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

To: David Petty who wrote (11313)	1/7/1999 7:09:00 PM
From: David Petty	Respond to of 22640

Thursday January 7, 6:34 pm Eastern Time Debt flap saps confidence in Brazil - fund mgrs By Ian Simpson NEW YORK, Jan 7 (Reuters) - A Brazilian state's debt moratorium that roiled world markets Thursday is a political faceoff that will sap investor confidence further, fund managers and analysts said. They told Reuters powerful Minas Gerais state's 90-day freeze on federal debt payments was a political challenge that Brazil's reformist government had to face down to get its own chaotic finances in order. The faceoff over debt raised new concerns that Brazil, Latin America's biggest economy, would fail to close a yawning budget deficit through passage of fiscal reforms. Worries about Brazil's shortfall sparked a $42 billion international aid package last year to keep the country from dragging Latin America into an Asian-style economic collapse. Edward Allinson, emerging market strategist at Brown Brothers Harriman, said the debt faceoff could even force Brazil to devalue its currency, the real. ''The more this goes on, the more confidence drains out,'' he said. ''There are not a lot of things going right in Brazil at the moment.'' Daniel Wilson, managing director at Zemi Investments, said reformist President Fernando Henrique Cardoso and his economic team needed to take a hard line on the debt issue. ''These kinds of challenges are going to multiply,'' he said. ''It's going to be a very tough year in Brazil.'' Referring to widespread predictions of a Brazilian recession this year, he said, ''People that were expecting things to resolve itself (and) ... the economy to start growing again are engaging in wishful thinking.'' Minas Gerais Gov. Itamar Franco, himself a former president, Wednesday declared a 90-day moratorium on debt payments to the central government because the state was out of money. Minas Gerais, Brazil's third-richest state and an industrial center, owes the government $15 billion. Worries about Brazil, compounded by the impeachment trial of U.S. President Bill Clinton, helped send the dollar to its lowest level since September 1996. Emerging market bond prices also slid. Brazilian stocks slumped, with Sao Paulo's Bovespa index off 5.76 percent. Brazilian American Depositary Receipts (ADRs) also were off in New York, with bellwether Telebras SA (NYSE:TBH - news) down 2-7/8 to 75. The analysts and managers said Franco's debt freeze was part of an effort to raise his political profile. The confrontation and its possible effect on passage of the economc reforms heightens the political element in investing in Brazil. ''Brazil right now is a very politically driven marketplace, rather than on fundamentals,'' said Larry Speiler, portfolio manager for emerging markets at the Principal Financial Group in Des Moines, Iowa.