Some good news on another front...............Top Financial News
Sun, 14 Feb 1999, 6:42pm EST
Intl Monetary Fund's Fischer Expects New Brazil Agreement Within Two
Weeks
(Removes extra quote mark in second paragraph.)
Jerusalem, Feb. 14 (Bloomberg) -- The International
Monetary Fund expects to reach a new agreement with Brazil
within two weeks to restore investor confidence and get its
economy growing again, a top IMF official said.
''I expect we'll get a good agreement,'' Stanley Fischer,
first deputy managing director at the IMF, said in an
interview before a lecture at Hebrew University. ''They have
to show they have a coherent program.''
An agreement would likely clear the way for Brazil to
receive $9.3 billion from the credit line by the end of March,
the IMF said. The country received an initial payment of about
$9 billion in December.
Fischer will head to Jordan tomorrow where he said he
will negotiate a ''multiyear arrangement'' to help Jordan
implement its economic program. He declined to provide
details. A $330 million program between Jordan and the fund
expired Feb. 8.
Fischer's comments on Brazil come a day before Brazilian
finance officials arrive in Washington for another round of
negotiations with the IMF to complete a blueprint aimed at
restoring confidence in Latin America's largest economy.
The IMF, which put together a $41.5 billion credit line
for Brazil last November to stem capital flight, said last
week it had made ''considerable progress'' in negotiations
with Brazil and the meetings this week are designed to speed
up agreement on remaining issues.
Need for 'Imagination'
Amaury Bier, secretary for economic policy at Brazil's
finance ministry, said the talks will focus on how the
country's recent currency devaluation will affect economic
activity, further spending cuts, interest rates and inflation.
''When there is a change like we did in our foreign
exchange policy, there is the need for more than technical
discussions to reach a reasonable scenario, we need ...
imagination,'' Bier told reporters Friday in Brasilia. He will
lead the delegation, which is scheduled to arrive in
Washington tomorrow.
Analysts say the second installment of IMF-led aid is
critical to boosting the confidence of investors who have
pulled $8.2 billion from Brazil so far this year on fears the
country would not meet the IMF's fiscal terms.
''We cannot create doubt about the next $9.3 billion,''
said Thomas Trebat, global head of emerging market research at
Salomon Smith Barney in New York. ''Now is not the time to
press the Brazilians against the wall.''
Payments Due This Month
The next round of money from the international lender and
industrial nations, including the U.S., will ease the pressure
on Brazil to meet $7 billion in corporate and sovereign debt
payments due this month and in March.
Brazilian officials are expected to spell out measures to
cut government spending and boost revenue from the sale of
state assets in 1999 to reduce the government's hefty budget
deficit, which amounts to 8 percent of output, Bier said.
Fischer -- who spent three days earlier this month in
Brazil negotiating with finance officials -- will participate
in next week's meetings, Bier said. The Brazilians also may
meet with U.S. Treasury officials.
For the past two weeks, IMF and Brazilian officials have
been reviewing and revising terms of a plan to save the
country's economy as part of a larger effort led by the U.S.
and other major industrial nations to halt a massive outflow
of capital from emerging markets. The problem started 18
months ago in East Asia and spread to Russia before hitting
Brazil.
Floating Real
Brazil's IMF-led plan was crippled after the country
floated its currency, the real, on Jan. 13, allowing the
market to set its value. It's fallen 36 percent since then.
Brazil had agreed with the IMF last November to limit the
devaluation of its currency to 7 percent annually.
After the devaluation, Brazil's central bank raised
interest rates to 39 percent to stabilize the currency by
attracting foreign investors. The real closed at 1.895 to the
dollar Friday, after falling as low as 2.05 on Jan. 29.
The high interest rates makes it more expensive to
service the country's 380 billion reais in debt. The
devaluation last month increased Brazil's debt by 40 billion
reais, Bier said.
However, before interest rates can come down, the
Brazilians need to ensure that the recent depreciation of the
country's currency doesn't translate into burgeoning
inflation, Fischer said in Jerusalem.
Brazilian Finance Minister Pedro Malan said earlier this
month the government would cut an estimated 73 billion reais
($38 billion) deficit by an additional 8 billion reais ($4.4
billion), increasing the surplus before interest payments to 3
percent, or 3.5 percent of gross domestic product, from 2.6
percent agreed last November.
The new targets follow spending cuts already pushed
through a reluctant congress. ''It's really tough for the IMF
to pressure the Brazilians for specific measures given the
uncertainty of how Brazil's congress will act,'' said Michael
Rosborough, a portfolio manager at Pacific Investment
Management Co. in Newport Beach, California.
No Tax Boost
Brazil's budget deficit widened less than expected to 8.8
billion reais ($4.6 billion) in November on reduced interest
payments. Interest payments on the government's debt fell to
7.4 billion reais from 7.8 billion reais in the previous
month, the central bank reported Friday.
''These results show that it will be possible to meet the
agreed targets for 1998,'' said Altamir Lopes, the head of the
central bank's economic department, referring to a budget
deficit of around 72 billion reais for the whole year.
Bier said plans to reduce the budget deficit further
won't include more tax increases. The Brazilian congress has
already approved most of 28 billion reais worth of tax
increases and spending cuts demanded by the IMF last year.
''My guess is that a menu of fiscal items will be put
forward by the Brazilians,'' Rosborough said. ''Some will be
non-starters in congress, but if the list is long enough, you
might get some progress.''
To help further cut the budget deficit, the government is
talking about accelerating the sale of electric utilities as
well as minority stakes in state-controlled banks, including
Banco do Brazil and Caixa Economica Federal, the country's
national savings bank.
Malan said recently the government plans to use monetary
policy to keep inflation at about 10 percent this year. |
