New York--May 25---Sentiment in Latin American markets turned sour suddenly this week with a steady stream of bad news, some unsubstantiated. The latest is today's report in a Brazilian newspaper alleging a telecom scandal involving the Brazilian President. Nervous investors are quickly cashing in on the recent bull run, with Latin American depositary receipts mostly weaker across the board in morning trading today. Brazil's Bovespa
stock index also plunged some 4.4% before retracing some losses, the
country's currency sagged, and Mexican stocks tumbled as well.
"Everything has taken a 180-degree turn in the last week. It's partly [the] correction on Wall Street, it's the [Argentina] peso, the real... they are all having a combined effect," one Latin dealer says of the jittery market. Brazilian shares had plummeted almost 5% on Monday on worries that neighboring Argentina was about to devalue its peso.
The latest scare for the market arose from claims today by Brazil's Folha de Sao Paulo newspaper that it has tape recordings showing that President Fernando Henrique Cardoso agreed to lend his name to efforts at pressuring bidders in 1998's telecom privatization. However, the paper says the tapes do not show Cardoso directly applying pressure.
In one tape recording, BNDES President Andre Lara Resende asked Cardoso if he could "use the President's name" in talks with reluctant bidders. Cardoso allegedly answered that this "would not be a problem." According to the Folha, Resende and other BNDES officials thus influenced the Banco do Brasil pension fund, Previ, to join one of the bidding consortiums for Telebras subsidiary Tele Norte Leste. The BNDES manages Brazil's privatization program and in July, 1998, orchestrated a huge selloff of federal telecom holding company Telebras. The sale brought the government $19 billion.
Some of the tapes came to light late in 1998, sparking a congressional
investigation. Resende, the BNDES chief then, and Communications Minister Luiz Carlos Mendonca de Barros resigned in the wake of the probe. However, no criminal charges were ever brought against the officials.
In the uproar after the article was published, Brazil's opposition Workers Party called for President Cardoso's impeachment and began collecting signatures to launch an inquiry into the Telebras privatization. Cardoso says the allegations are a "political ploy" by enemies seeking to derail reform efforts. Whatever the outcome of the latest brouhaha, this may be the last straw for nervous investors.
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