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

To: Steve Fancy who wrote (12334)	1/25/1999 8:23:00 AM
From: Tony van Werkhooven	Respond to of 22640

January 25, 1999 -------------------------------------------------------------------------------- Brazil's Ills Pressure Mercosur; Argentina Cuts Tax on Exports By CRAIG TORRES Staff Reporter of THE WALL STREET JOURNAL BUENOS AIRES -- Brazil's devaluation of its currency has put the big South American trade bloc known as Mercosur under the worst strains in its four-year history. Last week, Argentina cut taxes for exporters and dispatched its top trade official to Brazil as it scrambled to contain damage caused by the currency shift of its largest trading partner. Argentine President Carlos Menem and his cabinet have been slow to react to the Brazilian economic crises. But the real's 29% decline since the devaluation has alarmed Argentine business groups, and they have pressured Mr. Menem for protection or new measures that will enhance their competitiveness. "The Brazilian devaluation changes the competitive situation for many industries in Argentina," said Javier Tizado, executive vice president of Argentine steel producer Siderar. "We have to take transitory measures. We are going to see an avalanche of products." Presidential Election Year Mr. Menem faces the intricate task of placating top industrialists and keeping unemployment down during a presidential election year, while avoiding protectionist measures that might jeopardize Mercosur, one of Latin America's largest free-trade zones. The four-country trade bloc, comprising Brazil, Argentina, Paraguay and Uruguay, exchanged more than $20 billion of goods and services in 1997. Chile and Bolivia are associate members, which means they partake in some regional accords but aren't fully integrated into the Mercosur regime. Last week, Mr. Menem dispatched Jorge Campbell, secretary of international economic relations, to Brasilia to begin a series of talks on compensatory steps. In an interview, Mr. Campbell said many trade issues are unclear because nobody is sure where the Brazilian real will settle. But he said the ministry has a list of several industries that are in obvious jeopardy. He declined to elaborate, but analysts say textiles and shoes, as well as food products such as milk and chicken, will face difficulties. The steel industry is already in dire condition because of cheap Asian exports. "We will look at all the ways trade is being slowed, and at subsidies, and try to clear them up," Mr. Campbell said. The talks resume Monday. Officials from Uruguay and Paraguay, whose economies are relatively small, are likely to go along with measures that will help their trade advantage with Brazil. Brazilian officials said they may scale back an export-finance program, Proex, under which the government provides credit to exporters at below-market rates. "The revision of Proex for the countries of Mercosur and the revision of terms of credit for importing are subjects that could be on the negotiating table," said Joao Alfredo Graca Lima, trade subsecretary for the Brazilian foreign ministry. Some Steps Taken Argentina's economy ministry has already taken some steps to protect businesses. The implementation of a 5% wage tax cut was sped up and targeted more specifically to companies involved in international trade. A plan to cut import taxes on certain capital-goods imports, such as computers, is on the table. Argentina and Brazil exchanged $15 billion of goods and services in 1997, which represented about 75% of all Mercosur trade. From 1995 through 1997, Argentina enjoyed a trade surplus with its giant neighbor. Brazil's economic instability made it a costly place to work, so many companies set up plants in Argentina. Of the estimated $14.4 billion Argentina received in foreign investment last year, one third was directed toward the export-oriented manufacturing sector. Nobody is sure whether the Brazilian devaluation will dissolve the Argentine advantage. But all the new industrial capacity oriented toward Brazil will have to either slow or new markets will have to be found. "We are faced with a very difficult situation," said Federico Zorraquin Jr., chief executive of the Argentine conglomerate Garovaglio & Zorraquin, which sells plastics in Brazil. Aside from falling demand, long-term contracting is another problem. Mr. Zorraquin's exports are priced in reals, but when the money is repatriated into Argentina, it now risks being clipped by foreign-exchange losses. --Matt Moffett in Rio de Janiero contributed to this article. --------------------------------------------------------------------------------

To: Steve Fancy who wrote (12334)	1/25/1999 8:28:00 AM
From: Tony van Werkhooven	Respond to of 22640

January 25, 1999 -------------------------------------------------------------------------------- Brazil's Currency Defense Speeds Drain of Dollars By PETER FRITSCH Staff Reporter of THE WALL STREET JOURNAL SAO PAULO, Brazil -- The pace of dollars leaving Brazil intensified Friday as the central bank dipped into its hard currency reserves to break a free fall in the Brazilian currency. With the Brazilian real falling sharply early in Friday's session, the central bank sold more of its dwindling dollar war chest to buy reals, traders said. The action added liquidity to the market and helped prop up the currency. The real finished Friday at 1.71 reals to the dollar, weakened from Thursday's close of 1.695 reals. The real has lost 29% of its value against the dollar since the central bank first moved to devalue Jan. 13. About $500 million in hard currency appeared to leave Brazil Friday, up from a drain of $406 million Thursday and $333 million Wednesday. Brazilian newspaper editors meeting Friday with central-bank President Francisco Lopes said Mr. Lopes informed them that Brazil's foreign reserves stood at $36 billion, including the $9.3 billion initial tranche of a $41.5 billion bailout package from the International Monetary Fund and others. Brazil has lost nearly $7.5 billion in dollar reserves this month. Mr. Lopes, according to an editor at the meeting, acknowledged outflows have been "exceptionally high." Reassuring Markets Confidence in Brazil's economy appears to be leaving with the dollars. That suggests to many observers that the government will have to do something beyond winning long-delayed fiscal reforms in Congress to demonstrate its commitment to taming a huge budget deficit. Daniel Dantas, president of the Opportunity SA fund-management firm in Rio de Janeiro, said "a more aggressive privatization policy that puts more on the table would help" reassure markets the administration is serious about reform. The near-term worry is that Brazil's 28 billion reals ($16.37 billion) of taxes and spending cuts planned for this year may not be enough to meet IMF targets established in November. That's because Brazil has lifted interest rates to encourage people to keep their savings in reals, a move to protect its currency that has the side effect of causing its own domestic debt to rise. IMF officials postponed a weekend trip to Brasilia because officials feel they need more time to prepare for direct negotiations with the Brazilians. Teresa Ter-Minassian, deputy director of the IMF's Western Hemisphere Department, will probably lead the team to Brazil and expects to go there in the near future, an IMF spokesman said. Brazilian officials have said their agreement with the IMF will need to be revised in light of the new foreign-exchange policy, which allows the real to trade freely against major currencies. Most economists think things here could get worse before they get better. Consider the central bank's effort Friday to sell $175 million in real-denominated notes. Even though those notes pay 12% to 14% and are tied to the dollar exchange rate -- and are therefore unaffected by currency fluctuations -- the government sold only $120 million of those notes. More Cold Water Interest rates, too, are more likely to climb in a stepped-up defense of the real, throwing even more cold water on an economy in deep recession. On local futures markets, the rate at which the central bank lends overnight funds to other banks is seen climbing from 32.5% at present to over 34% next month and 58.41% in March before falling to 52.51% in April. Present overnight rates translate into rates of over 200% on many small consumer loans. In Brasilia, congressmen are threatening retribution against President Fernando Henrique Cardoso and his economic team if rates don't begin to fall in the next three months. In the meantime, market observers said it appears the central bank is hoping to keep the real trading somewhere around its present level. Were it to fall much further, they said, prices could begin a precipitous climb. "Inflation will increase a little from last year's 1% to 1.5%, but it all depends at which exchange rate the real will bottom out," Finance Minister Pedro Malan said in a television interview Friday. Most economists point to inflation of 10% this year, though prices for some goods have already risen more than that. Friday, Brazil's Bovespa stock-market index fell 1.8%, helping to roil trading overseas and marking its second decline after four sessions of spectacular gains in local currency terms. Markets Monday should be relatively quiet owing to a state holiday in Sao Paulo. --------------------------------------------------------------------------------

To: Steve Fancy who wrote (12334)	1/25/1999 9:13:00 AM
From: Alfredo Nova	Read Replies (1) \| Respond to of 22640

Steve, very interesting article on Barron's by Donlan (I don't know how to transfer the articles like you do) on the good effects of Brazilian liberalization of their currency. You may be able to post it for all to read. I agree that we should read all sources and by doing so, try to make the most informed decisions. I appreciate very much Djane's postings, ciao Alfredo

To: Steve Fancy who wrote (12334)	1/25/1999 3:14:00 PM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Brazil seen losing $150 mln through forex mkts Mon Reuters, Monday, January 25, 1999 at 14:40 SAO PAULO, Jan 25 (Reuters) - Brazil was seen losing a net $150 million through foreign exchange markets Monday as a holiday in the country's financial capital limited transactions, traders said. As of 1700 local/1900 GMT, a net $9 million had left through forex markets. On Friday, capital flight totaled $524 million as investors hedged against a three-day weekend. Traders expect net outflows to reach $150 million once all operations are added up. Brazil has lost $7.415 billion through forex markets so far this month as overseas debt has come due and as investors worried about a further devaluation have stocked up on the U.S. currency. Dollar flight drained about $40 billion from Brazil's reserves in six months and finally toppled the nation's currency, forcing a devaluation. Capital flight was expected to slow after the Central Bank allowed the currency to float freely against the dollar. Copyright 1999, Reuters News Service