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

To: Steve Fancy who wrote (8864)	10/6/1998 3:36:00 PM
From: dougjn	Read Replies (1) \| Respond to of 22640

Steve, that's the official party line. Here's the inside scoop (about what finance ministers, bankers, and trading desks are thinking): theStreet.com Latin Loot: The Party's Over By Peter Eavis Senior Writer 10/6/98 2:42 PM ET WASHINGTON -- The annual IMF-World Bank meeting is without doubt the most important financial conference of the year. Bankers, corporate honchos and government ministers all come to schmooze, discuss deals, attend seminars and relax at the parties and receptions, held in some of Washington's most elegant buildings and fanciest restaurants. This year, however, with the world economy in deep trouble and the emerging markets in the emergency ward, much of the joviality and swagger has gone. Fewer parties are being held: Neither Salomon nor Credit Suisse First Boston had bashes this year. Citicorp did have one, though, and just about everyone -- from Bangladeshi loan officers to Mexican arb traders -- turned up. Brazil Blues No surprise: Brazil's problems dominate conversations. The general feeling is one of pessimism. The budget deficit's too big, the Brazilians are moving too slowly to change it and the currency is overvalued. Devaluation and default are inevitable. Here's a vox populi sample of what people are saying about the world's ninth-largest economy: The Grizzly Bear Right at the bearish end of the spectrum is Rudi Dornbusch, an economics professor at Massachussets Institute of Technology. Known for his cantankerous and critical remarks on Latin American policymakers, Dornbusch has been no disappointment at the conference. "There's no good news in Brazil," he declared at one seminar. Will Brazil manage to come up with a sufficiently credible and large set of budget cuts? the bedraggled German academic was asked. He quipped: "You can't make a donkey sing." 'Brazil Is No Different from Russia' This is the view of a Russia fund manager encountered at the Citi party. She urged her colleagues to sell all their Russian bonds just days before the Aug. 17 ruble devaluation. She thought Russia's huge and expensive domestic debt would be defaulted on -- and it was. "In Brazil, the situation's not that different, she says. "Their debt is totally unsustainable." The Banker Who's Prepared to Bankroll Brazil has just under $60 billion in short-term dollar debt, according to Deutsche Bank. If the lenders refuse to roll most of this over, then Brazil's $45 billion of hard-currency reserves -- already down over $30 billion since April -- would be wiped out. Interesting, therefore, to talk to a banker in charge of Latin American trade finance, which makes up a fair proportion of short-term debt to Brazil. He said: "We're planning to roll over in Brazil. But only some banks will do this. The rest are being told to get out of emerging markets. ... About half will not rollover." That's scary, especially when you consider that Brazil has to find another $45 billion to cover its current account deficit and longer-term external debt in 1999. The Lone Bull "I may be in a minority of one in this room, but I believe the Brazilians will get through this," said Tom Trebat, head of emerging-markets research at Citibank. Trebat has faith that the fiscal cuts will be large and credible. He'd better be right: Citibank is the biggest foreign bank in Latin America. Bickering Builders If you had a dollar for every time you heard the phrase "new financial architecture" at this conference, you'd be able to refloat the Japanese banking system and still have change to deal with Brazil. This term refers to a plethora of proposals from all quarters. They include sensible suggestions, like more transparency in financial institutions, to crazy ones, like a huge pool of bailout cash run by those frugal guys over at the United Nations. Any new architecture would almost certainly come under the control of the IMF and World Bank. But some of the most powerful figures at these institutions are at loggerheads on questions that would dominate any emergency lending. Take the issue of whether Asian countries should have raised interest rates as part of IMF rescue programs last year. Stanley Fischer, first deputy managing director of the IMF, remarked early on at this conference that anyone who thought Asia could've got away without higher rates must be on drugs. A couple of days later, at an ING Barings breakfast, Joseph Stiglitz, chief economist at the World Bank, said that high rates were a big mistake for Asia. Profits of Doom A couple of veteran emerging-markets debt traders, despite seeing flows dry up, are not dispirited by the current crisis. They're anticipating big defaults on emerging-markets sovereign bonds by Russia and the countries of Latin America. Once the dust settles, they will have a whole new market of distressed debt to play with. "It'll be just like it was in the mid-1980s after the Mexicans defaulted," said one nostalgically. "We'll be there making a turn just like we were back then." Doug