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

To: wl9839 who wrote (12090)	1/20/1999 5:18:00 PM
From: wl9839	Read Replies (1) \| Respond to of 22640

Getting there! ed, 20 Jan 1999, 8:14pm EDT Brazil Congress to Vote on Pension Tax to Slash Growing Budget Deficit Brazil's Congress to Vote on Tax to Cut Budget Gap (Update5) (Adds congressional vote.) Brasilia, Brazil, Jan. 20 (Bloomberg) -- Brazilian lawmakers approved a procedural motion that will lead to a vote on a tax on pensioners, a key test of the government's ability to narrow a yawning budget deficit and shore up investor confidence. Stocks rose on optimism the lower house of Congress will pass a bill it defeated four times last year, rather than risk a burst of capital flight and the cut-off of international aid after last week's currency devaluation. The benchmark Bovespa index rose for a fourth day, gaining 4.1 percent. ''If this measure doesn't get the vote,'' said Roberto Dotta Filho, who manages $35 million in equities at Tudor Asset Management in Sao Paulo, ''It's goodbye Brazil.'' Legislators approved the motion 352-143, and were expected to vote later on the tax bill, the first item on the night's agenda. The tax, aiming to raise 3.1 billion reais ($2 billion) this year, is vital to convincing skeptical lenders the government can narrow its 73 billion reais budget deficit. The pension system has become a symbol of Brazil's failure to live within its means. In New York, Finance Minister Pedro Malan met with senior investment bankers, financier George Soros and Federal Reserve Gov. William McDonough at the New York Federal Reserve Bank to shore up support for the government's efforts. Malan Meets Bankers Bankers attending included Jon Corzine, co-chairman of Goldman Sachs & Co.; David Komansky, chief executive officer of Merrill Lynch & Co.; and Henrique de Campos Meirelles, president of BankBoston Corp., according to newswire reports. A jump in interest rates and a 22 percent decline in the currency's value against the dollar in the past week won't keep the government from repaying its 320 billion reais of domestic debt, Malan said, countering speculation of a debt rescheduling, according to the reports. The currency weakened 1.3 percent to 1.58. Malan declined to comment on the real's value. Markets around the world were focused on Brazil's Congress, whose role was underlined in testimony by U.S. Federal Reserve Chairman Alan Greenspan at the U.S. Congress. ''Follow through in reducing budget imbalances and in containing the effects on inflation of the drop in value of the currency will be needed to bolster confidence and to limit the potential for contagion to the financial markets and economies of Brazil's important trading partners,'' Greenspan said. 'Make-or-Break' The currency devaluation has raised the stakes for legislators typically focused on local issues. ''Before, the defeats were only the government's,'' said Antonio Delfim Netto, a deputy who previously voted against the tax. ''Now a defeat could hurt the whole country.'' The taxes are part of 28 billion reais in deficit cuts proposed last year as condition for a $41.5 billion aid package arranged by the International Monetary Fund. If passed by the house, it will move to the Senate for final passage. ''The bill itself doesn't guarantee success of the fiscal program,'' said Tulio Vera, head of global emerging markets researh at ABN Amro Inc. ''But it's the first 'make-or-break' legislative test of the events last week.'' The vote comes as Brazil struggles to cut deficit spending amid rising interest rates and a weaker currency. The Brazilian central bank today boosted overnight interbank rates to 32.5 percent from 32 percent. Capital outflows have averaged more than $500 million a day this month, sapping reserves -- which were more than $75 billion in August -- by more than $6 billion to about $30 billion. Deficit Brazil's failure to overhaul its cash-strapped pension system has become symbolic of its inability to narrow its deficit. ''The government hasn't the money to meet its obligations with pensioners,'' said Communications Minister Pimenta da Veiga in television interview this morning. '' I don't want to think about a defeat today.'' Of the government's projected spending of 250 billion reais this year, 70 billion reais will be spent on debt servicing and 110 billion reais will go towards salaries and pensions for state workers and pensions for private-sector workers. While Brazil collects about 3 billion reais in taxes from 520,000 state workers, it spends about 22 billion reais paying pension to about 900,000 retired workers. The pension tax was to have been reconsidered in February when a new slate of lawmakers takes over. The recent currency devaluation and spike in interest rates pushed up the schedule. Although the government parties comprise more than three quarter of the lawmakers in the house, congressmen have opposed the bill because many are retired state workers or have family members who are. ''I will vote for the bill because Brazil's needs my vote,'' said Dep. Jose Chaves, who voted against the bill last month. The bill could tax retirees for the first time. Pensioners earning between 600 reais and 2,500 reais monthly would be taxed at a rate of 11 percent to 25 percent. It would also increase to 25 percent, from 11 percent, the income tax rate for current state workers. ------------------------------------------------------------------------ © Copyright 1999, Bloomberg L.P. All Rights Reserved.