The New York Times
September 26, 1998

          Some See Positive Signs in Latin American Turmoil


               BUENOS AIRES, Argentina -- With increasing signs that world
               lenders are preparing to rescue Brazil from a potential financial
          meltdown, Wall Street analysts say that outflows of capital are slowing
          from stock markets from Mexico City to Buenos Aires.

          They caution that the region's economies and markets may not have
          reached bottom yet. Corporate profits throughout Latin America are
          falling, a devaluation in Venezuela may be looming and a financial collapse
          in Brazil is less likely but still possible.

          Latin American mutual funds have already lost $851 million, or 63
          percent, of their asset value this year. Nevertheless, some say they believe
          they are beginning to see the bottom.

          "The panic selling has subsided," said James Upton, Latin American
          equity strategist for Credit Suisse First Boston, who cautioned that he
          expected continued volatility.

          "There's still a lot of risk out there," said Eduardo Cabrera, Merrill
          Lynch's chief Latin America equity strategist, noting the region's continued
          vulnerability. "The global situation is still turbulent, but you have big
          brother finally stepping up."

          The beginnings of cautious optimism are based partly on the view that the
          governments of Mexico, Argentina and Peru have responded smartly to
          protect their currencies with timely rises in interest rates and that several
          of the region's largest countries are likely to have positive growth rates
          next year.

          The optimists note that Chile, a traditional leader in regional economic
          policy-making, last week lifted a key capital control costly to foreign
          investors in another sign that Latin America would not veer from
          free-market policies adopted over the last decade.

          But more than anything else, the more positive view tentatively emerging is
          based on expectations that the International Monetary Fund and other
          lenders will come to Brazil's rescue with an aid package that could exceed
          $50 billion and that the U.S. Federal Reserve Board will soon lower
          interest rates to help the U.S. and world economies.

          A loosening of U.S. monetary policy, the analysts hope, should indirectly
          raise the prices of several of Latin America's lagging exports such as oil,
          copper, paper and steel.

          However all bets are off, Wall Street analysts say, if Brazil's president,
          Fernando Henrique Cardoso, does not win re-election as expected on
          Oct. 4. They also say he must fulfill his recent promises of an aggressive
          program to slash government spending and to raise taxes to relieve the
          burden of a fiscal deficit that represents 7 percent of gross domestic

          With a population of 160 million and 30 percent of Latin America's total
          economy, anything that happens in Brazil reverberates through the region.

          "Brazil was at the brink of a devaluation a few weeks ago, and that meant
          that all emerging markets were on the brink," said Jorge Mariscal, chief
          Latin American investment strategist at Goldman, Sachs. "But now all the
          things the markets were clamoring for seem to be happening."

          Capital is still leaving Latin American stock markets, but analysts say the
          flow is slowing. In the week ended Wednesday, Latin American mutual
          funds suffered an outflow of $15.6 million, slightly better than the average
          of $18.3 million a week over the last month. James Barrineau, Latin
          American equity strategist at Salomon Smith Barney, said the slight
          improvement came because "we've started getting hints of an aid package
          for Brazil."

          Fears of financial collapse precipitated by Russia's devaluation and debt
          moratorium, followed by expectations that Brazil would avert that fate
          with an international bailout, have driven Brazil's stock market on a wild
          ride in the last two months.

          Between late July and early this month, the market fell by more than 50
          percent, only to recover most of its losses in recent days. Then it stumbled
          again Thursday and Friday for other reasons, mainly the prospects of the
          collapse of a U.S. hedge fund.

          The Bovespa closed Friday at 6,711.52, down 132.83 for the day and
          more than 34 percent for the year. Mariscal and several other analysts
          said they expected a recession as a result of a recent doubling of interest
          rates that will depress corporate profits next year.

          But while Wall Street analysts do not expect a sustained rally in Brazilian
          stocks, they say that as long as Brazil does not devalue, they like the
          economic prospects for much of the rest of the region, particularly
          Argentina, Mexico and Chile. Wall Street analysts say continued drops in
          the stock markets in all three countries should be buffered by the ready
          pools of cash available from their private pension-fund systems.

          A rise in Argentine interest rates in recent months to defend the peso has
          depressed auto production and construction, and is drying up consumer
          and mortgage credit. Jane Heap, Latin America strategist for Deutsche
          Morgan Grenfell, has lowered her estimates for Argentina's economic
          growth rate from 6 percent to 4 percent this year, and from 4.5 percent to
          3 percent in 1999. But she expresses hopeful optimism.

          "It certainly is not a recession," Ms. Heap said. "What is most important
          about Argentina is that there is no way the peso's peg to the dollar will
          break even in the worst-case scenario."

          With Argentine stocks beaten down by more than 40 percent this year,
          and several Argentine companies beginning to aggressively buy back their
          own shares, several analysts said they saw the potential for higher stock
          prices. They cautioned, though, that any investments in emerging markets
          were risky at this point. Analysts also said the Mexican economy should
          grow modestly next year, despite high interest rates, even if oil prices do
          not rise much.

          Barrineau forecast a 10 percent drop in Mexican corporate profits this
          year compared with a 4 percent drop in corporate profits in Latin
          America as a whole. "However, next year, if Brazil does not devalue, 10
          percent corporate earnings growth in Mexico is doable," he said.