Brazil Moves Have $40 Bil U.S. Impact
Adam Levy Bloomberg News, THE JOURNAL RECORD
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 because 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 country. "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 States. 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 economy and most populous country could drag others in the region into the maelstrom. 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, is 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 Chicago. 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. …