Brazil abandons currency defence as IMF talks begin
Saturday 16 January 1999
The real fell to 1.58 to the dollar before stabilising as Pedro Malan, the Brazilian finance minister, and Francisco Lopes, the new central bank governor, flew to Washington for talks with the US Treasury and IMF. Fernando Henrique Cardoso, the President, was forced to break his holiday for the second time this week.
European finance ministers, meeting Asian counterparts in Frankfurt, signalled a calm response to the crisis in Brazil. "This crisis is manageable," said Yves-Thibault de Silguy, the EU's monetary commissioner.
But in the light of events this week, they will today discuss proposals put forward by Britain late last year for reforms to the international financial system.
The world's stock markets gave a huge sigh of relief at the end of a tense week. Brazil's Bovespa index surged 29 per cent at one stage.
In London the FTSE 100 index ended nearly 121 points higher at 5,941.0 after a day of ups and downs. It had earlier fallen as low as 5,736.8. The Dow Jones index had jumped more than 135 points to 9,256.36 by mid- morning.
The moves reflected the assumption that Brazil would be able to cut its 29 per cent interest rates, boosting economic prospects. Michael Hughes, head of emerging markets at Robert Fleming, said: "Now they have given up the defence of the currency, interest rates should be able to come down in the medium term."
However, many analysts remain uncertain about prospects. Brazil's central bank said it would make an announcement about new foreign exchange arrangements on Monday.
Joaquin Cottani, an economist at Lehman Brothers in New York, said: "There will be a period of uncertainty, and interest rates cannot come down as long as the instability lasts."
A bigger fear was that the recession and turmoil in Brazil would spill over into Argentina and Mexico, both far more important for the US. Ford said it would be cutting 4,600 jobs across Latin America as a result of the crisis.
The IMF and US, which pushed through the $41.5bn rescue package for Brazil over the objections of other G7 governments, were not consulted in advance about this week's developments. They are likely to demand fresh tax rises or spending cuts to counter the inflationary effects of the 25 per cent devaluation of the real this week.
The markets expect the package to be renegotiated. "Brazil needs the IMF, but the IMF also needs Brazil. It cannot afford a repeat of Russia," said Neil Dougall, Latin American economist at Dresdner Bank.
But there was scepticism about prospects for a tougher counter-inflationary budget. Chris Huhne of Fitch-IBCA, the ratings agency, said: "The question is whether the political system can actually deliver on the necessary timescale."
Investors are also concerned about the increased risk of either defaults on debt by the Brazilian government and corporate sector, or the possibility of exchange controls to halt the massive flight of capital out of the country that has reached $7bn so far this month.
Board creates magnetic field to achieve lift
Follow the latest events from this Champions League fixture
Company reveals $542m investment in start-up building 'a rocket ship for the mind"
Singer says the track was 'force-fed down people's throats'
techThe original free dating app will remain the same, developers say
- 1 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 2 Banksy arrest hoax: Internet duped by fake online report claiming artist's identity has been revealed
- 3 Former East 17 frontman Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
- 4 The inventor of the Facebook 'like' button says he never made a 'dislike' button because he feared the 'unfortunate consequences'
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
Oscar de la Renta dead: Legendary US fashion designer dies after long cancer battle aged 82
Oscar Pistorius: The brutal prison life that awaits disgraced athlete
Banksy arrest hoax: Internet duped by fake online report claiming artist's identity has been revealed
Super-sized ships arrive in Britain: How big can they get?
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Lord Freud: Tory welfare minister apologises after saying disabled people are 'not worth’ the minimum wage
Lord Freud hangs on as MPs of all parties 'call for his head' over disability comments
iJobs Money & Business
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...
£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...
£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...
£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...