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

To: Steve Fancy who wrote (12134)	1/21/1999 10:08:00 AM
From: Tony van Werkhooven	Respond to of 22640

Steve- The expectation was that it would be watered down to some extent. Excluding those currently over age 70 was not unreasonable. I agree, those under BrR 600, must have a cost Don't know what the cost would be- anyone know? Tony

To: Steve Fancy who wrote (12134)	1/21/1999 10:11:00 AM
From: wl9839	Respond to of 22640

It seems the old "unamed sources" problem has hurt us on the foreign exchange front (see the report in La Fohla below). It would seem that the federal government could issue a release assuring dollar liquidity for the banks. Could this be an Itamar plot to embarras the government?(tongue in cheek-I'm not a conspiracy freak). ------------------------------------------------------------------------ Latin America Top News Bonds Business Economics Equity Politics World Top News Market Snapshot Newspaper Headlines Economics Thu, 21 Jan 1999, 1:03pm EDT Brazil Currency, Shares Plunge as Capital Flees (Update2) Brazil Currency, Shares Plunge as Capital Flees (Update2) (Adds comments by George Soros, Barton Biggs.) Sao Paulo, Jan. 21 (Bloomberg) -- The Brazilian currency plunged as much as 6 percent and stocks tumbled as an exodus of capital stoked concerns about a cash crunch at the country's banks. The real weakened to a record low of 1.675 to the dollar after the Folha de S. Paulo newspaper reported, without citing sources, that banks are running out of foreign exchange because of capital flight that has topped $500 million a day this month. ''How long are we going to have these constant outflows of dollars,'' said Carlos Seratto, a money market trader at Banco Patente SA in Sao Paulo. Brazil's foreign reserves have dwindled to below $30 billion -- from more than $70 billion at the 1998 peak -- as credit lines shut, foreign debts were repaid and companies repatriated profits. Currency futures projected that the real would trade at 1.70 to the dollar at the beginning of March. That would bring the real's decline to almost one-third since last week's devaluation, a government gamble that the move would stop the hemorrhage of foreign capital and help reduce interest rates. Neither has come to pass. Capital Flight About $338.6 million left the country yesterday, bringing this month's outflow to more than $6 billion. Serratto estimated that if money keeps leaving the country at the current pace, Brazil will have lost $8 billion in January alone, compared with government projections that $5 billion would leave the country in the entire first quarter. Interest rate futures for the beginning of March jumped to 48 percent from yesterday's 42.7 percent -- compared to the current overnight interbank rate of 32.5 percent. The surge in interest rates helped snuff out a rally in shares. George Soros criticized the government's effort to push up interest rates, Agence France Presse reported from Paris. Soros said he was convinced that the Brazilian government was acting on the advice of the International Monetary Fund and ''it was not good advice.'' Brazilian stocks snapped a four-day rally, as investors bet stock prices rose too high given the prospects for a recession. The benchmark index tumbled as much as 5.1 percent to 7278.41, on concern the effects of the devaluation would more than offset Congressional efforts to narrow a yawning budget deficit. Legislators last night approved a tax which could raise 3.1 billion reais ($2 billion) this year. It was considered crucial to efforts to slash the 73 billion reais deficit. ''There are other votes still to come,'' said Carlos Hokama, who manages $35 million in equities at Banco Credibanco SA in Sao Paulo. The fall on Brazil's main Bovespa index snapped four days of gains that have made it the world's best-performing index over the past five sessions, up 26 percent in dollars even as the real lost one-fifth of its value. Banks and utilities, which are facing a squeeze because of dollar debts and real revenue, were among leading decliners. Default The plunge in the currency and rising interest rates stoked concern the government could try to restructure its 320 billion reais of domestic debt. ''The market doesn't discuss this, the possibility of a default, I think the government could adopt this measure,'' Serratto said. The expiration of the March 1 futures contract and another one coming due at the end of February will likely put further pressure on the real as companies that have been relying on the futures market as a hedge will have to look elsewhere. ''I'm anticipating that one to two months from now the demand for dollars will go up as customers try to replace maturing hedges, putting further pressure on the real,'' said Ken Giordano, emerging market forward trader at UBS AG in New York. Money market traders have estimated that about $10 billion in currency contracts on the Commodities and Futures Exchange in Sao Paulo will expire over the next six months. Other emerging markets that have floated their currencies have found that their currencies' initial weakness following devaluation was just a hint of loss of value in the following months and years. Mexico's peso, for example, lost about 50 percent of its value during the initial weeks following its initial devaluation in December 1994. By March 1995, though, it had lost 100 percent of its value, and today's it's worth one-third of where it stood before the devaluation. Brazil's decision to devalue its currency shows ''creeping deflation'' is spreading around the world and may force other Latin American and Asian countries to follow suit, said Barton Biggs, chairman and global strategist of Morgan Stanley Dean Witter Investment Management, speaking in Tokyo. ''The creeping deflation that began in Asia...in 1997 has continued to spread around the world, and it's claimed another victim in Brazil last week,'' he said at a seminar in Tokyo. ''I'm very afraid it's going to claim other victims in Latin America, and the most obvious one is Argentina.'' ------------------------------------------------------------------------ © Copyright 1999, Bloomberg L.P. All Rights Reserved.