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

To: Logos who wrote (11742)	1/15/1999 2:00:00 AM
From: Steve Fancy	Respond to of 22640

Brazil should fix real to dollar - Cavallo Reuters, Thursday, January 14, 1999 at 21:46 BUENOS AIRES, Jan 14 (Reuters) - Argentina's former economy minister Domingo Cavallo said on Thursday Brazil should adopt a fixed-rate exchange rate system like the one he helped create in Argentina in 1991. Cavallo said that if it wished to overcome market volatility, Brazil could either peg its currency, the real, to the dollar or abandon its system of trading bands and let it float as Mexico did in December 1994 -- with disastrous effects. "The Mexican system has problems, like for example its still significant inflation rate. I prefer the Argentine alternative," he told foreign correspondents. But Cavallo said that he disagreed with the large number of Argentine economists who say Brazil will have to force a restructuring of its huge domestic debt on its many creditors in the real currency. In 1989, Argentina confiscated dollar fixed-term accounts, giving savers long-term bonds in return. This "Plan Bonex" gave the government a clean fiscal slate and set the scene for the Convertibility Law pegging the peso to the dollar in 1991. But Cavallo said Brazil did not need a Plan Bonex-style measure for its debt of more than $300 billion in the real currency. "The problem in Brazil is not its stock of debt, but rather the high interest rates it pays on it. A Plan Bonex is not necessary in Brazil, what they need is for their creditors to agree to refinancing at lower rates," Cavallo said. "Brazil has sufficient reserves to adopt Convertibility. It is very important that it does not take any compulsory measures because that could cause a situation like in Russia," he said. The Convertibility Law passed in 1991 essentially required the Central Bank to have a dollar or its equivalent in gold or bonds for every peso it printed. The system proved its mettle in the 1995 "Tequila Crisis" triggered by a Mexican devaluation when many foreign analysts predicted Argentina would follow suit. Argentina's main weakness in 1995, its banking system, has also since been strengthened. Peso-dollar parity has eliminated rampant inflation which plagued Argentina for decades. President Carlos Menem fired the argumentative Cavallo from his economic ministry post in 1996. They are now bitterly estranged and Cavallo is running for president in October elections for his own Action for the Republic Party on a free-market, anti-corruption platform. buenosaires.newsroom@Reuters.com)) Copyright 1999, Reuters News Service