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

To: Steve Fancy who wrote (11695)	1/14/1999 2:46:00 PM
From: Steve Fancy	Respond to of 22640

Brazil will not default on debt, ambassador says Reuters, Thursday, January 14, 1999 at 14:31 LONDON, Jan 14 (Reuters) - Brazil will not default on any of its debts despite severe pressure on its effectively devalued real currency, the country's ambassador to London said on Thursday. Rubens Barbosa dismissed mounting fears that Latin America's troubled economic powerhouse would fail to honour all its debt, echoing last year's devaluation and partial debt default by Russia. "This is completely out of the question," he told Reuters Television, reiterating assurances this week from Brazilian President Fernando Henrique Cardoso. "It will be very tough, very difficult for us to overcome this situation, but there is a firm commitment by the government as a whole." The latest global market jitters were triggered last week when Brazil's third-richest state, Minas Gerais, announced a 90-day moratorium on debt payments to the federal government. Barboso said the government was entirely behind Cardoso's plans to deal with the crisis, including Wednesday's de facto devaluation of the real and a slew of emergency austerity measures currently passing through Congress. The resignation on Wednesday of Central Bank President Gustavo Franco did not reflect policy divisions but the need for new blood to guide the new foreign exchange policy, he said. "The economic team is firmly behind the president. The change in tactics represented by this change in the (currency trading) band...needed new people to do it," he said. Barbosa said the government was confident of getting all its belt-tightening legislation through Congress this month, and some 70 percent of the measures had already been approved. The Brazilian government has promised to save $84 billion over the next three years to secure an ongoing credit package through the International Monetary Fund. The latest crisis has drained more than $2 billion from Brazil's foreign exchange markets in the past two days, amid fears that it may rekindle global financial turmoil. But Barbosa said comparatively little of the money leaving Brazil represented capital flight. "Most of this money leaving the country is not speculative," he said. "It is repayments for international financial institutions and money remitted by Brazilian companies anticipating payments abroad. So the actual money leaving the country in a speculative way is not very high." uk.emergingmarkets.news@reuters.com)) Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11695)	1/14/1999 2:56:00 PM
From: Steve Fancy	Respond to of 22640

Brazilian Markets Extend Slide; More Declines Seen (Update9) Brazilian Markets Extend Slide; More Declines Seen (Update9) (Adds central bank denial on floating the currency.) Sao Paulo, Jan. 14 (Bloomberg) -- Brazilian interest rates soared and stocks plunged as yesterday's currency devaluation threatened to trigger new declines in the real and throttle growth in Latin America. Standard & Poor's Corp. responded by cutting Brazil's credit rating one notch. The currency was unchanged at 1.32 against the dollar -- after sliding 8 percent yesterday. Interest rate futures for February surged to 72 percent. The benchmark stock index dropped 9 percent as traders bet the rising rates will choke an economy already projected to shrink up to 4 percent. The surge in interest rates and the stampede of $1.1 billion out of the country yesterday suggest Brazil may be unable to avoid a further devaluation, roiling world markets. Floating the currency -- a move the central bank denied considering -- could drive it down to 1.7 to the dollar, investors say. ''There's going to be a sell-off, and I see more devaluation coming sooner rather than later,'' said Michael Gavin, Warburg Dillon Read's chief Latin America economist. ''They have only reduced confidence in their exchange rate policy.'' Debts Brazil's decision may make it harder for companies in emerging markets to raise money and more expensive for the government and companies to repay almost $300 billion of debt linked to foreign currencies. It will likely pinch profits of international companies doing business in Brazil. Motorola Inc. said today it would take a $15 million first-quarter charge to cover losses stemming from the devaluation. Shares of U.S. banks, which have an estimated $65 billion in investments at risk in Latin America, fell. J.P. Morgan & Co. fell as much as 3 1/8 to 103 7/16. ''The real danger is that Brazil is just the first shoe to drop,'' in Latin America, which accounts for 20 percent of U.S. trade,'' said Peter Coolidge, a senior equity trader at Brean Murray & Co. The most immediate victims of the devaluation are Brazilian companies. They've scrambled to hedge their exposure, though markets for trading foreign exchange swaps and currency futures were shut because of rules that limit the real's drop to 1 percent a day. ''These companies that aren't managing to obtain a hedge through the market are moving their funds offshore.'' said Fabio Jacob, pricing manager of Banco CCF Brasil SA. There are some winners. Marcopolo SA, the world's biggest producer of bus and coach bodies, plans to take advantage of the cheaper real by boosting exports. ''We are going to reschedule our export strategy in order to increase export levels,'' said Jose Antonio Martins, the company's vice-president. Doubts The companies' rush to hedge reflects growing doubts Brazil will be able to sustain its latest currency target. The real reached the limit imposed by the central bank of 1.32. In currency-exchange houses, dollars were selling at 1.37 reais, down from as much as 1.50 reais yesterday, as Brazilians rushed to the exchange houses to buy dollars afraid of a massive devaluation. ''Everybody is scared with this devaluation so we have many dollar buyers and no one selling,'' said an operator at one downtown exchange house in Sao Paulo. History is not on Brazil's side. Other emerging market countries, including Mexico, Russia and South Korea, have attempted similar controlled devaluations and have failed. Standard & Poor's said the devaluation probably wouldn't accomplish the government's aim of reducing interest rates and reviving the economy, which is forecast to shrink as much as 4 percent this year by private economists. The New York-based rating company reduced Brazil's long-term foreign currency rating one notch to ''B+'' from ''BB-,'' making it the lowest rated country in South America along with Argentina. The high rates needed to sustain the currency could throttle an already slumping the economy and block the government's key aim -- reducing its projected $64 billion budget deficit this year. ''Interest rates may likely need to be increased and kept high to defend the new policy and build its credibility,'' S&P said in a statement. ''In an alternative scenario, should the real eventually be permitted to float, interest rates likely would remain high and volatile.'' Capital Flight Some $1 billion fled Brazil Wednesday, on top of the $1.2 billion the day before. If these outflows continue, Brazil's $70 billion in reserves -- which include a credit line arranged by the International Monetary Fund -- won't last long. Together, the government and companies have almost $300 billion in foreign currency denominated debt. ''No country has gotten away with a selective, small devaluation,'' said Peter de Svastich, chairman of Westhem International, which specializes in Brazil and Argentina and manages assets of about $120 million. De Svastich said the real may fall to 1.7 to the dollar in as few as five days. Engineering a small devaluation won't work, ''we've seen this time and time again,'' de Svastich said. -------------------------------------------------------------------------------- © Copyright 1999, Bloomberg L.P. All Rights Reserved.