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

To: Steve Fancy who wrote (11340)	1/9/1999 11:27:00 AM
From: Steve Fancy	Respond to of 22640

Brazil's Currency Regime Looks Sound Despite State's Debt Payment Rebellion By MARIANNE SULLIVAN Dow Jones Newswires NEW YORK -- The debt moratorium announced by Brazil's third wealthiest state, Minas Gerais, is worrisome political wrangling but doesn't jeopardize the stability of the country's foreign exchange regime, currency analysts said. "Whenever there seems to be wavering on the political front in Brazil, investors tend to run," said Ken Colli, Latin American economist at Credit Lyonnais in New York. But, said Mr. Colli, the country has enough reserves to sustain its currency, the real, "barring a total collapse of confidence in the country." Late Wednesday, the state's governor, Itamar Franco set off the panic, declaring a 90-day debt moratorium on monthly payments of around $67 million to the federal government. Mr. Franco, a former president of the country, is considered one of Brazilian President Fernando Henrique Cardoso's major opponents. Indeed, bad news in Brazil rattles nerves of investors who imagine the woes of the world's ninth-largest economy spreading to other emerging markets as well as the U.S., whose banks and corporations have a major exposure to Brazil. Concerns about the Minas Gerais debt moratorium prompted some investors Thursday to reduce their holdings in European shares exposed to Latin America, hurting share prices of such blue chips as Dutch bank ABN Amro Holding, Switzerland's Nestle SA and Credit Suisse Group and British bank Lloyds TSB Group PLC. While Mr. Cardoso and his government are believed to firmly support fiscal reform, winning congressional approval for the reform package and gaining the cooperation of the states are seen as major hurdles. The moratorium "will raise speculation that the International Monetary Fund-deal will have to be restructured or that Brazil will have to devalue. Either way, the dollar should be the one to suffer," said Hillel Waxman, chief foreign exchange dealer at Bank Leumi in New York. The dollar has fallen against both the euro and yen as market players flee to safer currency investments. By late afternoon Thursday the dollar was trading at 110.83 yen, down from 112.95 late Wednesday. The euro was trading at $1.1719, up from $1.1626 late Wednesday. While the dollar may suffer from contagion, the Brazilian government still has what it takes to shield the currency from panic, Mr. Colli said. Between the IMF-led relief packages, complementary taxes and spending cuts, Brazil has bought enough time to sustain the country's exchange regime at least until a recently approved financial transactions tax is implemented. Economists agree the real is overvalued by some 15% and will eventually have to be devalued. But doing so now in the midst of this political battle would be "crazy" said J.P. Lacombe, emerging markets director at Barclays Capital in New York. Currently, the real trades in a miniband against the dollar and is weakened at a nominal rate of 7.5% per year. While devaluation may be inevitable, the government would prefer it be controlled and not forced by the market. Controlled devaluation would be undertaken when market confidence in the country is strong, perhaps after the reforms are passed, so an announced devaluation wouldn't create a stampede out of the real, analysts said. The prospect of such a stampede-producing crisis of confidence is exactly what worries investors. "From a net fiscal basis this will not impact Brazil," said Mr. Lacombe of the moratorium. "But from a credibility standpoint, it is negative." Investors will continue to assess the credibility of the government's reform efforts and the potential for them to be implemented. Right now, said Mr. Lacombe, investors are waiting to see if other states jump on Mr. Franco's bandwagon. "The bottom line is that the fiscal government will have to take swift action. If it doesn't the fear is that other opposition groups could undermine its fiscal effort," Mr. Lacombe said.

To: Steve Fancy who wrote (11340)	1/9/1999 11:28:00 AM
From: Steve Fancy	Respond to of 22640

Sorry guys, that last one reads like a dup. - sf <eom>

To: Steve Fancy who wrote (11340)	1/9/1999 11:30:00 AM
From: md1derful	Read Replies (2) \| Respond to of 22640

DP and SF: Boy I needed that..can't wait to read the article..now lets get the 'fins and jets kicking some butt and we may have a nice weekend after all. My cleaning crew is from Brazil and I tell them, each state who doesn't pay its loan money...well I drop their salary 10%....they're on the phone to their congressmen as we speak!! Nah, they're great guys, love 'em...have a nice weekend..SF, keep shovelling...hopefully you'll see grass ( the non-inhalable kind) before Easter!!!