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

To: Steve Fancy who wrote (7940)	9/12/1998 4:08:00 PM
From: MGV	Respond to of 22640

Highly placed sources in Brazil tell him that selective exchange controls may be imposed shortly. It would be a big mistake to place controls on foreign equity capital. As the previous article points out the best controls act to minimize short term volatility and short term trading in currencies. The problem is when controls begin to affect incentives to invest. Malaysian-like controls undermine investor incentives to invest. In general, controls clearly are better than devaluation but they undermine investor confidence. It is the proverbial stick in relation to raised interest rates as the carrot in attacking capital flight over the short term. Both treat symptoms. As the good doc knows, the best treatment attacks the cause of the pain. I am bullish on TBR. My bullishness discounts fiscal reform as a given. What might make me change my view is evidence that these short term palliatives of rate increases and (if the previous article is accurate) capital controls are relied on too long as a substitute for fiscal reform. If I am wrong about Cardoso's conviction or capacity to address the cause of the problem, then a turnaround in TBR will take much longer than any one of us bulls could even guess right now, certainly longer than Jan 2000 Leaps afford. Lets all watch for the signs of reform: 1st round win and a systematic plan immediately afetr 10/4 by the Cardoso admin.