The New York Times
August 29, 1998

          Latin Countries Hope to Avoid Radical Market Measures

          By SAM DILLON

                MEXICO CITY -- The recent panic in world markets has
                weakened Latin American currencies and drastically reduced the
          wealth of many Latin corporations, raising prospects that governments in
          the region may be forced to take Draconian measures to contain the

          Financial authorities in Brazil, Mexico and Argentina and other nations
          have allowed interest rates to rise, spent billions of dollars of reserves to
          support their currencies, and tinkered with other limited steps. But,
          perhaps hoping that market calm will eventually prevail, they have avoided
          more drastic steps like aggressively squeezing cash out of circulation,
          analysts said.

          "The Latin countries are using their second-stage defenses, hoping that
          these external shocks won't last very long," said Luis R. Luis, a managing
          director at Scudder Kemper Investments in Boston. "They want to avoid
          having to impose really Draconian monetary policies. But if this continues,
          they're really going to have to jack up the interest rates."

          Most Latin American markets got a breather Friday after a week of
          panicked trading that saw foreign investors flee from the region and local
          traders cash out of equities to buy dollars.

          Mexican stocks, which have fallen by more than half in dollar terms since
          the beginning of the year, rose 3.22 percent, with confidence bolstered in
          part by a more modest rise in Brazil's larger stock market.

          Argentina's benchmark index rose nearly 1 percent; the Chilean and
          Peruvian exchanges were off only slightly. Venezuela, the sick man of the
          region, was the exception -- its stock index plummeted 4.52 percent.

          But gloom among investors and business executives across Latin America
          continued to deepen. Fears continue that the collapse of the Russian ruble
          could play out again here, either with a devaluation of the Venezuelan
          bolivar or, in what would be far worse, the Brazilian real.

          Adding to the uncertainty was a belief that the International Monetary
          Fund is short of cash and sitting on its hands, even though several Latin
          countries are floundering. The fund has invited Latin American finance
          ministers to meet next Thursday in Washington to discuss joint responses,
          and Finance Minister Pedro Malan of Brazil and Economy Minister
          Roque Fernandez of Argentina have said they will attend. Mexico's
          treasury secretary, Jose Angel Gurria, and several other Latin ministers
          have not yet announced plans.

          But because the IMF, after financing rescue packages for Asian nations
          and Russia, has less than $10 billion available for future bailouts, its call
          for a meeting has aroused little hope.

          Some analysts are starting to criticize what they see as a listless reaction
          to the financial chaos in Latin America by the Clinton administration, too.

          "The U.S. is keeping monetary policy tight enough to slow our economy
          even though most developing economies sink," said David Malpass, chief
          international economist at Bear, Stearns. "I'm still hopeful that the U.S.
          will become more engaged, to calm things down, and allow Latin America
          a rebound."

          Since the Asian crisis began last year, international investors have become
          increasingly leery of all emerging markets. And last week's financial
          collapse in Russia has led to a truly hemorrhagic flight of capital out Latin

          In Caracas, Venezuela, where investors have been spooked by the
          similarities between conditions in Russian and Venezuela's oil-dependent
          and ill-managed economy, the stock market is off 66 percent for the year.
          The Mexican bolsa is down 40 percent, and if losses from the declining
          peso are taken into account, Mexico's markets are down 51 percent.
          Brazil's market is 34 percent lower, Argentina's 47 percent and Chile's 35

          Authorities in the three largest Latin economies have confronted the crisis
          with relatively modest initial tactics, apparently hesitating before taking
          more painful moves, analysts said.

          In Mexico, where the currency floats freely, the peso has dropped by 8.9
          percent since the ruble devaluation, settling here at 10.020 to the dollar
          and in New York at 10.005. Authorities have attempted to slow the
          peso's decline by auctioning dollars, $200 million at a time, several times
          since the crisis began.

          The Banco de Mexico has also removed increasing amounts of currency
          from circulation, as a way of indirectly raising interest rates. On
          Wednesday, the central bank increased the reserve requirements for
          commercial banks, a more forceful way of removing cash from the
          economy. In response, interest rates have jumped from 22.0 to 27.2
          percent for the 28-day Cetes notes which serve as a reference.

          Still, Mexican rates are far below the 50 percent-plus levels they reached
          in the wake of the 1994 peso devaluation, when businesses were
          strangled and the economy plunged into a two-year recession.

          In Brazil, where the real trades within a fixed band and is under assault by
          speculators who consider it overvalued by more than 10 percent,
          authorities have also been defending the currency. But there, too, they
          have so far acted with less vigor than during, for instance, the country's
          last crisis, a speculative attack on the real last October.

          As in October, Brazilian authorities have freely sold off foreign reserves to
          defend the real. So far this month, economists estimate that some $8.5
          billion of the country's 70 billion reserves have been sold to prop up the
          real. And the authorities have made it easier for Brazilians to borrow
          money abroad.

          But in contrast with last fall, the central bank has not yet raised official
          interest rates from their current 19.75 percent during the current crisis,
          although offshore rates, set by commercial banks, have soared to 36
          percent. Last fall, the authorities in Brasilia raised official interest rates
          from 20 to 41 percent to defend the real.

          The tactics in Brasilia are being watched closely in Buenos Aires. "The
          largest risk for Argentina is that the next victim could be Brazil," said Luis
          Secco, an economist at the Estudio Broda consulting firm in Buenos

          Argentina's peso is freely convertible with the dollar, and the central bank
          has $23.7 billion in reserves. So far, the Argentine authorities have made
          no changes in policy to react to the crisis, Secco said. "Our authorities are
          viewing this calmly," he said.

          The opposite is true in Venezuela, where economists estimate that the
          bolivar may be overvalued by at least 30 percent and the budget deficit
          has balooned as oil revenues have plunged this year. Authorities have
          made deep spending cuts, allowed interest rates to soar above 100
          percent, and last week sold off nearly $500 million of the country's $14
          billion in reserves. Nonetheless, fears of a devaluation are increasing.