By JANE BUSSEY
Herald Business Writer
The Brazilian real continued its plunge Friday, marking the sharpest one-day
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,
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,''
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
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
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
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,
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
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
in securities that are linked to the value of the dollar.
Investment analysts warned this week that there is a growing chance that
try to stretch out the payments on its domestic debt. Other analysts suggested
Brazil might try some form of currency controls.
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
to happen only with the granting of new conditions because the country has failed
to meet the terms of the previous loan package.
Copyright © 1999 The Miami Herald