands, was as much symbolic as economic. The drama for many was in the failure of the Anglo Saxon, democratic, capitalist system to function in the greatest of the former Soviet Republics. A collapse in Brazil, the world's third most populous democracy and with six times Russia's foreign currency reserves, would be a major economic catastrophe. For the increasingly numerous critics of globalisation, Brazil's predicament is the trump. Finance ministers from across South America have been shuttling in and out of Brasilia trying to find a solution to the instability brought on by the chaos of the world's financial markets. A meeting with the IMF last Friday failed to produce a bail-out bucket. Over the past four years, Brazil has seen its currency stabilised and its economy made more competitive. The Brazilian government and banking system has a case in complaining that its current plight owes a great deal to perception rather than reality. As an "emerging market", it is bunched together with Russia and the Far East, with no consideration to how its economy differs. Last Friday, the government raised interest rates by around 50 per cent to try to halt the outflow of dollar reserves. On Tuesday, it announced plans to make it easier for foreign companies to buy Brazilian goods, hoping to stimulate exports, and promised cuts to social and infrastructure spending. Bankers and economists were reminded of similar promises made during last October's economic crisis, brought on by the collapse of Asian markets. Once the immediate problem passed, none of the promises was realised. Throughout President Cardoso's term in office, his positive actions, such as stabilisation of the currency, privatisation programmes and improvements to the educational system, have been undercut by his failure to convince congressmen of the need to reform Brazil's pension system and public finances. Such reforms would reduce the congressmen's powers of patronage but are essential to resolving the deep fiscal problems. Price stability is President Cardoso's greatest achievement to date. Now, however, it is not enough. Nor is a reliance on export stimuli at a time when almost every economy in the world is in the same financial boat and in no mood for buying. The London Telegraph, September 11, 1998