SUNS  4359  Monday  25 January 1999

Rio de Janeiro, Jan 21 (IPS/Mario Osava) -- The Brazilian real suffered a new slide Thursday amidst jitters that also caused the stock markets to decline, defying expectations of better times arising from parliament's approval of the most controversial fiscal measure.

The real slid to 1.8 to the dollar according to rumours that dominated the market, against expectations among analysts that the local currency would stabilise at around 1.6 to the dollar, late Wednesday's level.

The speculative surge died down by late afternoon Thursday, with the dollar sliding back down to 1.7 reals. The local currency's close to seven percent devaluation from Wednesday's rate indicated that capital continued to be withdrawn from the country in line with the average flow of around $300 million a day seen in recent weeks.

The Chamber of Deputies' approval late Wednesday of a hike in social security taxes on public employees had given rise to hopes that exchange and stock markets would rally.
The fiscal adjustment measure was the one that had run up against the heaviest resistance, especially in the lower house of Congress, which had defeated it four times already. Wednesday's 335-147 vote was taken as an indication that the governing alliance would not have difficulty
in pushing the rest of the measures through Congress.

The measure raises the contributions the highest-earning public servants must pay for their social security benefits from 11 to 22 percent of their salaries, while levying a 21 percent tax on the
government retirees who draw the largest pensions.

Nevertheless, the stock exchanges suffered losses Thursday, checking the strong rebound seen since last Friday, when Brazil allowed its currency to float freely.

The Sao Paulo index fell 4.59 percent, after accumulating a 51.7 percent rise in the four previous days. Losses on the Rio de Janeiro stock market were lower, however: 1.5 percent.

The poor performance was attributed to profit-taking in the wake of the rise in the value of stocks, continuous rumours and the fragility of the real. The stock exchanges did not fall further because the sinking value of stocks in dollars made them more attractive, said analysts.

The Central Bank did not intervene to curb the new depreciation of the real, against expectations that it would do so in order to hold the currency steady at around 1.6 to the dollar.

But the director of the Central Bank's Economic Department, Altamir Lopes, released data from 1998 that did little to calm the market: the country's foreign reserves stood at 44.55 billion dollars by late December.

That figure included the 9.32 billion dollars received last month in the first disbursement of the 41.5 billion dollar international aid package coordinated with the International Monetary Fund (IMF), most of which will be shelled out this year, and the rest in the following two years.

Direct investment in Brazil amounting to $26.1 billion in 1998 - one-tenth of which flowed in last December - contributed to the level of reserves, which was higher than market experts had calculated.

But the deficit in Brazil's external current accounts stood at 4.48 percent of gross domestic product, or 3.99 billion dollars in December, which brought last year's cumulative figure to 34.94 billion dollars.

Brazil's foreign debt amounted to 229.1 billion dollars in November, the latest available figure. Of that total, 28.6 billion corresponded to short-term debt, the most worrisome portion at a time of financial turmoil.