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

To: Steve Fancy who wrote (11639)	1/14/1999 11:05:00 AM
From: Steve Fancy	Respond to of 22640

Brazil's Long Foreign Currency Rtg Cut to B+ From BB-: S&P Dow Jones Newswires LONDON -- Standard & Poor's Thursday said it lowered its long-term senior unsecured rating on Brazil's $58.1 billion of foreign currency debt to B+ from BB-. S&P also said it lowered its rating on the country's long-term real-denominated debt to BB- from BB+ and affirmed its B rating on the Republic's short-term real-denominated debt, totaling BRR330 billion. The agency also affirmed the Republic's short-term foreign currency rating of B. Additionally, S&P said it cut Brazil's long-term foreign currency sovereign credit rating to B+ from BB- and its long-term local currency sovereign credit rating to BB- from BB+. The rating outlook remains negative, the agency said. "The downgrade and negative outlook reflect the heightened risks to financial recovery posed by yesterday's shift in exchange rate policy in the context of an unfinished fiscal reform agenda and extremely fragile market confidence," the agency said. Brazil's central bank chief Gustavo Franco resigned Wednesday and the central bank announced a widening of the trading band for the country's currency, the real. The currency immediately plunged 8.2% to BRR1.32 to the dollar, the floor of the new expanded trading band. "While in the medium term a more flexible exchange rate policy could be beneficial, Standard & Poor's doesn't expect the policy modification to prompt a rapid decline in interest rates. Indeed, interest rates may likely need to be increased and kept high to defend the new policy and build its credibility. "Pressure on the exchange rate is unlikely to abate and net capital flows are expected to remain negative for months pending congressional approval of the remainder of the fiscal package and the release of both federal and state fiscal results from the first quarter of 1999. In an alternative scenario, should the real eventually be permitted to float, interest rates likely would remain high and volatile," S&P said. Indeed, in either scenario, rates could average well above the 22% envisaged in the 1999 fiscal adjustment program, it said. "This will drive a significantly sharper contraction than the officially expected 1% GDP decline; heighten public and private refinancing difficulties; make the targeted 4.7% public sector borrowing requirement difficult to achieve; and drive a continuing climb in the central government's gross indebtedness, now about 50% of GDP, which is the second highest in the single-B-category," S&P said. The ratings remain constrained by profound structural flaws in federal and state finances, S&P said. Major inefficiencies in the public sector, notably the social security system, the public payroll, and the tax structure, have been only partly addressed, the agency said. There are also significant balance of payments vulnerabilities, it said. Gross reserves, including $5.3 billion of the available $41.6 billion official external financial support package, stand at about $45 billion now, while the projected 1999 long-term external financing gap, defined as the current account deficit plus long-term amortizations, is $60 billion, the agency said. Moreover, outflows from domestic residents, which reached $2.2 billion in December, will increase this month and are also likely to remain significant and volatile near term, S&P said. S&P also cited the heavy and rising external debt burden. At an estimated 220% of exports, net external debt is three times the median for the single-B-rating category; debt service, at 47% of exports last year excluding short-term, is also the highest in the category, it said. But the agency welcomed the government's "emerging commitment to fiscal austerity." It also said it "does not expect yesterday's currency movement or a potential further devaluation to lead to an unmanageable price spiral." In addition, despite its extensive inward capital account controls, the central bank would be unlikely to impose outward capital controls or unilaterally change the terms of its debt, S&P said.

To: Steve Fancy who wrote (11639)	1/14/1999 11:07:00 AM
From: Steve Fancy	Respond to of 22640

SMARTMONEY.COM: Where Is Brazil, Anyway? Dow Jones Newswires This story was originally published Wednesday By Deborah Lorber and Lauren Young Smartmoney.com NEW YORK (Dow Jones)--"There's no sense of terrible here," observed T. Rowe Price manager Rich Howard Wednesday morning as he returned to his office from the firm's trading desk. The S&P 500 was on its way to plunging over 30 points, or 2.7%, following the news that Brazil's central bank chief had resigned and its currency, not to mention its stock market, were plunging. But Howard was right. Once investors thought twice, they decided what was happening in Brazil wasn't terrible for the U.S. After lunch, the S&P 500 was back to even. There is likely to be more bad news from Brazil and possibly other Latin American countries. But the value fund managers we contacted don't think our southern neighbors can spoil the U.S. stock market party. For Howard, who manages T. Rowe's $1 billion Capital Appreciation (PRWCX) fund, it's back to business as usual. He's betting that the worries about overbuilding in Las Vegas have hit rock bottom and has recently purchased Circus-Circus (CIR). At Heartland Value (HRTVX), fund manager Eric Miller is also unconcerned. "People are just using Brazil as a reason to take some money off the table," he said. Though Wednesday morning's swift decline does indicate how vulnerable our inflated stock market is. "For things to continue the way they have, everything has to be perfect. Any type of a hiccup causes a selloff until you get into more rational valuations.' International fund managers are more concerned. "It's too early to evaluate, but it's not good news," said George Murnaghan, executive vice president at Rowe Price-Fleming International. Still, he doesn't think Latin America is the next Asia. Said he: "Latin America has already taken severe knocks. It will be coming down from much lower levels than Asia." Most likely, the trouble in Brazil will lead to a flight to quality and the safety of U.S. Treasury bonds. Only Jean-Marie Eveillard, one of our portfolio duelists and the manager of SoGen International Fund (SGENX), was willing to speculate that Brazilian trouble might lead to a longer-duration U.S. stock market swoon. "It's one thing for Russia to default [on its government bonds]. With the exception of Coke (KO) and Philip Morris (MO), the U.S. does not sell much in Russia," he said. "But Brazil hits close to home." For more information and analysis of companies and mutual funds, visit SmartMoney.com at (http://www.smartmoney.com/).

To: Steve Fancy who wrote (11639)	1/14/1999 11:11:00 AM
From: Steve Fancy	Respond to of 22640

Congress approves fiscal austerity program measures São Paulo, 14 - The government had an important victory Wednesday for the implementation of the fiscal stabilization program (PEF) released in November. Ministers, politicians and leaders allied to the government beat the opposition's resistance and approved four fiscal adjustment measures aimed at compensating losses resulted with delays in the Temporary Tax on Financial Transfers (CPMF - the so-called check tax) vote. Deputies approved by 355 votes in favor and 133 opposed the most controversial of the measures, which changes rules regulating the Corporate Income Tax (IRPJ), Financial Operations Tax (IOF) and Excise Tax (IPI). In the Senate, the measure passed by 61 votes in favor and 11 opposed. Before that, legislators had already approved on a symbolic vote the measure altering rules regulating the Long Term Interest Rates (TJLP). Having approved the measures, the government will have additional revenues estimated at some R$4bn. (O Estado de S. Paulo/ Jornal da Tarde/ Folha de S.Paulo/ Jornal do Brasil/ O Globo)

To: Steve Fancy who wrote (11639)	1/14/1999 11:12:00 AM
From: Steve Fancy	Respond to of 22640

On the surface, sounds like they're moving these measures through with solid majorities. Course this was happening last fall till we got to the one that had the most potential direct impact on the lawmakers themselves...the SS reforms. sf

To: Steve Fancy who wrote (11639)	1/14/1999 11:13:00 AM
From: Steve Fancy	Respond to of 22640

Forex posts a US$864.2m deficit on Wednesday São Paulo, 14 - The Brazilian foreign exchange market posted a US$1.094bn deficit (commercial plus floating dollar segments) last Wednesday, when domestic markets panicked over the announcement of the BC's decision to devalue the real in nearly 9%. Financial inflow in the commercial dollar segment reached US$122.058m, below outflow which stood at US$1.019bn. In the trade account, exports reached US$116.786m, against imports of US$83.287m. With the figures, the segment registered a net deficit of US$864.264m yesterday, increasing the month's negative balance to US$2.530m. The floating dollar posted a deficit of US$230m, raising the segment's negative result in the month to US$848m. (By Lucinda Pinto) agestado.com

To: Steve Fancy who wrote (11639)	1/14/1999 11:15:00 AM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Stocks revert their upward trend in volatile session After feeling the pinch from Brazil's crisis, which took by storm key markets around the world as officials announced an effective devaluation of the country's currency, the real, market participants consulted by Agência Estado believed at the beginning of today's session that Brazilian stocks could recuperate part of their losses on the back of a mix of bottom-feeding and the approval of key measures in Congress yesterday. Although bourses did really manage to begin trading in positive territory, as low prices in stocks sparked a bargain-hunting in the market, they reverted at mid-session in volatile trade on rumors that large hedge funds in Brazil are facing difficulties after yesterday's turmoil. On Wenesday, domestic markets witnessed in commotion "Brazilian Central Banker, Gustavo Franco, a hard-line foe of devaluation, quit abruptly," wrote the U.S.-based the Wall Street Journal in its online version today. "His newly appointed successor, Francisco 'Chico' Lopes, immediately allowed the real to fall in value by 8.3% against the U.S. dollar." Although, Lopes tried to cool off the crisis by saying his step -- technically, a shift in the "band" tying the real to the dollar -- was an improvement in the forex policy, "rather than a breakdown of it", investors took the lead, and concerns that a major collapse, as well as new devaluations are yet to come, are making them adopt a more cautious attitude. "If they (Brazilian officials) think that throwing the dogs a bone of a 9% devaluation will make them go home, it won't," former Brazilian Central Bank president, Francisco Gros, was quoted as saying to the newspaper. Investors are also concerned about the repercussions the country's BC decision may have abroad. In truth, the real plan set in July of 1994 is deeply dependent upon the support of foreign capital, and yesterday alone US$1bn fled the country on fears of a stock market meltdown. Yesterday, trading in São Paulo was halted after the city's stock exchange index (Ibovespa) tumbled more than 10%, before managing to rebound to end the day down by "only" 5%. (By Paulo R. Monteiro Dias)

To: Steve Fancy who wrote (11639)	1/14/1999 11:18:00 AM
From: Steve Fancy	Respond to of 22640

Brazil's Move Raises Cost of $300 Billion Dollar Debt After Real Weakens Brazil's Move Raises Cost of $300 Bln of Dollar Debt (Repeat) (Repeats to fix transmission error.) Rio de Janeiro, Jan. 14 (Bloomberg) -- Brazil's decision to let its currency weaken yesterday raised the cost of repaying almost $300 billion of dollar-linked debt, sapping government efforts to narrow its budget deficit and companies' efforts to survive a punishing economic slump. ''Companies up to their eyeballs in foreign currency debt are going to have problems,'' said Carl Weaver, chief of research at Banco BBA Creditanstalt SA in Sao Paulo. Brazil's government and companies such as Cia. Energetica de Sao Paulo, the second-biggest electricity generator, have about $225 billion in foreign-currency obligations. Of that, the companies owed about $140 billion as of last September, the central bank said. About $11 billion matures this year. What's more, about one-fifth of the government's 314 billion real ($240 billion) domestic debt is indexed to the dollar. The increased costs of repaying that debt may set back efforts to close a budget deficit projected at about $64 billion and bring down interest rates -- the reason for the devaluation. ''The government will foot the bill for much of this because a lot of their domestic bonds are indexed to the U.S. dollar,'' said Francisco Gros, a former president of Brazil's central bank and Latin American chairman for Morgan Stanley & Co. Debtors Brazil bowed to market pressure after the cost of propping up the real for more than a year became too high. Interest rates of 50 percent drove unemployment to a 14-year high and will send the economy into a recession this year. The real fell 8 percent against the dollar, a blow to those that earn reais but must pay off debts in dollars and other currencies. The real was little changed today at 1.31 to the dollar. Especially hard hit will be utilities such as Light Servicos de Eletricidade, with $1.2 billion in dollar debt, its sister company Eletropaulo Metropolitana SA and Cesp, which before the devaluation had 80 percent, or $3.8 billion, of its debt in foreign currency. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved. latinvestor.com

To: Steve Fancy who wrote (11639)	1/14/1999 11:20:00 AM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Brazil's Budget Deficit Narrows in October as Govt Spending Declines Brazil's Budget Narrows as Government Cuts Spending Brasilia, Brazil, Jan. 14 (Bloomberg) -- Brazil's budget shortfall narrowed to 8.6 billion reais ($6.6 billion) in October, beating expectations, as spending cuts by the federal government offset rising interest payments on the government's debt. A poll of six economists surveyed by Bloomberg News had expected the shortfall to widen to 9.7 billion reais from 9.2 billion reais in September. Spending by the federal government fell to 810 million reais from 2.1 billion reais the previous month. This was offset by interest payments on the government's 368 billion reais debt, which rose to 7.8 billion reais from 7.1 billion reais in September. Since 64 percent of the country's domestic debt is indexed to overnight lending rates, interest payments rose immediately as market rates doubled to 40 percent after the central bank raised rates to stop an outflow of U.S. dollars that had reached $1 billion daily in September. Rates remained at around 41 percent in October. High interest rates and bloated pension and payroll bills have caused Brazil's budget deficit to balloon as it had to raise rates to sell debt. This forced Brazil to weaken its currency yesterday. The government is betting that it will now be able to reduce interest rates faster and ease interest payments, keeping its deficit from rising. Still, rates are still high as investors are unsure the government can cut its spending, speculating the devaluation will continue. Yesterday, the local currency, the real, weakened 8.8 percent after the government introduced a new foreign exchange mechanism which allows the real to devalue faster at about 15 percent a year. The real had been devaluing at 7.4 percent a year since 1995. Between January and October, Brazil's budget deficit rose to 56.4 billion reais from 47 billion reais in the first nine months of the year. The bank didn't release 12-month estimates, though economists have estimated it's about $64 billion. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved.

To: Steve Fancy who wrote (11639)	1/14/1999 11:21:00 AM
From: Steve Fancy	Respond to of 22640

Brazil Real Little Changed in First Day of New Currency Trading Band Brazil Real Little Changed Under New Band (Update1) (Updates to include information about interest rates, parallel market and adds comments.) Sao Paulo, Jan. 14 (Bloomberg) -- The Brazilian currency traded little changed one day after the central bank let the currency slide at a faster pace, as investors eased pressure on the real. In the currency spot market, the real strengthened 0.64 percent to 1.3115 against the dollar, after weakening 8.2 percent to the top of a new trading band of 1.32 yesterday. So far today, the central bank hasn't sold dollars to stabilize the currency, traders said. In the parallel market, dollars were selling at 1.37 reais, down from as much as 1.50 yesterday, as Brazilians rushed to the exchange houses to buy dollars afraid of a massive devaluation. The futures market for the real is effectively shut down by circuit breakers that limit increases in the futures contract to 1 percent a day. The contracts have yet to reflect the 8.2 percent plunge in the real yesterday. The futures contract in the U.S. traded at 1.377 reais to the dollar for February delivery on the Chicago Mercantile Exchange. ''Investors are more cautious today, watching the movement of the currency before taking or getting rid of positions,'' said Francisco Lage, a money market trader at Banco Real SA. Trading volume is lower than yesterday, with mainly Brazilian largest banks dominating the market, said Lage. ''So far this morning, the big banks are accepting this level of the currency for their daily contracts, but if something bad happens throughout the day, they can't push the real up again.'' The central bank adjusted the ceiling of its trading band to 1.32 reais yesterday, from 1.22 reais. The bank also removed an inner trading band, allowing for a freer float of the currency. With the new trading band, the currency is expected to weaken about 12 percent or 15 percent this year, compared with just 7.1 percent in 1998. Investors said the currency may slide even further if investors continue to flee the country, forcing the bank to allow the currency to float freely. Capital flight was $1 billion Wednesday, and $1.2 billion the previous day. Elsewhere in the markets, the rate on one-day certificates of deposit for March delivery, the most-traded interest rate futures contract on the Sao Paulo BM&F futures exchange, rose about 10 percentage points to 52.18 percent. The rate rose as high as 52 percent yesterday before settling back. Brazil's benchmark interest rates, set by the central bank, is 29 percent. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved.

To: Steve Fancy who wrote (11639)	1/14/1999 11:23:00 AM
From: Steve Fancy	Respond to of 22640

Brazil to Sell $230 Mln Dollar-Linked Debt After Devaluation Brazil to Sell $230 Mln Dollar-Linked Debt After Devaluation Rio de Janeiro, Jan. 14 (Bloomberg) -- The yield on Brazilian central bank debt is expected to rise today as the government tries to sell up to 300 million reais ($230 million) in dollar-linked debt, a day after letting the currency slide. The central bank offered 300 million reais of 27-month dollar-linked notes, or NBC-Es, that pay interest based on the commercial dollar exchange rate, plus a fixed coupon of 6 percent per year, paid twice a year. This is part of Brazil's regular efforts to roll over its domestic debt. The central bank will hold its weekly debt auction a day after the currency plunged 8.2 percent after the bank let the currency weaken at a faster pace. The dollar-linked debt gives investors protection against further erosion of the currency. ''The government wants to signal to investors it is confident that its new foreign exchange policy will hold,'' said Luciana Fagundes, economist at Lloyds Bank in Sao Paulo. ''It's telling everybody that there won't be any further changes in foreign exchange policy.'' Brazil's dollar-linked debt accounts for about a fifth of the country's 300 billion reais in domestic securities debt. The sale could increase this amount further. Last week's sale of NBC-Es paid an average yield of 15.27 percent a year. The notes will pay a fixed return for their first four weeks, and then pay interest based on the benchmark Selic rate, now 29 percent, until maturity. ''Today's result will be important because it show where investors confidence is at,'' said Fagundes. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved. latinvestor.com

To: Steve Fancy who wrote (11639)	1/14/1999 11:27:00 AM
From: Steve Fancy	Respond to of 22640

France's Strauss-Kahn Says World Community Is Backing Brazil France's Strauss-Kahn Says World Community Is Backing Brazil Paris, Jan. 14 (Bloomberg) -- Brazil has the backing of the international community and her economy will weather the short- term problems it's encountering now, French Finance Minister Dominique Strauss-Kahn said. Brazil, the world's ninth-largest economy, on Wednesday ended a policy of defending the real, allowing the speculative selling of the currency to go unchecked. That sent global stock markets lower on concerns the move will deepen the recession in Latin American and hurt worldwide economic growth. Recognizing that the latest developments are 'not good,'' Strauss-Kahn said ''the whole international community is behind Brazil'' in taking steps to pull the economy out of recession. Looking beyond the short term, the minister said he expects Brazil's economic recovery is ''in hand.'' Strauss-Kahn was speaking at a reception for the press at the Finance Ministry. Turning to France's own economy, Strauss-Kahn said he is still confident that ''1999 will be a year of strong growth.'' The government's budget this year is based on a growth forecast that predicts the economy will expand by 2.7 percent after about a 3.0 percent growth rate last year. That forecast may be changed in March, the minister said. The finance ministry has already indicated that it's expecting economic growth of as low as 2.4 percent. This figure was a pessimistic forecast included in the three-year budgetary outline the French government submitted to the European commission. Strauss-Kahn said he expects the economy will rebound in the second half of this year after slowing in the first six months. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved. latinvestor.com