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

To: djane who wrote (12209)	1/22/1999 1:08:00 AM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Thanks for all the news djane...I'm standing firm on my position that they will get through this. The extreme negativity will hopefully play out to be a good contrarian indicator. We have recently witnessed what can happen as the "if"'s are removed. This is not Russia and not Japan. The next 60 days will be telltale. I do expect it to get worse before it gets better. They need to get a budget approved fast, and completing all voting and approving the CPMF tax in February would be a huge plus. sf

To: djane who wrote (12209)	1/22/1999 2:05:00 AM
From: djane	Read Replies (1) \| Respond to of 22640

BusinessWeek Commentary: Brazil: Still on the Edge of a Cliff businessweek.com@@JTUqJmQAZFQOKwAA/datedtoc/1999/9905.htm It's a Latin paradox. On Jan. 15, Brazil turned its back on 4 1/2 years of defending an overvalued currency pegged to the U.S. dollar. As the real floated freely on foreign exchange markets, the Sao Paulo stock market soared a heady 33%. It seemed as if Brazil had escaped disaster by taking the easy way out. Next door in Argentina, the Buenos Aires bourse also jumped 12%, and the peso firmly held its ground. But far from easing up, Argentine President Carlos Saul Menem was calling for a much tougher straitjacket for his economy: ditching the peso altogether and embracing the dollar as its only currency. What gives? These are wild days in Latin America's financial markets. But in the midst of the apparent chaos, it's possible to draw lessons. Investors seem to be applauding both Brazil and Argentina at a time when their exchange-rate policies are diverging. In fact, the market will eventually hold Brazil to a tough standard. The country is only beginning to grapple with concepts like fiscal discipline. Argentina, by contrast, has been squeezing budgets since 1991, when it adopted a tight monetary regime by using a currency board to lock its currency 1-to-1 to the dollar. The most important lesson is that no currency policy can work without strong economic fundamentals to support it. Sure, Brazil had to act on its overvalued exchange rate, but the country is still very much on investors' watch list. Congress must carry out long-promised spending cuts and deeper reforms of the tax and social security systems to cut a budget deficit running at 8% of GDP. Meanwhile, President Fernando Henrique Cardoso has to ensure that the profligate states make good on their $73 billion in debt to Brasilia. It's clear that if Brazil disappoints once again, the economy will turn from bad to disastrous. Although capital flight slowed from $1 billion a day to about $350 million after the devaluation, money continued to move out, indicating that investors think the real has further to fall. Economists' projections that prices will rise up to 10% this year, following deflation in 1998, could be understated. Interest rates, already suffocating the economy and pumping up Brazil's $200 billion in local debt, were raised to over 40% on Jan. 18. The economy could shrink 5% this year, the worst in three decades. BUILD TRUST. So why the bout of market euphoria? First, the real didn't collapse, Asia-style. That's partly because Brazil has taken steps in the right direction over the last few years. Unlike much of Asia, Brazil whipped most of its banks into shape. It has embarked on an ambitious privatization program and allowed relatively open capital markets. And crony capitalism hasn't strangled Brazilian business. Still, while Brazil and Argentina have chosen different paths for their currencies, the Brazilians will need to take a close look at Argentina for clues to their next moves. That doesn't mean a currency board, or dollarization, which Menem has been urging on his wayward neighbors. With its political complexity and large economy, Brazil won't seriously consider such schemes. Besides, national pride will likely keep it from ever ditching its own currency. To build market trust and hold down inflation, Brazil will have to duplicate Argentina's fiscal prudence. Indeed, while many Argentines believe the currency board is the primary reason their economy has been stable since 1991, it's only part of the success story. The Argentine plan wouldn't have worked without austerity and a consolidation of the banking sector. Argentina's banking business is now dominated by foreign institutions such as Spain's Banco Santander. Brazil could even borrow a page from the Mexicans. Mexico has made its floating exchange-rate system function smoothly by taking a tough fiscal line after the disastrous 1994 peso crash. Argentina and Mexico aren't completely cured, of course. Democratic institutions are immature, and corruption is a problem for both. Meanwhile, domestic savings rates are dismal throughout Latin America, making the region dependent on foreign money. Brazil may get a dose of reality sooner than it thinks. Analysts are already wondering whether the runup in the stock market had as much to do with technical factors as confidence. Many may have bought stocks betting they could get good values before a new round of inflation kicks in. And they may be right. Brazil needs to stop watching the markets and start focusing on basic problems. If it succeeds, it could stand out as an example for the rest of the emerging world. By Ian Katz _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP FOR MORE INFO From BW's paid archive. (There is no charge to view this list of stories) INTERACT E-Mail to Business Week Online Copyright 1999, by The McGraw-Hill Companies Inc. All rights reserved. Terms of Use Privacy Policy