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

To: Steve Fancy who wrote (9714)	11/15/1998 8:21:00 PM
From: Steve Fancy	Respond to of 22640

With aid secured, Brazil battle moves to Congress Reuters, Sunday, November 15, 1998 at 16:47 By Phil Stewart SAO PAULO, Nov 15 (Reuters) - Still bleary-eyed after marathon efforts to secure $41 billion in international aid, Brazil's economic planners are bracing for a pitched battle in the nation's Congress on implementing the package. Government leaders must convince notoriously unpredictable lawmakers to swallow painful cost-cutting reforms -- the bitter medicine of the loans announced on Friday. The measures need to be passed to qualify Brazil for the lion's share of aid, which would double the country's reserves and should shield Latin America's top economy from an imminent financial meltdown. But the proposed reforms are, to say the least, controversial, especially as Brazil's 160 million people fear for a recession next year. Both houses of Congress will vote this week on six presidential decrees, one of which, a social security reform measure, is considered crucial to the government's plan to save $23.5 billion next year. The measure -- which alone would add $6.8 billion to government coffers -- is hotly disputed since it boosts company social security contributions and extends them to formerly protected banks and financial institutions. But the most controversial items, which have elicited war cries from the powerful civil servants lobby, will likely be put on the back burner until December or January. Brazil's cash-strapped state and municipal governments, which dole out as much as 80 percent of their total revenues on civil servant pensions, will be free to sack unproductive workers through passage of one of the measures. The government also plans to nearly double social security payments from civil servants and to demand retired workers pay into the fund for the first time in history. Finance Minister Pedro Malan says the reforms should help the government save $84 billion over the next three years and trim its whopping public sector budget deficit -- widely considered the Achilles heel of the economy -- to 4.7 percent of gross domestic product next year from 7 percent currently. So far, President Henrique Cardoso's popularity helped him muster congressional support on key items, including a pension reform measure approved earlier in November. He also seems to have weathered a storm of controversy centered around documents, now proven fakes, which alleged he had been stashing millions in a secret Caribbean bank account. But growing unemployment lines may soon weaken support for Cardoso, who was reelected in October largely because of his inflation-fighting efforts, which had boosted spending power among Brazil's poor. Tens of thousands of blue-collar workers have lost their jobs, taking official unemployment to near double digits. Brazil's auto industry, the world's fifth largest, has been hit especially hard as the sector braces for a prolonged slump. Brazil's troubles are exacerbated by soaring interest rates, which were raised to nearly 50 percent to plug a wave of capital flight following Russia's August currency devaluation. They now stand at about 39 percent. Edmar Bacha, one of the original architects of Brazil's Real Plan, said in an interview published on Sunday he sees rates steadily falling and finds no reason for a faster devaluation of the real currency, despite opinions from economists like Harvard University's Jeffrey Sachs. "These men have not looked at the numbers," Bacha was quoted as saying in newspaper Estado de Sao Paulo. Bacha said the real battle now lies in Congress, which must make difficult decisions that may spell out tough times ahead for Brazil's masses. "Sadly, the people are the first to enter (the crisis) and will be the last to leave," he said. Copyright 1998, Reuters News Service