On Wed, Nov 24, 2004 at 11:19:58PM +0000, Alberto Monteiro wrote: > Erik Reuter wrote: > > > At an estimated 280% of exports at the end of 2004, the U's. debt > > to export ratio is in shooting range of troubled Latin economies > > like Brazil and Argentina." > > I wasn't aware that Brazil had a troubled economy now - OTOH, the > economy has never been so untroubled.
Brazil has definitely been getting better, but it still has a ways to go. Budget deficit of 4-5% of GDP. Unemployment at around 12%. Long term bonds are yielding 10%. Inflation was 6.9% in the 12 months to October and 14% the year before. That's not a safe and non-volatile investment by any stretch of the imagination. It was only about 2 years ago that people were seriously worried about a default on the government debt. Nations change slowly, and even after the fundamentals have improved, emerging bond markets have a long memory (Brazil defaulted in 1826, 1898, 1902, 1914, 1931, 1937 and 1983) http://www.economist.com/displaystory.cfm?story_id=701377 Here's an excerpt from a July 2001 Economist article [the US doesn't look too good by these criteria, now!]: Every big observer of emerging markets, from the IMF to the investment banks, has a model that tries to predict which country is most likely to hit trouble. Most of them use a combination of a number of financial and economic indicators that have proved useful as early warning signals in previous crises. . Foreign debt. What matters is both the level of debt and its rate of increase. Past experience suggests that alarm bells should start ringing once total debt reaches around 200% of exports. On that basis, Brazil, Colombia, Peru, Turkey and Indonesia give cause for concern, while Argentina's debts of over 420% of exports are frightening. Measured as a share of GDP, rather than exports, Brazil's debt is bigger than Argentina's, and this year it has been rising more quickly. At today's interest rates, Brazil's situation is unsustainable. . Budget deficits. Hefty government borrowing has often led to a country's downfall. Turkey's deficit is expected to rise to almost 15% of GDP this year. Brazil, the Czech Republic, Indonesia, Malaysia and Taiwan have budget deficits of 5-7% of GDP. Most worrying is Indonesia, where outstanding government debt amounts to 110% of GDP. . Short-term borrowing. Almost as important as the level of debt is its maturity. Countries with excessive short-term foreign debts (of less than 12-months maturity) can suddenly face a liquidity crisis if they cannot roll over existing credits. Short-term debts currently exceed foreign-exchange reserves in Turkey, South Africa and Indonesia. In the rest of East Asia, by contrast, short-term debts have been significantly trimmed since the 1997-98 crisis and reserves have been built up. For instance, the ratio of short-term debt to reserves has fallen in South Korea from over 300% in 1997 to 38% in 2001. . Current-account deficits. The bigger a country's deficit the more new funds it needs to raise each year. Mexico, Brazil, the Czech Republic, Hungary and Poland all have current-account deficits of at least 4% of GDP. In contrast, all the East Asian economies are running current-account surpluses; Russia is also well placed, with a surplus of 10% of GDP. . Exchange rates. Both a country's exchange-rate regime and the level of its currency matter. Countries with pegged exchange rates have fared badly in previous crises, as have those whose currencies had appreciated rapidly and eroded their competitiveness. Pegged to the dollar, the Argentine peso has risen by 15% in real trade-weighted terms since 1997. But even that is less than the 40% rise in the Mexican peso. -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
