hawks win

[Peter Kilander]

I read that the lowering is a "down payment," with more to come. I take all
reports like this with a grain of salt, like speculation on what-its-name
the groundhog before Groundhog Day. I liked the front page piece on the IMF
in Monday's WSJ. The IMF says it has 27 billion left while Republican Rep.
Jim Saxton of New Jersey says it has 87 billion and doesn't need any more.
"We may be making the situation worse over the long term by continuing to
bail out contries like Brazil," Mr. Saxton says. The piece adds that a
"House-Senate negotiating session, likely to take place in the weeks ahead,
will determine how much money the IMF does have ..."

Monday's NYTimes had a nice front page story on the Brazil bailout plan,
they're aiming for more than $30 million. The article says how the "huge
Brazilian economy dominates Latin America, which purchases 20 percent of
America's exports and is host to thousands of America-owned factories, whose
sales and profits contribute significantly to corporate America's bottom
line."
As you might guess, the Brazilian government's finances are in bad shape and
are getting worse. The purpose of the bailout is to prevent a devaluation
which would end Brazil's fixed exchange rate and produce a devaluation
domino effect. "The Brazilian real must also be devalued, this argument
goes, by 15 percent or more.
The reason is that the real is overvalued. An American-made toothbrush, for
example, that sells in the U.S. for perhaps $1, sells in Brazil for the
equivalent of 75 cents, while a Brazilian-made toothbrush sells in both
Brazil and the U.S. for more than a $1. No wonder foreign goods flood into
Brazil, swamping Brazilian exports. No wonder there is so much demand for
foreign loans to finance the resulting trade deficit." And later in the
piece: "Brazil's hard currency reserves have dwindled to $50 billion from
$75 billion in recent months as foreign money is withdrawn from the country.
And part of the $50 billion could soon depart, as repayments are made for
$49 billion in loans from foreign banks that have been coming due this
year."
Then on page A20 of Monday's WSJ: "Mexicans Quietly Mull Tying Peso To
Dollar" Mexican authorities are privately promoting a debate about it while
publicly denying any intention of doing it. "Despite buoyant economic
growth, a conservative fiscal stance and a low level of debt, the Mexican
currency has fallen by more than 20% against the dollar since the start of
the year. That has forced the central bank to raise interest rates. If
prolonged, the high rates will choke off economic growth and put a nasty
strain on an already-weak banking system. . . . Mexico's congress is
debating a government plan to formally convert into public debt around $60
billion in bad bank debts bought by a state deposit-insurance agency after
the 1994 peso collapse."