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

To: Steve Fancy who wrote (12020)	1/19/1999 9:46:00 PM
From: Steve Fancy	Respond to of 22640

ING Barings: Real's success is 'in the hands of Congress' São Paulo, 19 - Although the ultimate success or failure of the new exchange rate regime by letting the real to free float against the dollar, announced by the government on Monday, will rest on accelerated progress of fiscal austerity and reforms, "the financial markets in Brazil and around the world have cheered (that) decision," according to ING Barings' special issue "Brazil: The Devaluation and Beyond". According to the bank, its outlook on devaluation was never that of an inevitable disaster. "On the contrary," writes the author of the report and the bank's research economist at São Paulo's office, José Carlos de Faria, "we were more concerned about the fact that the International Monetary Fund-sanctioned program failed to address the problem of Brazil's overvalued currency than about what would happen once it was confronted." Faria explains that the bank was expecting authorities -- after having refused to address the forex issue in October -- to use their hoard of official international reserves, augmented by disbursements from the IMF and the Bank of International Settlements (BIS), to buy time for the fiscal austerity program to take effect. "However," the report explains, "the political obstacles that the Fernando Henrique Cardoso administration encountered -- trying to extract congress approval of some firm fiscal measures, the debt moratorium announced by the state of Minas Gerais, and growing pressures from the business community to remove the head of the central bank -- combined to force the issue much sooner than anticipated." "The political difficulties, the problems of the states and clear signs that the economy, after two years of mediocre growth," the report goes on saying, "combined to make local investors increasingly question how long President Cardoso would be willing to pay the cost of maintaining the foreign exchange policy (at the same time) the outflow of dollars persisted." The report states that by letting the real float freely against the dollar, Brazil has created an opportunity to pull itself out of the deadlock that has characterized the past three years. "Even though it took more than two years for the Brazilian government to admit that the real was mispriced." The bank's report praises the country's authorities since they did not wait until reserves were altogether depleted before letting the currency go. "In addition to the US$39bn in international reserves, Brazil still has US$32bn to receive from the IMF and the G-7 countries -- even though it is now clear that the agreement with the fund will have to be renegotiated. Furthermore, Brazil's banking system is in relatively good health, and so too are most corporations with U.S. dollar obligations, so that the devaluation should not be expected to have the same catastrophic effect that it had, for instance in countries like Mexico, Korea, Indonesia and Russia." On the other hand, "the need for progress on the fiscal reform," concludes Faria, "is more urgent than ever, and the ultimate success or failure of the new exchange-rate regime is now, clearly, in the hands of the politicians in Brasília and the state capitals." (By Paulo R. Monteiro Dias)

To: Steve Fancy who wrote (12020)	1/19/1999 9:59:00 PM
From: Steve Fancy	Read Replies (2) \| Respond to of 22640

IMF determined hike interest rate hike, sources say Washington, 19 - The government's decision to rise interest rates yesterday was basically determined by the International Monetary Fund (IMF), sources said. According to analyses being carried out in Washington, representatives from countries composing the Fund's council considered that a reduction in Brazilian interest rates could generate a strong capital flight, see related story. According to these sources, industrialized countries became apprehensive whenever a reduction in the cost the Brazilian currency, the real, was mentioned. In relation to the impact of the hike in interest rates on the Brazilian debt securites, the IMF pondered the situation is temporary, thus, a bearable one. The IMF has not as yet defined its resident representative in Brazil. However, the IMF representation should not substitute the Fund's missions to the country, which will continue paying Brazil a quarterly visit in order to check if it is meeting all the targets established in last November's accord. (Cynthia Decloedt, special envoy)