International Banks Pledge to Maintain Support for Brazil
A group of leading international banks Monday vowed to sustain their general level of business in Brazil, a move that bolstered faith in the South American nation’s markets ravaged by uncertainty ahead of the October presidential vote.
The 16 banks, including Citigroup Inc., J.P. Morgan Chase and Deutsche Bank, said in a statement they were committed to Brazil and its economic program over the long term. They also vowed to maintain trade credit lines with Latin America’s largest economy, where companies have seen credit dry up amid the market turmoil.
Brazilian Central Bank head Arminio Fraga said the banks’ commitment represented an important step toward repairing investor confidence, which has been severely damaged in recent months by mounting worries over the two left-leaning front-runners’ gaping lead in the polls over Wall Street favorite Jose Serra.
“We do not expect this meeting to be a solution in itself to all the anxieties out there,” Fraga told reporters at the Federal Reserve Bank of New York, where the meeting between the bankers and Brazilian officials took place.
“I believe this is one more step in the direction of demonstrating that this is a country moving in the right direction,” Fraga said.
Wall Street has been worrying for months that if one of the left-leaning front-runners--Luiz Inacio Lula da Silva or Ciro Gomes--is elected president, he could mishandle the economy and push the country toward a default on its $250-billion net public debt. The concerns have sunk Brazilian bonds some 20% this year and weighed on Brazil’s currency, the real.
The market turbulence already has prompted promises of cash from another key lender, the International Monetary Fund, which unveiled a $30-billion aid package this month. The deal appeared to be moving forward Monday; IMF sources told Reuters the lender had hammered out the fine print and the IMF executive board would review the loan agreement Sept. 6.
But it is Brazilian firms’ cash crunch that has been on investors’ minds in recent days, analysts said.
Trade-related credit lines to Brazil have dropped by about $3 billion to $13 billion overall in the last six months, and terms of some of the credits have been drastically shortened, crimping companies’ export capabilities, said Fitch Ratings on a recent conference call.
Most analysts were not expecting a blockbuster announcement from the banks worth billions of dollars in new credit lines, especially in light of their sharp losses after Argentina’s devaluation and default earlier this year.
Economists said Fraga and Finance Minister Pedro Malan had made reassuring comments. Investment bankers who held separate talks with Fraga on Monday called their meetings “positive.”
But some cautioned that a lack of specifics from the banks would do little to radically ease the market’s persistent uncertainties.
“Fraga said the meetings were positive, but it’s difficult to say whether that translates into hard credit lines or not,” said Siobhan Manning, Latin American debt strategist at Caboto. “I don’t think these comments show a concrete deal.”
In Brazilian markets, the real strengthened 2% against the dollar, while the benchmark Bovespa stock index soared 4.35% after the talks.
Fraga said that although the banks made a general commitment to Brazil, some banks were considering doing more. He added that he expected a greater level of bank commitment as confidence improves.
