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

To: Alfredo Nova who wrote (12291)	1/23/1999 8:26:00 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 22640

Alfredo, may I add a few points to the Italy story in the mid-90ies. 1) The "restructuring" was also done on the back of an immediate & strong foregoing devaluation of the Lira. In 1994 the Lira took a nosedive and lost 48% of its exchange value in a short time. From roughly 650ITL/DEM the currency plummeted to over 1250 ITL/DEM. From this low point the Lira somewhat recovered to 990 ITL/DEM where it has stabilized until the EURO entry. Before, also the ITL, like the Spain Pesetas have been considered a weak currency for the reasons of accompanied money supply, high inflation as well as interest rates and political instability. They suffered, like Brazil a gradual devaluation in comparison to the German Mark. From the early eighties to 1994, before the big realignment, the ITL roughly lost half its value. Note that Italy had more than 50 cabinets after WW II due to the frequent distrust votas and subsequent demises, in comparison to Germany and the U.S., where have been a dozen or less presidents and orderly served periods. 2) After the dust settled and the architecture of the EURO was outlined with the implemention of proposed "convergence criteria" mainly in inflation, interest rates and running account deficit, as well as the watered down criterium of nominal state debt % (The former 60% criterium, which is still violated by a range of countries, like Belgium, Italy and even Austria, was undone in favor of a "improving" criterium). In accordance the former double digit interest rates went down on the long side by massive buying of state debt and as you mentioned, though a tight fiscal policy accompanied by a continued easening of the key short-term rates. Both measures together achieved a narrowing of the running account gap to the 3% convergence criterium, as the floating debt also got easier to serve. But what was the background? As mentioned earlier, a healthy economy and massive buying of the Lira per buying stocks and longer term debt by institutions based on a very big trust into the economy and the Lira. Had that never have taken place - no idea what happened to Italy's numbers and EURO entrance. But they all had a goal - EURO application and see, that happened in a time when the basic interest rate scenario has been all and all bullish with German (and French) longer term debt sitting north of 7% in 1994, not 3.8% as now. The key was that the lowering the interest rates to a quarter of its original level did neither employ inflation nor put pressure on the currency as no monies left the Italian capital markets then. 3) Concluding, and feeling a bit sad for Brazil presently, my take is: The key is to set a mid-term goal, like Italy did and establish confidence. Something hard to obtain with a cabinet celebrating the voted down contribution hike earlier in December and regional governors defying debt repayments now. The devaluation indeed may be "healthy" in terms not continue the lies about the real situation. As I pointed out earlier (namely in autumn), also the strongest company cannot sustain 20 to 40ish interest rates and maintain the exchange rate levels allowing only a "crawling" peg. Back in summer, the outcome has been foreseen: Message 5563972 or a writeup about the sky high interest rates..(20% at that time). Message 5656332 C.