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

To: djane who wrote (12213)	1/22/1999 2:28:00 AM
From: djane	Respond to of 22640

BusinessWeek EDITORIAL. In Brazil, the IMF Made Things Worse (int'l edition) businessweek.com@@oATdl2QAZ1QOKwAA/premium/99_05/b3614190.htm George Soros, Paul Volcker, Carla Hills, Peter Peterson, Maurice Greenberg, Paul Allaire, and Fred Bergsten are forming a task force, under the auspices of the Council on Foreign Relations, to come up with a new international financial architecture. They had better hurry up. The $42 billion dam built by the International Monetary Fund and the U.S. Treasury to protect Brazil against the global tide of financial chaos just broke. That's after the IMF dams built around Russia and Indonesia collapsed, while those around Thailand and Korea survive with enormous holes in them. Some $200 billion of IMF money has been spent, yet there is no end in sight to the financial crisis gripping the world economy. In 1999, Latin America could find itself in the same boat as Asia in 1998--awash in sharp devaluations, banking crises, recessions, unemployment, and dashed hopes. The lesson from Brazil is clear: The IMF no longer knows how to stave off crises or mitigate them once they occur. There is now talk of ''dollarizing'' Brazil, Russia, or any other country that gets whacked by the currency markets. It's a desperation solution. Brazil, of course, was supposed to be the prime example of a new preemptive policy of the IMF and U.S. Treasury. After looking at the ruin of Asia last year, policymakers decided that the IMF came in too late. With Brazil, it would intervene in time to prevent disaster. The policy failed. And for good reason. We live in a deflationary world--defined by overcapacity and insufficient demand. The austerity policies forced upon countries by the IMF in return for loans transform bad-debt problems into economic debacles. If local and global demand had been large enough to consume the output of Asia's factories back in 1997, trade deficits would not have developed, debts would have been paid, and currencies would not have come under pressure. Yes, there were structural problems and crony capitalism--and not enough bank regulation. But the problem was insufficient demand. Austerity policies do not act as remedies in such situations. Thailand and Korea began to dig themselves out of recession only when they repudiated IMF policies and began lowering interest rates while spending huge amounts on public-works programs to raise domestic demand. The IMF itself now says that its initial programs for Asia were far too harsh. But it insists they were correct nonetheless. Brazil proves the opposite. In a world economy suffering from lack of demand, the proper response to a financial crisis is not to crush an economy but to help it. In the U.S., recessions are met with lower rates and higher government spending. Overseas, the same policies are required as well as one more--fast debt write-downs. Once a financial crisis begins, huge debt overhangs sap local demand and investment. IMF policies protect banks from the consequences of their mistakes. Indeed, the IMF package for Brazil did not include any bank restructuring of foreign debt. The banks were saved, for the moment. The very first thing, not the last, that must be done now is a sharp write-down of both domestic and foreign Brazilian debt, followed by lower rates to stimulate growth. The austerity policies of the IMF and U.S. Treasury aren't part of the solution. They are part of the problem. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP INTERACT E-Mail to Business Week Online Copyright 1999, by The McGraw-Hill Companies Inc. All rights reserved. Terms of Use Privacy Policy