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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1642)	5/14/1999 9:04:00 PM
From: porcupine --''''>	Respond to of 1722

Brazil's Economy Showing Resilience, Report Says By SIMON ROMERO SAO PAULO, Brazil -- The Brazilian economy defied pessimistic forecasts of stagnation in the first quarter and actually registered some growth, the government said Thursday in a report that showed Brazil's surprising resilience to the effects of the currency crisis that erupted in January. The gross domestic product, the broadest measure of economic performance, grew by 1 percent in the first three months of the year compared with the last quarter of 1998. Agricultural production rose 18 percent, leading the expansion. Brazil is the world's largest coffee producer, and the second-largest producer of soybeans after the United States. The weaker currency may have even contributed to the economy's growth by encouraging farmers to increase output of these and other products since their prices became more competitive abroad. "There was an immediate reaction throughout the entire chain of our production following the devaluation," said Nathan Herszkowicz, president of Brazil's coffee industry union. According to the organization, coffee exports more than doubled in the first quarter of 1999 compared with the period a year earlier. Although higher agricultural output contrasted with weak industrial production, the government figures released Thursday suggest that Brazil's economy is recovering more quickly than thought. While some analysts earlier this year forecast the economy to shrink as much as 6 percent, most economists are now predicting a contraction of only 1 percent to 2 percent. Optimism has been stoked by six interest-rate cuts over the last seven weeks. On Wednesday, the central bank reduced its main lending rate to 27 percent from 29.5 percent, the lowest level in nine months. "Interest rates coming down, coupled with controlled inflation, have had a tremendous impact," said Winston Fritsch, president of the Brazilian unit of the investment bank Dresdner Kleinwort Benson. Progress made by the government in reducing the budget deficit is likely to allow the central bank to continue lowering rates to below 20 percent by the end of this year, Fritsch added. Brazilian stocks rallied on the growth figures, with the benchmark Bovespa index here rising 2.56 percent. Increasing foreign investment in Brazilian equities together with greater optimism among domestic investors have pushed the index up 83 percent in local-currency terms and 34 percent in dollar terms so far this year. The better-than-expected growth figures and buoyant stock market contrast sharply with other indicators that show an economy struggling with its worst crisis since a stabilization program was carried out in 1994. The plunge in January in the value of the currency deeply hurt Brazil's financial credibility and borrowing power abroad, which reverberated through the economy with slumping sales, bankruptcies and layoffs. Manufacturers and construction companies were the hardest hit. An example of the economy's strains was seen this week when 50,000 unemployed workers lined up outside municipal buildings to compete for 10,000 openings for street cleaning jobs in the city of Sao Paulo. The salary for the temporary, six-month work is 136 reais a month, or $82, Brazil's official minimum wage. Unemployment here in Sao Paulo, the country's wealthiest city, is at a record level of nearly 20 percent. Brazilian companies have started to shift toward increasing their exports, partly because domestic demand has remained stagnant. A large food processor, Perdigao SA, exported 18 percent more in the first quarter after the devaluation in January. "In dollar terms, we have the cheapest chickens in the world right now," said Wang Wei Chang, chief financial officer of Perdigao. Still, the opportunities for companies such as Perdigao to fuel a stronger recovery are limited since domestic borrowing rates remain punitively high and foreign credit markets are still largely shunning Brazilian borrowers. With deeper cuts in interest rates largely dependent on the government's success in narrowing the budget deficit, companies are anxiously awaiting fresh evidence of spending cuts from the capital, Brasilia. "Now is not the time to relax, not even a little," Wang of Perdigao said. "We need to see the government deliver." Copyright 1999 The New York Times Company