IMF/Brazil deal

[Robert Weissman <rob@essential.org>]

Compiled by the Preamble Center:

> 1) Money from ESF for Brazil? 20b from Europe and US?
> 
> >From USA TODAY,  November 3, 1998
> 
> Brazil's economy: Negotiators from Brazil and the International 
> Monetary Fund met Monday in Washington to discuss the possibility 
> of a $ 20 billion IMF aid package as the basis for about $ 40 billion 
> in aid from governments and lenders in the USA and Europe. Brazil's 
> Foreign Minister Pedro Malan goes before his country's Congress 
> today to argue for $ 23.5 billion in tax increases and spending 
> cuts to repair Brazil's deficit. A member of the Brazilian delegation 
> to the IMF said, "There is no other choice but to deal with this 
> situation now. I'm quite optimistic about the approval of the 
> measures by Congress and the approval of (Brazilian) society as 
> a whole." 
> 
> 
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> 2) What the IMF is saying about Asia now...
> 
> The Straits Times (Singapore), November 2, 1998 
> "Turning point in world crisis" 
> 
> By Hubert Neiss 
> 
>     THE international financial community may have reached a turning point 

> in the struggle to contain
> the global crisis that first erupted in Asia. 
> 
> After 16 months of bleak economic news, there is a new commitment to stem 
> the contagion and to
> erect new defences to fend off future outbreaks. Moreover, there have been 

> very encouraging
> developments in many East Asian countries. 
> 
> The recently concluded annual meeting of the International Monetary Fund 
has 
> produced a
> common purpose that could transform the crisis into a temporary setback. 
> 
> The meeting produced an important consensus on two parallel themes: the 
need 
> for a rapid response
> to the crisis, and a resolve to strengthen the international financial 
> system. 
> 
> It concluded with a consensus on the need to reinvigorate world growth. 
The 
> US has cut interest
> rates twice, and European policy-makers are taking steps in the same 
> direction. 
> 
> Japan has also responded: the Diet has finally passed legislation that 
> should advance the difficult task
> of restructuring the Japanese banking industry, and has apportioned US$ 
500 
> billion (S$ 845 billion)
> to the task. 
> 
> After the meetings, the US Congress moved to approve long-delayed IMF 
> funding. This was a
> signal of a broad consensus in Washington of the depth of the global 
crisis 
> and the need for the US to
> shoulder its responsibilities. This action will free up funding from other 

> countries that should put a total
> of about US$ 90 billion at the IMF's disposal for future crises. 
> 
> Brazil is also making a serious effort to deal with its economic problems, 

> not only for itself, but for
> Latin America. The Brazilian authorities have unveiled a programme of 
fiscal 
> constraint and structural
> reforms. 
> 
> All these steps should shore up stability after months of uncertainty. 
> Nowhere has that been more
> evident than in Asian financial markets, as currencies and share prices 
have 
> firmed. 
> 
> But rebuilding confidence will involve more than responding to the 
immediate 
> crisis. There is a need
> to rethink the practices and regulations that have governed global markets 

> during these years of rapid
> growth and technological change. 
> 
> The proposals are called the "new international financial architecture". 
> That is shorthand for the mix of
> measures that embrace changes in the way countries are expected to monitor 

> and discipline
> themselves, changes in the way banks and borrowers are expected to 
interact, 
> changes in the way
> markets are expected to behave, and changes in the way the IMF operates. 
> 
> The consensus on the new international financial architecture is crucial 
to 
> the effort to ensure that East
> Asia and other emerging markets proceed on the path of balanced growth 
once 
> the crisis is over. 
> 
> The key elements of this approach include: greater private and public 
sector 
> transparency and new
> standards of corporate governance. 
> 
> The IMF is ready to play its part by increasing the amount of information 
it 
> makes public and in
> monitoring the implementation of the standards, whether devised by itself 
or 
> by other professional
> bodies. 
> 
> * Increased economic policy scrutiny by national governments and 
> multilateral organisations. 
> 
> * A commitment to financial sector reform to bring markets and banking 
> systems up to international
> standards and enable countries to adjust to the complex demands of the 
> global market. 
> 
> * Plans to involve the private sector in preventing future crises and keep 

> it involved -on a voluntary
> and cooperative basis -in the solutions the next time problems erupt. 
> 
> These are not headline-grabbing topics. But they are steps that can head 
off 
> future instability. In
> devising these new policies, the IMF and the international community will 
> study closely the lessons to
> be drawn from Asia's recent experience. Many of the issues that the new 
> international architecture
> addresses are being faced right now in Asia, and the progress made so far 
> will be instructive for the
> future. 
> 
> The fact is that there has been progress. Regional currencies have found 
new 
> stability at much
> strengthened levels, foreign exchange reserves are rising, current-account 

> surpluses have increased
> room for manoeuvre, and interest rates have come down sharply. 
> 
> Thailand and Korea are expecting economic growth again next year. The 
> Philippines is holding its
> own and has avoided falling into recession. Even in Indonesia, there are 
the 
> first signs of
> improvement. 
> 
> In several countries, major steps have been made to restructure financial 
> systems that could not
> handle the stresses of rapid asset inflation and weak credit controls. 
> 
> The task of rebuilding Asia's economies -and re-orienting the global 
system 
> -will not be easy. The
> IMF is aware of the criticism that has been levelled at the programmes put 

> in place in the region, in
> no small measure because of the human cost of the crisis. 
> 
> In Indonesia, programmes have been set up to provide subsidised rice and 
> other essentials to the
> poor. In Korea, the IMF has been instrumental in urging the government to 
> establish a social safety
> net -including unemployment insurance -for the first time. Thailand has 
also 
> Strengthened Its Safety
> Net. 
> 
> The goal of fiscal and monetary policy has shifted decidedly towards 
> expansion in all countries. 
> 
> And the IMF stands firmly behind the World Bank's effort to temper the 
> impact of the crisis on those
> least able to cope. 
> 
> There are no easy solutions. The task now is to ensure that the 
> unprecedented improvement in living
> standards in Asia and other emerging markets is sustained into the next 
> century. 
> 
> (The writer is director of the Asia and Pacific Department of the 
> International Monetary Fund in
> Washington, D.C. He contributed this article to The Straits Times.) 
> 
> ----------------------------------------------------------------------
> 3) Today's FT on Brazil
> Financial Times (London), November 3, 1998
> 
> HEADLINE: Brazil debt roll-over sparks fears 
> 
> By Richard Waters in New York 
> 
> BODY: 
>    Foreign banks and investment institutions continued to show little 
> appetite yesterday for a formal
> restructuring of Brazil's foreign debts, despite a growing belief in 
> financial markets that the official
> package now in preparation cannot succeed without a large degree of 
private 
> sector help. 
> 
> Brazilian officials have yet to approach the country's foreign bank 
> creditors and investors officially to
> ask for their support. Unofficial soundings suggest Brazil hopes to win 
> broad backing from foreign
> creditors to roll over existing commitments and extend new money. 
> 
> "They would prefer to ask financial institutions to maintain or even 
> increase their facilities in an
> informal way," according to one financial source. That would contrast with 

> the sort of formal debt
> plan needed to prevent a default by South Korea earlier this year. 
> 
> Brazilian officials are expected to ask directly for private sector 
support 
> once a deal with the
> International Monetary Fund and the Group of Seven leading industrial 
> nations is completed. That
> agreement, expected as early as this week, is expected to provide $ 30bn-$ 

> 50bn (#18bn-#30bn) to
> bolster Brazil's external finances. Unofficial approaches are believed to 
> have been made to leading
> commercial and investment banks, but there seems little appetite among 
> financial institutions to lend
> more. 
> 
> Even the large scale of the official financial package being discussed 
could 
> fail to bolster the Brazilian
> currency if confidence does not return quickly to the financial markets, 
> according to foreign
> economists. 
> 
> The country's foreign reserves have fallen from $ 75bn to $ 43bn since 
> August, said Geoffrey Dennis,
> emerging markets strategist at Deustche Bank Securities. "I think they're 
> going to have real problems
> rolling over the foreign currency debt," he said. "The genie is out of the 

> bottle - credit lines have been
> pulled, the banks are cutting back." 
> 
> Complicating the picture could be a move by foreign banks to reduce their 
> exposures early in the
> expectation they might, at some later stage, be required to put up more 
> money in a Brazilian bail-out. 
> 
> Still fresh in many banks' minds is the sequence of events in South Korea 
> late last year, when an
> IMF deal failed to stem the outflow of foreign capital, leading eventually 

> to an emergency rescue
> from private creditors. 
> 
> However, for US banks, at least, heading off a crisis of confidence over 
> Brazil is likely to be viewed
> with a greater sense of urgency even than that of South Korea.