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Emerging Market Briefs

By Scott B. MacDonald

Brazil — The Candidates Start to Line Up: It is now formal. The Brazilian government has announced that next year's elections will take place on 6 October 2002, with a second round on 27 October if necessary. This has clearly pushed potential presidential candidates to a more active mode of operations. José Serra, health minister and close confidant of President Fernando Henrique Cardoso, indicated on 9 October that he would at the very least be standing for a seat in the senate. He was already a member of the senate for Sao Paulo, but stepped down when he was appointed minister. However, the Health Minister clarified that he looking to higher office instead of merely retaining his seat. During his press conference he pointed to his strong track record as health minister. He noted this should help him secure the nomination of the ruling coalition, which he hoped would remain in place. He also reminded voters that he was not just a party politician, rather a member of the `health party,' as reflected by successful campaigns and programs introduced by his ministry. Giving his conference the traditional politician stance, he picked up a baby and kissed it for the benefit of the cameras.

Others are indicating that they have presidential aspirations as well and want the support of the ruling coalition, the foremost of which is Tasso Jereissati, governor of Ceará. The Governor is well-connected, including the President and the influential family of the late governor of Sao Paulo, Mario Covas. He is also supported by other influential figures, including education minister Paulo Renato Souza, communications minister Pimenta da Veiga, PSDB governors Marconi Perillo (Goiás) and Almir Gabriel (Pará), and PSDB president José Aníbal (who has inherited the Covas mantle). One weak point in Jereissati’s campaign is allegations of irregularities in the state bank, BEC, during his governorship. There may have to be a primary between Serra and Jereissati in March or April.

Trinidad & Tobago — Off to the Elections: On December 10, 2001 the citizens of Trinidad & Tobago will go to the polls to elect a new government. The outgoing government of Prime Minister Basdeo Panday lost its legislative majority in October due to a rift within his United National Congress, which forced it to call new elections. The rift was caused by allegations of corruption against the Prime Minister by members of his own government, including the former Attorney-General Ramesh Maharaj, who Panday fired from his cabinet. Consequently, the UNC is threatening to split into two parties, one loyal to Panday, the other formed around Maharaj. At the same time, the opposition People’s National Movement (PNM) under former Prime Minister Patrick Manning is well-positioned for victory. The smaller National Alliance for Reconstruction (NAR) is also gearing up for the electoral contest. It is in discussions with former finance minister Wendell Mottley and his group of "concerned citizens" about contesting the election. Despite the fluid nature of the election, it is important to emphasis that the major political parties, the PNM, UNC and NAR, all are supportive of market-oriented policies and favor foreign investment. The issues dominating the campaign are likely to be crime, corruption and the economy.

South Africa - Ratings on Upgrade Track: Moody's has placed South Africa on review for a possible upgrade from its Baa3 to Baa2. The rating agency stated that "the South African government's macroeconomic policy track record has been impressive beyond expectations in recent years, particularly in the fiscal policy arena but increasingly in monetary and exchange rate policy as well." South Africa also gained accolades for its debt management, acceleration of its privatization program, and an improved liquidity position. South Africa has had a positive outlook from Moody's since February 2000. Standard & Poor's rates South Africa BBB-, with a stable outlook.

Indonesia Faces S&P Downgrade: Indonesia has made a substantial transformation since the downfall of Suharto in 1998. It has held parliamentary elections, had three different presidents (none of whom left through acts of violence but via constitutional procedures), and managed to resume a modest level of economic growth. However, the Southeast Asian nation remains challenged by a heavy debt burden which the government is seeking to reduce. In light of this they have indicated Indonesia was seeking to reschedule $2.7 billion in sovereign debt at the next meeting of the Paris Club of creditor nations in February 2002. Coordinating Dorodjatun Kuntjoro-Kakti also suggested that the government was also considering asking its official creditors to convert debt into grants. Standard & Poor's regards such an approach from a standpoint of higher risks of default. S&P in particular believes that if the official creditors provide another rescheduling of official government-to-government debt, they will also demand the same treatment from private sector creditors. The rating agency thinks that this would include the $400 million Yankee bond due in 2006. Consequently, Indonesia's sovereign rating was downgraded from CCC+ to CCC, with a negative outlook. S&P also noted that if a restructuring were to reduce Indonesia's debt burden materially, "subsequent ratings in the single-B category could be achieved."