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

To: Fernando Saldanha who wrote (11273)	1/7/1999 12:03:00 AM
From: Steve Fancy	Respond to of 22640

Thanks again Fernando...your comments are reassuring. I took this as an extrememly negative development. Wish we could have Reuters publish your summary of this situation. The following excerpts from the story amongst others are bothersome... Later, presidential spokesman Sergio Amaral said President Fernando Henrique Cardoso feels that the decision will affect "the fiscal stability plan, states' accounts and unemployment." He also said the decision by Itamar Franco will lead to a delay in lowering interest rates. ...seemed at least this summary of Mr Amaral's statements was very negative and left much to the imagination. Seems we've kicked '99 off with a rocky start. sf

To: Fernando Saldanha who wrote (11273)	1/7/1999 1:32:00 AM
From: Steve Fancy	Read Replies (9) \| Respond to of 22640

Brazil State Declares Moratorium on $15 Billion Debt (Update3) Brazil State Declares Moratorium on $15 Billion Debt (Update3) (Updates with more detail, rewrites) Thu, 7 Jan 1999, 4:29am EDT Brasilia, Brazil, Jan. 6 (Bloomberg) -- Brazil's second largest state said it ran out of cash and won't make payments for at least three months on the 18.5 billion reais ($15.3 billion) of debt it owes the central government. The move by Minas Gerais state prompted Brazilian securities to plunge, rattling investors already skittish that a slumping economy will make it tougher for the government to close its budget deficit and support its currency. The unexpected moratorium could also set back Brazilian efforts to borrow abroad. ''There will be a lot more of this to come and it obviously isn't good news,'' said David Roberts, head of emerging market bond research at Nationsbanc Montgomery Securities in New York. ''Brazil is in an extremely difficult situation. They are being asked to raise taxes in the midst of a severe recession.'' Brazil's benchmark ''C'' bond tumbled to 60.19 from as high as 62.35, driving its yield to 15.9 percent. Shares in Telecomunicacoes Brasileiras SA plunged 3 to 78 in New York after the announcement. Trading in Brazil was closed when the statement was made. ''Due to an absolute lack of money we will not meet the debt accord signed by the previous government,'' said Minas Gerais Gov. Itamar Franco, who took office five days ago. Debt Agreement Under a debt accord signed last year by former Gov. Eduardo Azeredo, the state pledged to pay about 12.5 percent of its monthly revenue to the central government. That's about 80 million reais a month. Franco, who was president of Brazil from 1992 to 1994, said the state didn't have enough money to pay salaries and spend on health programs. Falling revenue because of an economic slowdown and payment of debt installments to the federal government emptied the state's coffers, he said. ''This really has taken everyone by surprise because we were expecting (the two sides) to reach agreement on renegotiating the debt,'' said Jaime Alves, an economist at Banco Patente SA in Sao Paulo. If Minas Gerais doesn't pay its debt, the central government's revenue could fall, threatening the country's efforts to cut by almost half its $64 billion budget deficit this year. The states account for more than half of the country's budget shortfall. A moratorium by Minas Gerais also raises concern that other states governed by opposition parties could also refuse to pay. Analysts have said Franco and the other governors have threatened to withhold debt payments as a bargaining tactic to win better payment terms with the federal government. Possible Government Retaliation Finance Minister Pedro Malan has said the states must make the payments or will face retaliatory action, including cuts in transfer payments and tax revenue from the national government. ''We will not renegotiate what has already been renegotiated,'' said Pedro Parente, the executive secretary at the Finance Ministry. Nationsbanc's Roberts said he expects Minas Gerais to reach a compromise with the federal government to avoid defaulting on its debt. ''Minas Gerais has a signed agreement with the federal government,'' Roberts said. ''It is not something that can just be waived away. There are tools to collect this by withholding funds.'' The moratorium could make it harder for companies to sell debt abroad, as it increases the risk of investing in Brazil. Minas Gerais has $100 million in five-year bonds maturing Feb. 10 and a further $100 million coming due next year. The state has already earmarked money to redeem bonds coming due next year, a spokesman for Minas Gerais said. Rio Grande do Sul, which owes 17 billion reais to the federal government, also said today it will delay payment on this year's first installment of its debt -- about 64 million reais due on Jan. 15. ''Since we inherited a budget deficit of 1.2 billion reais from the previous government and we spend 70 percent of revenue on salaries and payrolls, that leaves us nothing,'' said a spokesman for Rio Grande do Sul. Cardoso Meeting The governors of Minas Gerais, Rio Grande do Sul and four other states ruled by opposition parties have asked for a meeting on Jan. 18 with President Fernando Henrique Cardoso and Finance Ministry officials to try and review the debt accords. Minas Gerais, which has 16 million people and accounts for 13 percent of the country's $800 billion gross domestic product, spends over 80 percent of its 480 million reais monthly tax revenue to pay 450,000 state workers and retirees. In the past four years, the federal government assumed the debts of 24 of the country's 27 states to reduce the country's growing budget deficit. The states' debt amounted to more than 100 billion reais in 1997. The states pledged to sell assets, including banks and utilities, and pay back the federal government in 30 years at 6 percent interest a year. This compares with about 29 percent that the federal government pays in interest on its debt. -------------------------------------------------------------------------------- © Copyright 1998, Bloomberg L.P. All Rights Reserved. latinvestor.com