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

To: Steve Fancy who wrote (8840)	10/5/1998 2:16:00 PM
From: Steve Fancy	Respond to of 22640

Brazil pressured for fast fiscal deal-US investors Reuters, Monday, October 05, 1998 at 12:42 By Apu Sikri NEW YORK, Oct 5 (Reuters) - Brazilian President Fernando Henrique Cardoso, on course to win a second term in office, has little time to savor his victory as investors demand a fiscal package from the government sooner rather than later, according to U.S. economists and money managers. A reelected Cardoso government will have to produce a credible fiscal reform package within weeks if not days to stem a steady outflow of dollars that has slashed Brazil's foreign exchange reserves from $75 billion about two months ago to about $45 billion currently, economists and investors said. "Cardoso's victory was largely priced into the market. So people have been selling into any strength in prices," said Michael Casey, portfolio manager at Federated Investors. Brazil's benchmark "C" bonds slid by 1-5/8 early Monday in New York amid a broad decline in key stock markets around the globe. Meanwhile, the benchmark 48-hour Mexican peso was weaker at 10.23 pesos per dollar from Friday's close of 10.18. As the Brazilian real trades within a crawling peg, traders often use the freely-convertible Mexican peso as a gauge of broad market sentiment on Latin American currencies. In Washington, Brazil central bank president Gustavo Franco said he saw Brazil reaching an agreement with the International Monetary Fund on a contingency credit facility. His remarks reinforced market perception that the United States, the IMF and other multilateral agencies will provide the necessary financial framework to help Brazil defend the real in the weeks ahead before a fiscal package is announced. "The multilateral agencies and the international community (of Group of Seven countries) realize that if there is one place where they have to take a stand -- a fort that they have to hold up -- it is in Brazil," said Rafael de la Fuente, economist at Paribas Securities. Yet, the support of mighty international lenders will merely buy Brazil a little time, according to some investors. "Feeding more money to Brazil is not the solution. The problem is that historically, comments by Brazil that they are addressing the issue have been to no avail," said Hari Hariharan, portfolio manager at Santander New World Investments. "This time, they need to take some tough measures to cut the twin fiscal and current account deficits, and they need to follow through," he said. Any new financial reform package must include rolling over Brazil's huge domestic debt, investors said. "The key question here is whether Brazil can sell local currency securities at an interest rate which will not send them the Russia way and at the same time ensure that investors are getting a fair return on investments," said Santander's Hariharan. Russia defaulted on domestic debt two months ago after interest rates on local bonds escalated to nearly 150 percent amid a sharp drop in investor confidence. Brazil, Latin America's largest economy, is seen as the linchpin of stability in Latin America. G-7 countries have supported the Cardoso government's strong defense of the real amid fears that a devaluation of the real would trigger a round of competitive devaluations in the region. Investors warned Monday that Brazil will have to repair its financial house amid intense global market uncertainty. With banks struggling with losses from exposures to other risky investments, such as hedge fund lending, the availability of external capital to Brazil and other emerging market countries will be limited. Faced with a credit crunch abroad, Brazil will have to make tougher choices at home. These tough fiscal measures such as government spending cuts could impair domestic demand and throw Brazil in a recession, economists warned. But it is a price the Cardoso government may have to pay to avoid rampant inflation and chronic budgetary deficits, economists said. Copyright 1998, Reuters News Service