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

To: djane who wrote (7953)	9/14/1998 12:13:00 AM
From: Steve Fancy	Respond to of 22640

Brazil's Malan: Interest Rates To Fall Gradually - Paper Dow Jones Newswires BUENOS AIRES -- Brazilian Finance Minister Pedro Malan, in an interview published in Argentina Sunday, said interest rates won't remain at their high levels "for a prolonged period", and called his country's current levels of reserves "comfortable" enough to defend its currency. "We don't believe that interest rates will remain at their current levels for a prolonged period," Malan told Buenos Aires daily Clarin, in an interview conducted Friday afternoon. Malan called the government's surprise decision last Thursday to boost interest rates "an emergency measure for an emergency situation", and said rates "are going to come down gradually over time". He reiterated the government's pledges that it won't devalue its currency, the real, or put in place any form of capital control. Indeed, Malan said last week's decisions to boost rates and, among other measures, trim spending by 4 billion reals were "a very important signal of our commitment to the preservation of the real", given that they came just three weeks ahead of Oct. 4 presidential elections. Asked if the government would be willing to spend all the currency necessary to defend the real, Malan said, "I'm not going to speculate about that". But he said Brazil at end-Thursday had $52 billion in reserves, and said, "I think that is an absolutely comfortable level so we can defend our currency". - Christopher Chazin; 541-315-1690; cchazin@ap.org

To: djane who wrote (7953)	9/14/1998 1:34:00 AM
From: djane	Read Replies (2) \| Respond to of 22640

NY Times. Argentine Leader Vows to Retain Currency Peg to Dollar September 14, 1998 Related Articles Latin Countries Hope to Avoid Radical Market Measures (Aug. 29) Economic Turmoil in Russia Takes Toll in Latin America (Aug. 27) Argentine Brothers Bet on a Global Breadbasket (April 14) By CLIFFORD KRAUSS UENOS AIRES, Argentina -- It has become almost a daily ritual. President Carlos Saul Menem and his chief economic advisers take every opportunity to promise that they will not retreat from the government's fixed exchange rate that pegs the value of the Argentine peso to the American dollar one to one. Such pronouncements have often preceded huge devaluations in Latin America. But most Argentine economists and Wall Street analysts are taking Menem at his word, at least for now, despite concerns that the currency peg could push up interest rates and unemployment. "I think it will hold," said Jorge Mariscal, chief investment strategist for Latin America at Goldman, Sachs. Before devaluing, Mariscal said, Argentina would, in a severe crisis, probably "dollarize" its economy as Panama has for decades -- replacing its currency with dollars. In part, the cautious optimism that Argentina will not have to devalue comes from the slight strengthening in the Japanese yen in recent weeks. That has relieved concerns that China will have to devalue, which in turn has helped Hong Kong sustain its currency peg to the American dollar. But if the yen slides again, or the Brazilian real suddenly collapses, Argentina could face deep financial trouble. "At this point the only way I could foresee a change is if capital flight were so massive it would mean everyone would convert their pesos into dollars," said Martin Redrado, a former Menem adviser who runs an economic research center here. "But so far the Argentine banks have weathered this crisis very well." Indeed, the Argentine program has attracted global attention recently, with Indonesia and Russia considering similar policies. Indonesia rejected a peg to the dollar while Russia has yet to adopt a rescue plan. All five presidential candidates vying to replace Menem in elections next year have promised not to replace the peg because of fears that a change of policy could mean a return to economic mismanagement. Faced with an inflation rate of 2,300 percent and a run on the banks, Menem installed the currency peg in 1991. Within weeks, the inflation rate plummeted and has stabilized at around 1 percent in the last three years. Currency stability and an aggressive government program of privatizing public agencies drew a flood of foreign investment, which in turn stimulated strong economic growth rates that peaked at 8 percent last year. The currency peg is set by a law that prohibits the government from printing new pesos unless they are backed by dollars or gold reserves in the central bank. Other laws require private banks to keep 25 percent of their reserves in the central bank. And as added insurance, the government has negotiated lines of credit with a number of investment banks, including Goldman, Sachs; Morgan Stanley and Lehman Brothers. Despite the growing economic crisis in Venezuela and Brazil, the Argentine government reports that it has $24.5 billion in reserves in the central bank, slightly more than the total amount of pesos in circulation. Even more impressive, local economists note, is that private bank deposits actually grew last month by five-tenths of a percent despite the bad news from Asia and Russia. "The tangible economic gains from the convertibility program argue heavily in favor of retention of convertibility despite any ill consequences," said Lawrence Goodman, chief economist at Santander Investment, the investment banking arm of Banco Santander. Goodman noted that when faced with a similar economic crisis after the Mexican devaluation in 1994, Menem did not budge from the peg despite rising interest rates and an unemployment rate that climbed as high as 18 percent. Unemployment has since fallen to 14.2 percent. Still, convertibility has a price. Since it is linked to a strong dollar, Argentine exports are expensive and are dropping. According to the latest government statistics, Argentina's trade deficit in July climbed to $741 million, more than double the amount of the month before. Since 30 percent of Argentina's trade is with Brazil, a devaluation and deepening recession there over the next several months would only make the Argentine deficit grow faster. Home \| Site Index \| Site Search \| Forums \| Archives \| Marketplace Quick News \| Page One Plus \| International \| National/N.Y. \| Business \| Technology \| Science \| Sports \| Weather \| Editorial \| Op-Ed \| Arts \| Automobiles \| Books \| Diversions \| Job Market \| Real Estate \| Travel Help/Feedback \| Classifieds \| Services \| New York Today Copyright 1998 The New York Times Company