The Miami Herald
January 30, 1999
Deepest dip yet for Brazil currency

             By JANE BUSSEY
             Herald Business Writer

             The Brazilian real continued its plunge Friday, marking the sharpest one-day drop
             since the currency was devalued earlier this month and fueling concern that the
             government's efforts to restore confidence are failing.

             As the flood of foreign exchange leaving the country continued unabated, President
             Fernandez Henrique Cardoso tried to quash rumors that banks would be closed
             Monday. Meanwhile, the International Monetary Fund prepared to dispatch a
             team of experts to meet with Brazilian financial authorities this weekend and draw
             up new emergency measures to stabilize their currency and balance sheet.

             ``The banks will continue to stay open, salaries will continue to be paid,'' Cardoso
             said, blaming the real's steep descent on currency speculators. The Brazilian
             president insisted the dollar would tumble soon.

             His comments came in response to reports that Brazilians, afraid that the
             government might freeze deposits as part of a plan to stretch out domestic debt
             payments, queued up at banks Friday to withdraw savings.

             Even raising interest rates from 35 to 37 percent to try to counter the flight of
             capital failed to stem the tide. The real, which was allowed to float two weeks ago,
             fell Friday as much as 9 percent from 1.95 real per dollar to 2.14 before
             recovering at 2.05. It was the eighth straight day of decline.

             The Brazilian president spoke by telephone with President Clinton for 20 minutes
             Thursday night, saying he would take steps to stabilize the real. He also announced
             plans to meet with a group of opposition governors, whose moratorium on making
             debt payments to the federal government triggered the Jan. 13 devaluation of the

             But the situation in Brazil threatened to spiral out of control.

             ``The evidence stands for itself,'' said Armen Kouyoumdjian, a financial analyst
             who lives in Santiago, Chile. ``This is the last trading day of the month. No IMF
             package, no hike in interest rates, no declarations by Cardoso have managed to
             calm the markets.''
             More drastic measures?

             Kouyoumdjian, a specialist in Latin America who recently visited Brazil, said
             Brazil's main problem was not its currency but its huge domestic debt. Markets, he
             said, have finally realized that the domestic debt is so burdensome that even more
             drastic measures could be in store.

             Not only does the Brazilian government face debt maturities of $200 billion during
             1999 -- much of it in the next few months -- but it faces higher interest rates and,
             consequently, higher debt payments.

             Three-fourths of the domestic debt is tied to floating interest rates and one-fourth
             in securities that are linked to the value of the dollar.

             Investment analysts warned this week that there is a growing chance that Brazil will
             try to stretch out the payments on its domestic debt. Other analysts suggested
             Brazil might try some form of currency controls.

             Rising fears

             Either of these measures could spook international markets further.

             ``People are increasingly worried about that,'' said Moira McLachan, vice
             president with Ivy Management, an money management firm in Fort Lauderdale.
             ``The government is not signaling it. Obviously they are going to be very, very
             hesitant to do that.''

             Brazil is set to receive a new IMF jumbo loan in February, but traders expect that
             to happen only with the granting of new conditions because the country has failed
             to meet the terms of the previous loan package.


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