Sensing the Birth of a Boom, Foreign Bankers Pour Cash into Brazil

SAO PAULO, BRAZIL -- Foreign merchant banks are rushing to increase business in Brazil against a backdrop of a weak presidency, inflation again in the double digits, and frequent labor strikes.

"The expectation is optimistic in the medium and long term," said Roberto Correa da Fonseca, managing director of Banco Santander's merchant banking office, which was set up this year in Sao Paulo.

Reflecting the optimism, more than twice as much foreign cash has come into the country thus far in 1991 than in all of 1990.

"People are buying in anticipation of what happened in Mexico and Chile," said Jouji Kawassaki, a vice president at Citicorp's Citibank unit and director of the bank's capital markets activities in Brazil. He spoke at a recent seminar in Sao Paulo on capital markets.

Chile and Mexico are often cited as Latin America's economic success stories, with solid economic growth and low inflation.

"We do have some important problems in the short term, but never have we been so close to a national understanding," said Roberto Ruhman, director of Banque Indosuez's recently opened merchant banking office in Brazil.

Brazil expects foreign cash investment to be $10 billion this year. Already, $6.8 billion have entered, Central Bank President Francisco Gros told a Brazilian financial daily, Gazeta Mecantil.

Bank Loans Once Cut Off

A total of $2.86 billion in foreign funds entered Brazil last year, the most since 1982, when voluntary bank loans to Latin America's governments were cut off, according to the Central Bank.

The investment is unusual because Brazil has not yet rescheduled its medium- and long-term bank debt of $52 billion. In the past, banks demanded such a pact before making new loans or underwriting bonds.

Behind the rhetoric lies a growing consensus, merchant bankers and political analysts believe.

Even Federal Deputy Aloizio Mercadante -- chief economic adviser to Luiz Inacio Lula da Silva, the Workers' Party candidate who narrowly lost the presidency to Fernando Collor de Mello in 1989 -- recently condemned excessive state control of Brazil's economy.

"What Mercadante is saying is not that different from Collor and major political parties," said Mr. Fonseca of Banco Santander. The Workers' Party had strongly defended state control of the economy.

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