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

To: Steve Fancy who wrote (9493)	11/6/1998 10:16:00 AM
From: lebo	Respond to of 22640

I told you 90 by the end of the week and 200 in six months and I stick to it.

To: Steve Fancy who wrote (9493)	11/6/1998 10:29:00 AM
From: DMaA	Respond to of 22640

Another downer editorial from WSJ (Not endorsing their tone mind you ) Brazil's 'Reforms' May Be Too Little, Too Late By Paulo Rabello de Castro, executive vice president at Instituto Atlântico, a public policy research center in Rio de Janeiro. RIO DE JANEIRO--Summertime is fast approaching here and surfers will soon flock to the sun-drenched beaches of the 5,000-mile paradisiacal Brazilian coast. To the casual observer, surfers perched on their boards waiting for the next wave may look idle, but the art of surfing calls for vigorous paddling, often against treacherous currents, in order to catch the incoming wave. Brazil is a surfer in trouble. The country must now work hard to avoid being destroyed by recurring tides of outflowing capital that threaten to undermine the stability of the real, Brazil's dollar-pegged currency. Not much help can be provided by the IMF's announced rescue plan if the country is not able to move towards fiscal responsibility. Brazil has kept its nerve since the Russian fiasco--indeed since Asia collapsed in 1997. But as dollar reserves dwindled from over $70 billion last August down to little over $40 billion by the end of October, the Brazilian Central Bank had to peg the interbank market rate at over 40%, allegedly to protect the currency from a speculative attack until Congress approves a fiscal package announced last week. The social-security amendments that passed the lower house on Wednesday notwithstanding, President Cardoso's proposed $28 billion real (US$23.5) fiscal reform package is less than inspiring. Over 50% of the total fiscal effort relies on tax-rate hikes that cascade down the domestic production chain. Yet a good portion of the expected revenues may vanish as the combination of tax- and interest-rate increases send the country into recession. Even if Mr. Cardoso's package is approved in its entirety, its spending cuts of $11.4 billion real would account for no more than 6.3% of the federal budget proposed for 1999, not enough to make an impression upon weary investors. In spite of an overwhelming majority secured by Mr. Cardoso in the October elections, congressional approval of the proposed expenditure cuts is not straightforward. While Brasilia fiddles around with the fiscal package, the once-bold Brazilian consumer has responded instantaneously to sky-rocketing interest rates. Car sales in September slumped by 36% year over year, foretelling a painful income adjustment ahead. Mr. Cardoso has once more laid a heavy hand in the pockets of the people while sparing the public sector from an overdue cold-turkey treatment of its addiction to overspending. Brazil's tax burden has increased to 31% of gross domestic product (GDP) from an average 26% before the currency stabilization plan in 1994, reflecting the fact that taxation has grown more than income. During the same period Brazil's public sector expenditures shot up to nearly 40% of GDP from about 30%. The appalling performance on the expenditure side of Brazil's public sector, coupled with relative efficiency in tax collection, calls for an altogether different economic diagnosis from those applicable to Asia or Russia. Failing to understand what is effectively an institutional conspiracy to overspend by the Brazilian government nurtures maxi-devaluation advice. According to Harvard's Jeffrey Sachs and Massachusetts Institute of Technology's Rudi Dornbusch, a devaluation is imperative to curb Brazil's current account gap (primarily the excess of imports over exports in goods and services). But that deficit is only 4% of GDP whereas most crisis economies in Asia and in Latin America have reached an 8% deficit before they went bust. The devaluation argument simply misses the critical issue of the "crowding out" of Brazil's private sector by its incorrigible government. Devaluing now means that the Brazilian population will face impoverishment because of a lack of fiscal discipline in the public sector. About half of Brazil's public sector deficit this year--now an astounding $70 billion real--is financed by private domestic savings, the other half coming from abroad. It is nonsense to constrain the private sector for the sake of an overgrown public sector. It may also be pointless to devalue the currency without previous fiscal discipline. Nor is the nouvelle cuisine of capital controls suggested by Paul Krugman a good recipe for a country where the fox looks after the hens. What investor, local or international, will entrust his money to an unruly government that overspends while trying to lock up capital? The final argument by "devaluationists" is that curbing government overspending during a downturn of the business cycle may be self-defeating because it reinforces domestic recession. Not so in Brazil. The business cycle here is already twisted downward by the sheer anticipation of what public overspending and overindebtedness will bring about. Undisciplined governments buying time for themselves often produce an unsustainable mix of high interest rates and a loose fiscal stance. This policy has ballooned Brazil's internal debt to $300 billion dollars from less than half this amount only four years ago. Now the projected interest burden is 8% of GDP, towering over the proposed fiscal effort of 3.1% of GDP. Mr. Cardoso finally acknowledged this problem last week. But instead of slashing privileges, his proposals remain courteous suggestions in the face of looming urgencies. Failure to revolutionize the fiscal regime has backfired through sharp increases in a "fiduciary tax"--that is, an additional interest-rate spread imposed by investors' lack of confidence or fiducia. This tax is a substitute for the former tax that inflation represented. Higher interest rates create internal government debt that must be serviced, through time, by higher taxes. A big chunk of the country's future investment potential gets traded away by the imposition of such a tax. The recommended prescription for Brazil remains fiscal discipline at any cost, no matter what. There is no second best to this rule. If Brazil actually takes up reform, odds are that the surfer can make it back to shore.

To: Steve Fancy who wrote (9493)	11/6/1998 10:49:00 AM
From: Steve Fancy	Read Replies (4) \| Respond to of 22640

INTERVIEW-Brazil minister sees reform savings soon Reuters, Thursday, November 05, 1998 at 21:52 By William Schomberg BRASILIA, Nov 5 (Reuters) - The long-awaited approval of Brazil's pension reform bill goes to the heart of the country's fundamental budget deficit problem and savings will be seen immediately, the country's Social Security Minister said. "We have taken a very important step," Waldeck Ornelas told Reuters in an interview Thursday. "Brazil has a profoundly unbalanced system that has taken its toll on all of society," he said. "The problem is principally in the public sector. Starting now, we will begin heading for a system where all workers will contribute to their pensions." The lower house of Congress finished voting on amendments to the reform bill in a late-night session Wednesday, closing a nearly four-year battle to overhaul the country's pension system, which is heading for a massive $35 billion deficit. Ornelas said the bill, which introduces minimum retirement ages of 53 for men and 48 for women already working, would save around $3.4 billion in 1999 and more in the following years. Higher retirement ages of 60 for men and 55 for women entering the job market were lost in the lower house earlier this year but should be approved separately in the Senate next year, the minister said. Pension savings in 1999 could total $8.2 billion if the government managed to approve an effective cut in civil service pensions, a controversial measure in a new fiscal austerity plan, and if it cracked down on social security fraud, he said. That is more than a third of the $23.5 billion the government plans to save next year in a bid to cut its budget deficit of more than 7 percent of gross domestic product and to recover the confidence of worried foreign investors. "Until now the government has been stuck with the bill for pensions," Ornelas said. "People in general didn't realize their taxes were being spent on that instead of education, health...and the things the government should be doing." He said the two key points of the reform -- the introduction of minimum retirement ages and the tying of pensions to contributions -- would be put into effect in the next few days via a ministerial decree. Much of the rest of the reform's small print will be spelled out in a batch of regulatory legislation to be sent to Congress. Ornelas said those bills would only require simple majorities -- unlike the reform, which needed tough, three-fifths approval -- and should be passed quickly. The main thrust of the regulatory bills would be to create individual social security accounts for all Brazilian workers, as opposed to the current system where contributions go into general funds. The individual accounts would make it easier to manage the pension system and avoid deficits, the minister said. The often-generous pensions of civil servants have been restricted to just over $1,000 a month under the terms of the reform bill, effectively bringing them in line with workers in the private sector. The regulatory legislation would set the terms for workers seeking to boost their pensions through private funds. The new bills would also limit government payments into pension funds of civil servants to double contributions from public sector workers. Up to now, the federal government has paid up to seven times the amount contributed by its employees. More new legislation seeks to close social security loopholes for agricultural firms and companies posing as non-profit-making organizations. Ornelas said he expected the new system would boost Brazil's already powerful pension funds, which are currently worth about 14 percent of GDP. That, however, is a long way behind Chile, where pension fund holdings are equivalent to about a third of GDP. But unlike Chile's entirely privately managed system, Brazil plans to keep the system under government control, Ornelas said. william.schomberg@reuters.com)) Copyright 1998, Reuters News Service