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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (10863)	11/11/1998 5:45:00 PM
From: MythMan	Read Replies (1) \| Respond to of 86076

Wednesday November 11, 5:25 pm Eastern Time FOCUS-Brazil's industry buckles amid crisis By William Schomberg BRASILIA, Nov 11 (Reuters) - The outlook for Brazil's crisis-struck economy darkened further on Wednesday amid a barrage of statistics showing industry heading for its worst year since the days of rampant inflation. As Brazil and the International Monetary Fund hammered out a rescue plan for Latin America's biggest economy, the government announced a 2.9 percent plunge in industry output in the third quarter of 1998 versus the same period last year. The official National Statistics Institute also said production suffered its biggest month-on-month drop this year, 2.4 percent in September, when Brazil's financial crisis began, and would shrink by up to 1.5 percent in 1998 as a whole. Industrial output in annual terms last shrank in 1992, when the economy was mired in the chaos of multi-digit inflation. ''It certainly bodes badly for the future,'' said Constantin Jancso of MCM Consultores, a consulting firm in Sao Paulo. He noted a surprise fall in output of capital goods, like factory machines, a benchmark for future economic growth. Dalton Gardiman, chief economist at Deutsche Bank in Brazil, said the figures were worse than expected, but no surprise given Brazil's sky-high interest rates. ''The tendency is for industrial production to continue to decrease over the next five months,'' he said. There was more gloom from the National Industry Confederation (CNI), Brazil's biggest private industry group. It saw industry sales dipping 2 percent this year with jobs in the sector tumbling more than 5 percent, adding to record unemployment. CNI president Fernando Bezerra blamed the slump on interest rates of 42 percent a year, introduced in September to prevent a devastating currency devaluation. ''Rates remain scandalously high,'' Bezerra told a news conference. ''Try borrowing money in this country -- it's more expensive than going to a loan shark.'' As well as stoking the chances of a recession next year, the high interest rates are costing Brazil billions of dollars in extra debt payments, adding to a budget deficit of more than 7 percent of GDP, a key concern of foreign investors. ''If interest rates remain at current levels of 40 percent then a vicious cycle of rising government interest payments cannot be broken,'' said SG Cowen Securities Corporation, an investment bank, in New York. ''For Brazil to get on a sustainable fiscal path, interest rates must fall dramatically and that requires restoring confidence through the fiscal package itself and IMF backing,'' it said in a report published on Wednesday. The Central Bank's rate-setting committee was due to meet later on Wednesday amid expectations of a slight cut to celebrate the likely IMF rescue package and last week's approval of a cost-cutting pension reform bill in Congress. President Fernando Henrique Cardoso said on Tuesday, through a spokesman, that he expected rates to fall. But any reduction is likely to be symbolic. Brazil cannot afford a big rate cut for fear of reviving capital outflows of more than $30 billion since Russia devalued in August. Economists said Brazil would only be able to cut rates aggressively once its Congress approved a series of emergency spending cuts, tax hikes and long-delayed structural reforms that were the only answer to its budget deficit problem. ''There is very little space for cutting rates as long as the structural reforms ... are not in place,'' said Cassio Schmitt, an economist at Unibanco in Sao Paulo.