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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (22835)	1/22/1999 2:37:00 AM
From: IQBAL LATIF	Respond to of 50167

Brazil Braces For Fresh Currency Challenge- Argentina in news...we raised it yesterday.. 1.38 a.m. ET (0638 GMT) January 22, 1999 SAO PAULO — International markets are focused on Brazil as it braces for a grueling new test of its fragile currency, which has plunged to new lows as the country's dollar pool dries up. The real, once the foundation of Brazil's economic stabilization plan, threatens to spiral out of control, extending a 30 percent devaluation as private banks' supply of U.S. dollars grows scarce. "People are watching for action on the currency side of things,'' said Alan Ruskin, head of research at the 4Cast consulting firm in New York. "That will dictate a lot about success or failure in Brazil.'' The Central Bank began to ease its iron grip on the real last week and then announced Monday it would cease to defend the currency, letting it float freely against the dollar except to smooth abrupt movements. The real tumbled a further 7.6 percent against the dollar Thursday to an all-time low of 1.72 per dollar. "The key factor to my mind is the Central Bank has to step up to the plate and slow things down,'' Ruskin said. "If the currency continues to devalue at a rate anything like what we've seen lately, inflation could pick up sharply, forcing interest rates even higher.'' The Central Bank reiterated Thursday it would let the market decide the value of the real. "There is no intention of intervening and I am unaware of any intention in that respect,'' said Altamir Lopes, the head of its economics department. Traders said the real came under intense pressure because without Central Bank interventions, companies desperate to move their savings into dollars had to rely on the market's supply of the U.S. currency -- a supply that is coming to an end. Brazil was seen losing another $400 million from foreign exchange markets Thursday, which would bring losses so far this month to near $7 billion. Russia's debt moratorium in mid-1998 sparked months of dollar flight in Brazil. Global markets are squirming as the world's eighth biggest economy struggles to stabilize its currency. Brazil's benchmark stock index shed 4.6 percent Thursday, but neighboring Argentina's took an even bigger hit, tumbling 6.2 percent on concern over fallout. "Brazil is setting the mood for the whole region,'' said Maximiliano Ruprecht, a trader with Raymond James Argentina. Investors were worried by talk that Brazil's devaluation could ripple through other emerging markets and force devaluations elsewhere as Brazilian exports became cheaper and more competitive in dollar terms. "I'm very afraid it (currency crisis) will claim other victims in Latin America,'' said Barton Biggs, the chairman of Morgan Stanley Dean Witter Investments. "The most obvious one is Argentina.'' Argentina denies any vulnerability but said Thursday that it was proposing a radical scheme that would eliminate currency risk through a treaty of "monetary association'' with the United States. Emerging market bonds dropped precipitously Thursday and U.S. equities showed lingering unease over Brazil. "Brazil's sovereign credit-worthiness has taken a turn for the worse,'' wrote Carl Ross, analyst at Bear Stearns & Co. "We continue to view Brazil as a country in which to trade short-term positions.'' The government will be trying to contain the damage Friday after a key victory for the country's tough austerity plan. Thursday, the Finance Ministry guaranteed investors that Brazil would pay off all of its foreign debt.