IMF clips

[Robert Weissman <rob@essential.org>]

Another great collection of IMF clips from Environmental Media Services.
Note the IMF talking out of both sides of its mouth, re: how much money
does it have.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

CONTENTS:

--  IMF WAS 'TAKEN BY SURPRISE' IN MOST CRISIS-HIT ECONS
--  GOLDMAN EXEC: IMF SHOULD MULL TAPPING PRIVATE SECTOR FUNDS
--  IMF FISCHER:INTL FIN SYS STRUCTURE KEY AT ANNUAL MEETING
--  IMF PLEDGES ITS READINESS TO ASSIST BRAZIL WITH LOANS
--  IMF SAYS RESOURCES ARE LOW AS NEEDS RISE IN GLOBAL CRISIS
--  BRAZIL STRIVES TO STEADY ITS FOUNDERING MARKETS
--  MEXICO'S SEVERE BELT-TIGHTENING HAS NOT SHIELDED IT FROM CRISIS
--  IMF SEES SHORT-TERM CAPITAL CONTROLS IN ASIA 
--  IMF: RUSSIA HAS ASKED FOR URGENT TALKS ON ECONOMY
--  U.K. GOVT SAYS ANY G8 SUMMIT WON'T TAKE PLACE TILL OCTOBER
____________________________________________________________

Dow Jones Newswires -- September 13, 1998

IMF WAS 'TAKEN BY SURPRISE' IN MOST CRISIS-HIT ECONS
Dow Jones Newswires

 WASHINGTON -- The International Monetary Fund's executive board gave the
agency 'mixed' marks for its crisis-forecasting performance in Asia, saying
the IMF was 'taken by surprise' in all crisis-hit Asian countries except
Thailand.

 According to an IMF annual report published Sunday, the board concluded at
a March meeting that the agency was impeded in part by insufficient access
to key financial information in the countries it was inspecting. But it
said the IMF was also to blame.

 'With hindsight it was clear that the affected countries' vulnerabilities
had been underestimated, including by the financial markets,' the report
said. In South Korea in particular, 'the IMF had not attached sufficient
urgency to the financial tensions that began developing in early 1997.'

 The Asian financial crisis erupted in Thailand in July 1997 and quickly
engulfed most of of East Asia, including Indonesia and South Korea. To bail
out those countries, the IMF arranged rescue packages totaling more than
$100 billion. But the crisis has yet to be contained - it has since spread
to Russia and Latin America.

 The IMF's board said the agency fell short once the crisis began as well,
particularly in its interaction with other multilateral institutions such
as the World Bank and in its oversight of financial-sector reform in
troubled Asian countries. The IMF came under severe attack in Indonesia for
ordering the shutdown of troubled banks just as a credit crunch was
developing.

 'Problems in the financial sector were often complex and long in
gestation...and many directors felt that the IMF needed to develop more
expertise in their analysis,' the report said. Some directors said the
IMF's expertise is in macreconomic policy, and they argued that the IMF
should leave financial-sector reform to the World Bank. The IMF's full
board, however, decided simply that the IMF should improve its cooperation
with the World Bank.

 In the view of some IMF directors, the agency also may have been too harsh
in insisting that crisis-hit Asian countries tighten their belts. They
'questioned the need for significant tightening of fiscal policy since
Asian economies in crisis generally did not suffer from fiscal imbalances,'
the report said. The IMF initially instructed most crisis-hit countries to
keep government budgets in balance, but analysts say that resulted in
deeper recessions. The IMF has since permitted most countries to increase
spending and incur big budget deficits.

 The report said: 'Directors agreed that the required degree and
composition of fiscal adjustment had to strike a balance between several
objectives, including the need to contribute sufficiently to
current-account adjustment and to meet the costs of financial-system
restructuring, while avoiding excessive compression of domestic demand.'

 As the crisis erupted, the IMF board said the agency proved prescient in
only one instance - Thailand, where it gave confidential warnings to
government officials 'at the highest level,' according to the report.
'Indeed, the IMF appeared to have been more aware of the risks in
Thailand's economic policy course than had most market observers.'

 The report said: 'In other cases in Asia, however, the IMF - while having
identified critical weaknesses, particularly in the financial sector - had
been taken by surprise, owing in part to the lack of access to requisite
information and also to an inability to see the full consequences of the
combination of structural weaknesses in the economy and contagion effects.'

 -By Joseph Rebello; 202-862-9279; e-mail:joseph.rebello@cor.dowjones.com

Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.

++++++++++++++++++++++++++++++++++++++++

Dow Jones Newswires -- September 14, 1998

GOLDMAN EXEC: IMF SHOULD MULL TAPPING PRIVATE SECTOR FUNDS
Dow Jones Newswires

 WASHINGTON -- The International Monetary Fund should consider tapping
private sector resources to raise funds for the rescue of troubled
economies, a top executive of investment bank Goldman, Sachs & Co. said
Monday.

 Gerald Corrigan, Goldman's managing director and former president of the
New York Federal Reserve Bank, told the House Banking Committee that he
considers the IMF "absolutely indispensable" in defusing economic crises
around the world and that it deserves funding by the U.S. Congress. But he
said, the IMF should maintain "a more open mind with regard to financing
alternatives such as highly selective lending into arrearages, greater
front-end loading of emergency financing programs, exploring new ways to
encourage private sector parallel standby liquidity facilities and finding
ways to support and expedite private sector short-term debt restructuring.

 The IMF has said its rescue funds have been depleted by bailouts of
Thailand, Indonesia, South Korea and Russia, and that it has no more than
$9 billion in available funds to rescue other countries. It has sought $18
billion in additional funds from the U.S. government.

 Corrigan, beginning three days of hearings on the international economic
turmoil, said the IMF "must be careful about precedence" in considering
changes to its financing approaches. "Nevertheless, in my judgment there is
at least some room to explore alternatives while preserving the ability of
the Fund to be both firm and flexible."

Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.


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Dow Jones Newswires -- September 13, 1998

IMF FISCHER:INTL FIN SYS STRUCTURE KEY AT ANNUAL MEETING
Dow Jones Newswires

 WASHINGTON -- Altering international financial institutions so they can
prevent financial crises better and respond to them more effectively if
they strike will be a major focus during the upcoming annual meetings of
the International Monetary Fund (IMF) and World Bank, Stanley Fischer,
first deputy managing director of the Fund, said.

 "This architecture issue will figure very prominently at the annual
meetings," Fischer said at a press conference upon the release of the IMF's
annual report for fiscal 1998.

 A variety of different groups will put together reports on how to improve
the international financial system, he said.

 "They will point in roughly the same direction," he said.

 Suggestions will include strengthening regulatory frameworks, improving
surveillance of financial institutions, and providing better economic and
financial data more quickly, he said. The groups will also grapple with the
"moral hazard" issue, which highlights the problem that some countries may
take reckless financial actions knowing they will be bailed out by the IMF
if their troubles become too deep.

 One of the groups, called the Group of 22 or the Willad Group after the
hotel where they first met at the beginning of the year, includes 22
industrialized and advanced developing countries examining the so-called
international financial architecture under the guidance of the U.S.
Treasury Department, he noted. It announced in April it would present such
a report by the annual meetings.

 That international architecture includes the IMF and World Bank, two
institutions created in the wake of World War II as the U.S. and its allies
tried to set up a system for stabilizing economic systems and exchange
rates around the world.

 But drama-lovers will be disappointed by the potential changes.
 Despite the efforts to reexamine how that system works in the post-Cold
War world, Fischer suggested no new earth-shattering constructions are on
the drawing board. Nor are any deconstructions planned, despite some
critics' calls for the total elimination of the Fund, according to Fischer.

 "There are important decisions being made now on the role the U.S. plans
to take in the international financial system it created," Fischer said.
"It is not a small decision to abandon that system ... a system that has
served the world well."

 Given that the world economic system isn't in ruins -- as it was more than
50 years ago at the end of the war -- and that the existing institutional
framework is "functional," leaders will take an "incremental approach" to
change, Fischer said.

 He didn't mention a proposal by French Finance Minister Dominique
Strauss-Kahn to transform the IMF's policy-making Interim Committee into a
body with real decision-making powers, which Managing Director Michel
Camdessus has said he favors.

 Any new steps will build on changes global leaders began to make after the
Mexican financial crisis in 1994-1995, according to the IMF annual report.
Since the Asian financial crisis that started in Thailand last summer, then
hit Indonesia and South Korea, and recently spread to Russia, they began
work on the latest approach toward improving the system.
 Fischer said the initiative will be taken a few steps futher at the fall
meetings.

 "An ongoing reexamination of the international architecture is what you
want," he said. "Basically the system is a reasonable one," he said. "I
don't think it needs to be redesigned from the ground up."

 -By Kristi Bahrenburg; Tel: (202) 862-9295; E-mail:
 kristi.bahrenburg@cor.dowjones.com.

Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.


++++++++++++++++++++++++++++++++++++++++

September 14, 1998

IMF PLEDGES ITS READINESS TO ASSIST BRAZIL WITH LOANS
 By BOB DAVIS 
 Staff Reporter of THE WALL STREET JOURNAL

 WASHINGTON -- The International Monetary Fund, despite strain on its
resources, said it was ready to support Brazil with a loan program, if
necessary.

 If Brazil needs funds to defend its currency, "the IMF would stand ready
to provide it," said Deputy Managing Director Stanley Fischer. He noted,
however, that Brazilian authorities have yet to ask for such assistance.

 With the global currency crisis hopping from one country to the next,
Brazil has become the major focus of concern for the IMF and U.S. Treasury.
Brazil has raised interest rates and spent heavily from its reserves to
defend its currency, the real, and to keep investors from abandoning
Brazilian markets. On Friday, Brazil's stocks reversed their swoon, rising
13%. But it still isn't certain that Brasilia's strategy will work for the
long term.

 Mr. Fischer said Friday Brazil might have spooked investors by displaying
"some initial hesitance" in raising interest rates. That "created fears
that Brazil may not really defend" the currency. But Brazil's decisions
late last week to raise the ceiling on its interest rates to 50% -- so far
they have climbed to about 40% -- and to cut government budgets "should
remove doubts that existed about Brazil's willingness to defend its
economy," he said.

 Like other nations in Latin America, Brazil is suffering from an investor
backlash against developing countries that gained steam last month after
Russia defaulted on its debt. Since then, investors have been worried that
other nations would follow Russia's example and that the IMF lacks money to
help debtors avoid Russia's fate.

 Treasury Secretary Robert Rubin, trying to boost confidence in Brazil,
said he telephoned Brazilian President Fernando Henrique Cardosa Friday to
"express U.S. support for Brazil's actions thus far to respond to pressures."

 The IMF also has tried to convince investors of its steadfastness -- but
instead sent a mixed message. IMF Managing Director Michel Camdessus
released a statement Friday chastising investors to "recognize the
important differences among emerging economies, price their risks
appropriately, and avoid overreactions." In other words, don't give up on
nations such as Brazil, which learned the calamitous consequences of
default in the 1980s, when Latin American nations stopped paying their
debts. Mr. Camdessus also said the fund "stands ready to strengthen its
financial support [for Latin America] and broaden it to other countries."

 However, it is far from clear how much the IMF could marshal if Brazil and
other Latin American nations need bailouts. On Friday, Mr. Fischer said the
fund has between $5 billion and $9 billion left for rescue packages, if it
maintains its usual reserves. Overall, the IMF has $28 billion in usable
funds, but it prefers to keep between $19 billion and $23 billion in
reserve for use by larger, industrialized members. In addition, the fund
could tap $15 billion of unused credit from a separate credit line with the
world's richest nations.

 At other times, Mr. Fischer has said the fund was prepared to use all its
resources for rescue packages, despite its traditional maintenance of a
cushion. But on Friday, he was far more cautious. He said IMF members would
agree to such a strategy only if they believed that the money would soon be
replenished.

 That was an attempt to put pressure on the U.S. Congress to approve an $18
billion request to refill IMF coffers. But it raised doubt about the size
of future IMF rescue packages if Congress continues to balk.

     Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved. 

 
++++++++++++++++++++++++++++++++++++++++

The Wall Street Journal Interactive Edition -- September 14, 1998

IMF SAYS RESOURCES ARE LOW AS NEEDS RISE IN GLOBAL CRISIS
Dow Jones Newswires

 WASHINGTON -- The International Monetary Fund's resources are running
perilously low just when global needs for financial assistance from the
agency are rising, the first deputy managing director of the Fund said.

 "The situation in the global economy unfortunately and very regrettably is
becoming very difficult," Stanley Fischer said upon the release of the
organization's annual report for fiscal 1998. "Fund resources are limited"
but demands on the Fund's resources continue, he said.

 The IMF faced "major challenges" including the Asian financial crisis that
led to a record level of funding activity during the fiscal year ended
April 30, Mr. Fischer said.

 In particular, the IMF cobbled together assistance packages for Thailand,
South Korea and Indonesia, after they were hit by sharp depreciations of
their currencies and crippling contractions in economic growth that left
them unable to meet debt obligations.

 Members drew $25.6 billion from the IMF's general resources account during
fiscal 1998, nearly four times the amount in the previous year, the report
said.

 In a period running from late April through August, the Fund disbursed $11
billion, Mr. Fischer said. It committed $43 billion in fiscal 1998 and an
additional $10 billion since the end of that year, he added.

 "Those are very large sums relative to the lending base of the IMF," he said.

 Total IMF credit outstanding rose to a record $75.4 billion at the end of
fiscal 1998, net of repayments of previous drawings, it said. That amount
was significantly higher than the $55.3 billion outstanding at the end of
the previous year, according to the report.

 "As a result of the large new demands on the IMF's resources in 1997/98,"
its stock of uncommitted usable resources fell to $30.1 billion at the end
of fiscal 1998 from $58..9 billion at the end of the previous year, it said.

 That $30.1 billion has now dropped to about $28 billion, Mr. Fischer said.

 Russian Bailout

 Resources that can still be committed fell further since April mainly from
a bailout for Russia. Since the Fund prepared rescues for key Asian
countries last fiscal year, it has also had to deal with financial chaos in
Russia, for which it negotiated a $22.6 billion emergency loan package in
July. While only a portion of that money has so far actually been
disbursed, roughly half that amount was pledged by the IMF, with other
multilateral and bilateral sources making up the remainder.

 Meanwhile, the Fund's liquidity -- the ratio of net uncommitted usable
resources to liquid liabilities -- fell to 45% in fiscal year 1998, and
dropped further to 36% currently, from 121% in the previous year, Mr.
Fischer said. While on average that ratio has been about 70%, a
"reasonable" floor for it would be 25%-30%, in order that countries that
have contributed resources into the Fund, which acts as a kind of global
credit union, may withdraw them if they please, he said.

 That ratio translates into necessary reserves of about $19 billion-$23
billion, which means that the Fund now has only about $5 billion to $9
billion available from the $28 billion in its general coffers for lending
in case a country needs an emergency assistance package, he said.

 The depletion of the Fund's general capital, its main source of credit for
countries in need of temporary help to bring their finances back in line at
times of crisis, is especially problematic, because IMF officials,
economists and investors alike fear the turmoil that began in Asia and
spread to Russia may infect more countries.

 "The Fund's role in Latin America is also at issue," Mr. Fischer
reiterated upon the release of the annual report.

 Even as IMF officials praise Latin American countries for their pursuit of
economic strategies involving privatization and strict fiscal discipline
condoned by the IMF, and try to convince international market participants
that the Latin American countries can bypass the storm in other emerging
markets, they worry.

 Latin American Worries

 Indeed, IMF Managing Director Michel Camdessus was so concerned about
contagion in Latin America that he called an emergency meeting of finance
and central bank officials from the region in Washington at the end of
August, just a month before the officials are due in Washington anyway for
the IMF/World Bank annual meetings. His goal was to create a coordinated
plan among those countries to cope with potential contagion and to attempt
to impress upon the investment community that all emerging markets aren't
alike, and therefore wouldn't necessarily be hit by the same kind of
financial turmoil.

 Meanwhile, Mr. Fischer said he's "sure" the issue of contagion will
capture the attention of the IMF board and staff in the coming year. After
a first round of crisis in Asia, contagion concerns will "only be
reinforced by the second round" in Russia, he said.

 As he spoke, Brazil seemed the most likely Latin American candidate next
to teeter off the edge. With the country's stock market gyrating, Brazilian
officials hiked interest rates this past week to defend the quickly
depreciating real.

 Mr. Fischer said the IMF would stand ready to support Brazil, if the
"major steps" Brazil has take to bring down its massive public debt, defend
the stability of the real and keep inflation down, don't work.

 He also noted IMF officials have discussed the "willingness" of board
members to support Latin America in general, if necessary -- and if
requested to do so.

 But given the agency's cash-strapped state, it would likely need to find a
creative way to fund such assistance. Selling a portion of its gold
reserves would be neither expedient nor wise, while it would put IMF
shareholders at risk, Mr. Fischer said.

 Tapping capital markets for additional resources would be unlikely because
it would break too sharply with the system used or the past 50 years, he
suggested.

 Instead, the IMF would likely turn to special rarely-used credit lines to
fill in its financial gaps. It could dig into a facility called the General
Arrangements to Borrow, which is separate from the Fund's regular capital,
to assist countries in Latin America, if push came to shove, he said.

 Right now, the GAB has about $15 billion available, Mr. Fischer said. The
governments or central banks of 11 industrialized countries created the
special credit line in 1962 to assist in correcting systemic financial
problems. While it hadn't been tapped in about 20 years, the IMF used it
this summer for assistance to Russia, bringing its resources down from
roughly $23 billion.

 While the IMF has known its dwindling capital has been an issue for some
time, and has planned for a 45% capital increase since the beginning of
1998, the agency hasn't been able to pump it up in large part due to U.S.
political considerations.

 Given that the U.S. holds about 18% of the votes on the IMF board, and a
capital increase requires the approval of 85% of the Fund, any new money is
effectively blocked until the U.S. accedes.

 Mr. Fischer said the Fund could potentially allow reserves to drop below
the previously accepted minimum levels, but only temporarily and if there
were "good prospects" for additional resources to be available soon.

 He declined to define those prospects further, and it isn't clear when or
if the views of the U.S. Senate, which has approved the Clinton
administration's full request for $18 billion more funding for the IMF,
will prevail in the House.

 House members concerned about squandering taxpayers" dollars on fruitless
projects have stalled approval of the funding. It would include about $3.5
billion for a new credit facility called the New Arrangements to Borrow and
a $14.5 billion chunk for the general capital hike.

 Many critics complain the IMF's loans don't actually bail out
crisis-ridden countries, and, falling further into turmoil, they end up
wasting their precious aid.

 Russia is a case in point, around which the Congressional debate of late
has largely revolved. After Russia received its special emergency package
in July, the political and economic chaos there only intensified. Some key
House leaders pointed to a newspaper interview in a Russian economic daily,
in which Anatoly Chubais, Russia's previous IMF liaison, reportedly said
Russia had to deceive the IMF in order to get its emergency aid in July.

 Nevertheless, while Mr. Fischer admitted the discussion over the IMF is a
"wholly legitimate debate," he called on the Congress to approve the
infusion. The IMF should be able to help countries, particularly ones in
Latin America, that are willing to help themselves by implementing the
right policies, he argued.


Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.

++++++++++++++++++++++++++++++++++++++

September 14, 1998

 BRAZIL STRIVES TO STEADY ITS FOUNDERING MARKETS
 BY MATT MOFFETT and PETER FRITSCH 
 Staff Reporters of THE WALL STREET JOURNAL

 SAO PAULO, Brazil -- The financial tempest that has ravaged emerging
economies from East Asia to Russia is now billowing closer to U.S. shores,
threatening its biggest target yet: Brazil.

 Since last month's collapse of the Russian ruble, Brazil, the world's
ninth-largest economy, has endured its worst swoon in nearly a decade. Sao
Paulo stocks have lost half of their value. Interest rates have surged to
nearly 40%, provoking such concern about economic growth that temporary
auto-plant shutdowns have been imposed by Ford Motor Co. and Fiat SpA.

 And as confidence in Brazil's ability to support its currency has waned,
$23 billion in hard-currency reserves has poured out of the country -- a
financial drain exceeding the government's entire take from the recent
privatization of the national telephone network, the largest divestiture in
Latin American history.

 This mess is unfolding just three weeks before national elections in which
President Fernando Henrique Cardoso, a freemarket leader whose hallmark has
been economic stability, is seeking a second term. Now his leftist
challenger is trying to come from behind in the polls by turning the vote
into a referendum on whether Brazil should impose currency and import
controls to try to insulate itself from today's hair-trigger global markets.

 Brazil still has about $51 billion in dollar reserves with which to defend
its currency, the real. And on Friday the International Monetary Fund
pledged that it, too, would support Brazil, if necessary. That word spurred
the volatile Brazilian stock market, which had fallen 16% Thursday, to a
13% rebound Friday. Yet on the same day, less-sanguine investors shipped
$1.6 billion out of the country. Markets simply aren't sure how much Brazil
can count on international assistance at a time when the IMF's own coffers
are far from flush.

 In all, "it is the most serious crisis of confidence Brazil has seen in
years, and somebody has to step up, either here or outside the country, to
restore it," says Igor Cornelsen, a Sao Paulo investment banker.

 The alarms in Brazil, which is by far the largest economy in Latin
America, have helped ignite sharp retreats in stock markets from Mexico
City to Buenos Aires and raised fears of a region-wide recession. And U.S.
corporations have more riding on Brazil than on most other countries caught
up in the past year's financial tumult.

 This isn't Malaysia, a flyspeck market harnessed to an outsized export
engine, or Russia, the hulk of an empire stumbling out of a long socialist
slumber. Brazil's population of 160 million is a vast pool of consumers,
the world's second-largest market for blue jeans and third-largest market
for television sets. Brazil is Whirlpool Corp.'s leading foreign market for
kitchen appliances and McDonald's Corp.'s seventh-largest market for fast
food. A survey by A.T. Kearney ranked Brazil as second only to the U.S. as
a favored investment destination for multinational corporations.

 Yet despite its burgeoning consumer culture, Brazil is saddled with an
old-style, patronage-ridden political system that has failed to rein in a
budget deficit equal to a whopping 7% of total output. The curious result
is a big-spending government that ranks low in international
creditworthiness, yet keeps its currency mighty vis-a-vis the U.S. dollar.
The real is so strong that in New York, Brazilians are the top spenders
among foreign tourists.

 In what is called a "crawling peg," Brazil links the value of its real to
the dollar within a band, which moves each year to let the real's value
slip about 7%. But now, amid a global climate of doubt about emerging
markets, skepticism that Brazil can keep supporting the real at what is
widely considered an unrealistically high value has stirred an assault on
the currency.

 Policy makers have few options to deal with it. Mr. Cardoso rejects out of
hand a devaluation, which could revive Brazil's nightmarish inflationary
past and might well scuttle his re-election. He has also repudiated
exchange controls. So sharply raising interest rates, to tempt investors
with high yields if they hold reals, is about the only viable policy weapon
remaining in Brazil's arsenal.

 But when trouble first arose last month, shellshocked Brazilian policy
makers dithered in deploying this weapon. Indeed, as recently as 10 days
ago, while money was flowing out of the country at the rate of about $750
million a day, Brazil's central bank was aggressively squeezing rates
downward, in order to perk up the pre-election economy.

 When authorities finally bumped up rates, capital outflows continued
unabated. President Cardoso, citing the risk that high rates pose to
economic growth, vowed that the monetary vise would be clamped no tighter.
"I'm not going to sacrifice the country," he said. Yet hours later,
monetary authorities lifted rates still further.

 Some analysts are scathing about the country's fumbling crisis management.
"It looks like the last days of Pompeii," says Riordan Roett, a Brazil
expert at the Johns Hopkins School of Advanced International Studies.

 But Fernao Carlos Bracher, president of Banco BBA Creditanstalt SA here,
says the interest-rate shock may be just the remedy to calm currency
markets and get investors to reflect on some of Brazil's overlooked
strengths: low inflation, a banking system that is sound by emerging market
standards and an aggressive government privatization program. "You are
dealing here with a crowd reaction," he contends. "Those who are going out
now are going to lose money."

 In the best-case scenario, Brazil toughs it out through the Oct. 4
election, defending the currency with its tight monetary policy and its
cache of reserves. Assuming Mr. Cardoso maintains his lead in the polls and
is re-elected, supporters say he would use the first 100 days of his second
term to ram through a series of long-stalled reforms to shrink the bloated
public sector. Then, with the government finally on a sound fiscal footing,
Brazil could begin to increase the rate of the real's gradual devaluation
against the dollar, and thus remove the constant threat of a speculative
attack.

 Economic Drag

 But such a nimble escape from the crisis seems a long way off for a
country whose characteristic self-confidence has been badly shaken. "People
aren't buying anything because they fear they'll soon be out of work," says
Valdemir Colleone, operations supervisor for Lojas Sem, a big retail chain.
At the Restaurante Sancho Panza, a smorgasbord-style eatery that charges
diners by the weight of their plates, cashier Helio Gomes notes that
customers are serving themselves smaller portions.
 The squeeze is crimping blue-chip companies like Grupo Odebrecht SA, a
 huge civil-engineering firm that has just announced postponement of $115
million in investments. The reason: its inability to tap sinking markets
for fresh capital. "The market for Latin American stocks has disappeared,"
says Rodolfo Maluf, Odebrecht's capital-markets manager.

 Brazilians of all ages are worried about the state of the currency. An
anesthesiologist at one Sao Paulo hospital last week began factoring in a
15% devaluation when billing American clients. And in the race for
president at the Escola Coruja school in a middle-class neighborhood,
six-year-old Daniel Llanes is suddenly losing ground to chief rival
Marcello, whose main economic plank is beginning to resonate: "I would
change everything to dollars."

 Mr. Cardoso's political fortunes have been tied to a stable real ever
since he introduced the currency in 1994 -- the last in a long succession
of Brazilian currencies -- while he was serving as finance minister. Its
success in restraining the country's chronic inflation and igniting a
roaring consumption boom helped elevate him to the presidency that same year.

 Deficit Spending

 But tying the currency to the dollar suppressed inflation without
eradicating its underlying cause: deficit spending that was deeply woven
into the structure of Brazil's governing institutions. Throughout his term,
Mr. Cardoso has introduced a series of constitutional amendments aimed at
scaling back profligate state spending, such as a pension system that
begins paying retirees even in their 30s. But the budget initiatives were
either watered down or blocked completely in Brazil's fractious Congress.

 "In practical reality," observes former U.S. ambassador Langhorne A.
Motley, "the Congress he has to work with makes the U.S. Congress look like
a Swiss watch." But Mr. Cardoso also draws blame for squandering precious
political capital on less-crucial measures, such as an amendment allowing
him to run for re-election.

 Unable to balance the budget, Mr. Cardoso had to continue relying on the
currency peg to restrain inflation. But the longer Brazil went without
devaluing the real, the more its value became distorted.

 The government got a foretaste of the risks of overdependence on the
strength of its currency last October, when the first tremors from the
Asian currency crisis reached its shores. Facing a speculative attack that
drained $10 billion from its reserves, the government held the real's value
by boosting interest rates and announcing an emergency plan to slash the
budget.

 Poor Follow-Through

 But rather than taking this narrow escape as a warning to finally tackle
its chronic fiscal imbalance, the government simply papered the problem
over. Many proposed budget cuts were never carried out. Mr. Cardoso did
move to speed up Brazil's huge privatization program, bringing some
one-shot gains into public coffers. But when that still wasn't enough to
halt the widening of the budget deficit, the government this year simply
stopped releasing unfavorable fiscal data.

 After Russia's ruble devaluation and default put investors on edge about
all emerging markets, Brazil found it could no longer sweep its problems
under the rug. Foreign investors in stocks and bonds were the first to
flee. Now, for the first time in the four-year history of the real,
Brazilians, too, have begun to seek the haven of dollars. "The number of
Brazilian businesses looking to protect themselves from a devaluation has
increased with each passing day," says Paulo Mallmann, an economist at
Banco Industrial e Comercial SA in Sao Paulo.

 The government's strategy of raising interest rates to back the real is a
double-edged sword. The only way Brazil can place public debt these days is
by linking it to fluctuations in domestic interest rates. The rate boost
raises Brazil's debt-service payments by $3.4 billion a month, placing
further strain on the budget.

 Nonetheless, with their painful history of devaluation and hyperinflation,
most Brazilians defend the stable-real policy. "Look at what happened to
Russia and the Asian economies that followed the advice of the market
wizards who told them one small devaluation would fix everything," says
Paulo Ferraz, president of Banco Bozano, Simonsen SA, Brazil's largest
investment bank. "In practical terms, no one has gotten away with a
devaluation."

 Rather than even considering a devaluation, Luis Inacio Lula da Silva, the
leftist candidate who opposes Mr. Cardoso in the October election,
advocates exchange controls like those recently imposed by Malaysia. So
far, his proposal has failed to strike a chord with the masses. Polls have
shown that Mr. Cardoso has actually gained support amid the economic fear
as voters cling to the candidate they already know.

 In the meantime, Brazil will continue trying to muddle through, much as it
has for the past four years. A crucial test of investor confidence in Mr.
Cardoso's administration comes Tuesday when the government tries to
privatize the electric company, Gerasul SA, seeking a bid of at least $800
million.

 A successful sale could be a boost both to Brazilian markets and to Mr.
Cardoso's presidential campaign. Ana Maria de Souza, manager of Paranoya, a
cut-rate women's clothing store on Sao Paulo's vast downtown pedestrian
mall, says she is sticking by Mr. Cardoso even though sales are already
plummeting. "It's not his fault -- it's the Russians," she says. "And
besides, there is no other choice."

     Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved. 
 
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The Wall Street Journal Interactive Edition -- September 14, 1998
 
MEXICO'S SEVERE BELT-TIGHTENING HAS NOT SHIELDED IT FROM CRISIS
By JONATHAN FRIEDLAND 
Staff Reporter of THE WALL STREET JOURNAL

 MEXICO CITY -- From the man in the street to the minister of finance,
Mexicans are praying that virtue eventually will have its rewards.

 Since the 1994 meltdown of the peso, Mexico has set itself apart from many
of its developing-country peers by adopting a freely floating exchange
rate, cutting government spending back to a bare minimum, and significantly
reducing its foreign borrowing. And as the price of oil, its principal
export, has fallen, and emerging-market volatility has grown, Mexico has
acted decisively to tighten its belt even more.

 But while Mexico has followed to the letter the prescriptions of the
International Monetary Fund and has won plaudits from credit-rating
agencies and Wall Street, the steps haven't shielded the country from
nervous investors, who have pulled out amid global turmoil. In fact, unless
the pressure comes off soon, Mexico is headed for a far lower economic
growth rate in 1999 than the 4.5% expected this year. It also potentially
is headed for another banking crisis.

 "This crisis has grabbed us at a time of many strengths," says Carlos Slim
Helu, chairman of Telefonos de Mexico SA, who became Mexico's richest man
by buying at times of crisis. And, he says, "we have no idea where it is
taking us."

 Value of Assets Hit Hard

 Indeed, since the start of the year, the value of Mexican assets has
suffered the same bruising punishment as that of countries with far less
credible recent track records. So far this year, the peso has lost about
24% of its value. In dollar terms, the stock market has fallen nearly 60%,
and the spread between interest rates on Mexican long-term bonds and U.S.
Treasurys has widened significantly, raising Mexico's borrowing costs.

 Especially hard-hit have been Mexico's banks, the subject of a
three-year-old government rescue program that already could cost taxpayers
$56 billion. Since Russia declared a devaluation and partial default, the
share capital of Mexico's main listed banks has all but evaporated. The two
largest, Grupo Financiero BanamexAccival SA and Grupo Financiero Bancomer
SA, have seen their share prices fall 80% and 86%, respectively. Both are
now trading at less than half of their book value.

 The banks also are being affected by a sharp increase in interest rates
engineered by the central bank, Banco de Mexico, to make the peso more
attractive. Since Aug. 10, the bank has on three occasions raised the daily
corto, an accounting mechanism used to drain liquidity from the banking
system.

 It also has tried to keep the pressure as short-term as possible by
setting a daily interbank interest-rate floor of 27% while forcing banks to
deposit money with it which, in turn, is auctioned back as longer-term,
floating-rate notes. The latter mechanism is designed not only to reduce
growing inflationary expectations but to give the banks a means to recycle
billions of pesos of unprofitable fixed-income government obligations
before they have to take a loss on them.

 The idea behind all of these measures, says Banco de Mexico Governor
Guillermo Ortiz, is to "minimize the damage the international economy is
imposing on us." Once the international turmoil stabilizes, says Mr. Ortiz,
the high interest rates can be brought down quickly, and the peso, which
authorities consider undervalued, will rebound.

 Small Comfort
 That is small comfort for Enrique Corvera. A 38-year-old accountant with
 two children, Mr. Corvera is one of the millions of Mexicans now laboring
under an unpayable mortgage taken on before the late 1994 peso devaluation.
Mr. Corvera paid $58,000 for his house and then, when interest rates spiked
above 100% in 1995, stopped servicing the debt. The principal on his
mortgage has since ballooned to $89,000. The latest increase in rates, he
says, "is the nail in my coffin, financially speaking."

 It also is causing some Mexicans to question whether the country's embrace
of open markets -- which in 1994 reached a symbolic peak with Mexico's
entry into the North American Free Trade Agreement with the U.S. and Canada
-- was too much, too soon. "The government was in way too much of a rush to
accept the gospel," says Francisco Hernandez Juarez, head of the country's
second-largest union confederation, the Union Nacional de Trabajadores.
"The result is that the Mexican businessman has been left to his own luck."

 Finance Minister Jose Angel Gurria says the alternative to embracing free
markets and orthodox fiscal and monetary austerity in times of crisis would
be even worse. When lawmakers from the center-left Party of the Democratic
Revolution, or PRD, suggested that Mexico adopt capital controls to shield
the economy, Mr. Gurria rejected them out of hand. "It's not something we
would even consider," he says.

 James McCabe, head of BankAmerica's Mexico unit, says he still is keeping
his fingers crossed that Mexico will get the break he thinks it deserves
from international investors. "The hope is that investors will begin to
segment emerging markets rather than lumping them all together," he says.
"If they do, Mexico will be poised to rebound quickly once this panic hits
bottom."

Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.

++++++++++++++++++++++++++++++++++++++++
Journal of Commerce, September 14

IMF SEES SHORT-TERM CAPITAL CONTROLS IN ASIA 

SEOUL - Short-term capital controls may be adopted to avert the kind
ofregional contagion that caused a serial swoon among Asia's economies last
year,the IMF's Asia-Pacific director Hubert Neiss said Monday.

Speaking to a media conference on the Asian financial crisis, Mr. Neiss
said thedeliberations about the extent of these controls were still going
on, apparently withthe IMF's blessing.

He said this would likely be done through a combination of prudential
regulationsand taxes on foreign exchange deposits. 

South Korea was on the brink of national default on its short-term
obligations lastDecember after exhausting its foreign exchange reserves in
a futile bid to prop upits won currency during the regional currency crisis
that began last year.

Mr. Neiss declined to elaborate on what the controls would entail and where
theywould be implemented, saying the discussions were about controversial
measures.

An unexpected dimension of last year's financial crisis was the panicky
withdrawalof capital and the calling in of short-term loans by foreigners
under a psychologyof fear and contagion. The new controls would try "to
protect countries from theover-volatility of short-term flows" of capital,
Mr. Neiss said.

He added the IMF was keenly watching Malaysia's experiment with
moresweeping capital controls.
 
++++++++++++++++++++++++++++++++++++++++

Dow Jones Newswires -- September 14, 1998

IMF: RUSSIA HAS ASKED FOR URGENT TALKS ON ECONOMY
Dow Jones Newswires

 MOSCOW -- Russia's newly-approved prime minister has asked the
International Monetary Fund to begin talks with the government as soon as
possible on the economy, a top IMF official said Monday.

 The Fund's Moscow representative, Martin Gilman, said Russian Prime
Minister Yevgeny Primakov made a request to the IMF on Saturday, the day
after parliament approved him to the post of prime minister.

 Gilman said the Fund director in charge of Russia, John Odling Smee, would
arrive in Moscow Tuesday. Other members of a special IMF negotiating team
would follow later in the week.

 IMF officials recently have downplayed any expectations of further IMF aid
to Russia in the wake of its defacto devaluation of the ruble and a
confiscatory restructuring of its Treasury debt.

 Gilman declined Monday to talk about the likelihood of any agreement
between the government and the IMF as the result of talks.

 "The prime minister has requested that the IMF engage them as soon as
possible on the situation," he told Dow Jones. "So talks will begin shortly."

 Russian President Boris Yeltsin nominated Primakov to the post of prime
minister last week after the Communist-dominated parliament twice rejected
the previous candidate, Viktor Chernomyrdin.

 Primakov is planning to fill the posts within his new cabinet by the end
of next week. Thus far, however, he has assigned some key positions to
Soviet-era bureaucrats who are expected to favor a raft of measures that
will alienate foreign investors and the IMF.

 The IMF put together a $22.6 billion rescue package for Russia in July but
cut the first tranche and warned last week that a second infusion of $4.3
billion due this month is likely to be delayed.

Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.


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Dow Jones Newswires -- September 14, 1998

U.K. GOVT SAYS ANY G8 SUMMIT WON'T TAKE PLACE TILL OCTOBER
Dow Jones Newswires

 LONDON -- A U.K. government spokesman said Monday that if a special summit
of leaders of the Group of Eight leading industrial countries were to be
called to discuss the threat of global recession, it wouldn't be held until
at least early October.

 The spokesman wouldn't confirm a report by the British Broadcasting Corp.
that Prime Minister Tony Blair is preparing to call such a summit.

 "If during the course of the next few weeks, it is decided that it would
be advisable to hold a heads of government G7-G8 meeting then it will
happen," the spokesman said.

 "If it is going to happen it will take place after the IMF/World bank
summit at the beginning of October, but a decision hasn't been taken yet.

 "We haven't ruled it (a summit) in, but we haven't ruled it out," he added.

 The BBC had reported that Blair is planning to call for the meeting before
the leaders gather in Washington for the International Monetary Fund and
World Bank meet on Oct. 3.

 The U.K. currently presides over the G-8, which includes the U.S., the
U.K., Canada, France, Germany, Italy and Japan and Russia.

 Deputy ministers of the G-8 are meeting in London Monday to discuss
Russia's economic situation.


Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.