ATLANTA -- U.S. companies ranging from Coca-Cola to Chase
Manhattan may have their sales and profits crimped by Brazil's
decision to let its currency weaken.
The move, which came after a one-year defense that drove Brazil's
interest rates to as high as 50 percent, is likely to boost exports
by making the country's products less expensive. But it would cut
Brazil's purchasing power for imports.
An estimated 2,000 American businesses operate in Brazil,
including such giants as IBM, Coca-Cola and General Motors. Chase
Manhattan and other U.S. banks are likely to be hurt the most
the industry has $25.6 billion in loans in Brazil, according to a
Federal Reserve survey in October. Ford, Xerox and Bestfoods, maker
of Skippy peanut butter and Hellmann's mayonnaise, are among the
companies that get a significant amount of revenue from that
"Brazil could have a $40 billion economic impact on U.S.
corporations," said David Orr, an economist at First Union. "That's
huge and it could slow U.S. profit growth substantially in 1999."
Brazil's central banker unexpectedly resigned Wednesday and his
successor devalued the currency by 7.6 percent, sending world
financial markets into turmoil. Many feared the economic contagion
could spread through Latin America and even threaten the United
Wall Street fell sharply after the announcement that Central Bank
chief Gustavo Franco had stepped down, but later stabilized.
Investors worry that if Brazil falls, Latin America's largest
and most populous country could drag others in the region into the
Brazil's real fell 9 percent against the dollar Wednesday after
the country ended a one-year effort to defend its currency. That
means U.S. companies that sell in Brazil, the ninth-biggest economy,
will receive fewer dollars for the reals they earn.
First Union's Orr said he may lower his estimate of U.S. gross
domestic product growth to 2 percent from 2.5 percent because of
Brazil. The country is the 13th-largest U.S. trading partner, with
almost $21 billion, or about 1.6 percent, of trade. To compare,
Russia, which defaulted on debt and cut the value of its currency,
23rd with about 0.6 percent.
Lesser-known U.S. companies also could be affected.
"The inevitable collapse of Brazil and its currency will weigh on
commodity prices, corporate profits and U.S. growth," said Brian
Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson in
Westvaco, a New York-based paper company, generated $184 million
in sales, or 6.4 percent of fiscal 1998's total, from operations in
Brazil that make paper and cardboard packaging. Brazil's paper
companies could pose a more formidable threat to competitors because
of a falling currency, analysts said. …