A Boost For Brazil If Not For Collor

Brazil's roller-coaster stock markets, driven down in late May and June by corruption charges swirling around President Fernando Collor de Mello, are on the upswing again. They turned in early July, when investors got welcome news. First, in an impressive display, 1,500 top executives attended a dinner to honor Marcilio Marques Moreira, Collor's Economy Minister, and to show support for his reform policies. One day later, Brazil got an even bigger vote of confidence--its creditors agreed to restructure the country's $44 billion of foreign bank debt. That combination sent the Sao Paulo market soaring 25% in three trading days.

Inside and outside Brazil, investors are becoming convinced that the country's free-market economic reforms will continue, regardless of the outcome of a congressional probe of transactions by Collor's former campaign financier. "The markets are recovering because Brazil has finally managed to separate economics from politics," says Julius Buchenrode, investment director for Chase Manhattan Bank's two Brazilian funds for institutional investors.

`SOME RECOVERY.' Politically, Collor isn't home free yet. He could still face impeachment if congressional probers find hard evidence linking him to alleged illegal activities by businessman Paulo Cesar Farias, his 1989 election fund-raiser. But with or without Collor, Brazil's free-market shift may now have acquired a life of its own. "Collor has managed to form a consensus that Brazil must stop protecting industry, must open up its economy to foreign competition, and must spend less," says Banco da Bahia market analyst Dalmo Vasconcellos. "Even Congress has begun to go along with the new thinking."

A case in point is a bill that Collor pushed for more than a year to overhaul corrupt and bureaucracy-ridden ports. In late June, the lower house of Congress passed it, although in somewhat watered-down form. Now, industry groups that organized the show of support for Marques Moreira intend to lobby Congress to act on other key measures, especially a fiscal reform to end budget deficits that feed inflation.

While stock market players lost most of their gains from the markets' 80% rise through mid-May, many long-term investors have remained bullish. They see the country's relative calm--outside the equity markets--as evidence of maturity. "If this kind of political event had erupted in the past, the economy would have shut down," says Robert Harper, external affairs director for Texaco Brasil, which is carrying out a $67 million expansion. Siemens also is stepping up investments in Brazil this year--by more than one-third, to $35 million. Its orders for electronic components jumped 80% from May to June, reflecting increased sales of stereos and TV sets. "The situation is difficult, but not as black as some people are painting it," says Hermann Wever, president of Siemens' Brazilian subsidiary. "We are starting to see some recovery."

In Argentina, President Carlos Menem was nearly brought down by charges that he accepted illegal gifts and that relatives were linked to drug-money laundering. But when his economic reforms started producing results, the scandals were forgotten. Collor's economic team is hoping history will repeat in Brazil.

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