Brazil may be next big default, says Calif.-based consulting firm.

Argentinas default has strong, negative implications for Brazil, according to a California-based independent investment research firm. Investors have inexplicably disassociated Brazil from Argentina and that's a huge oversight says Jeph Gundzik, president of Condor Advisers, an eight-year-old investment consulting company based in Mammoth Lakes, Calif.

(PRWEB) April 23, 2004 -- Brazil shares an overwhelming number of Argentinas pre-default political, social and economic characteristics. Most importantly, Brazil is dependent on IMF credit just as Argentina was prior to its default," Gundzik says.

Gundzik, publisher of a monthly newsletter analyzing investment risk in emerging markets, says the legacy of IMF economic polices in Argentina was political and social instability, and prolonged economic weakness. The same IMF policies are predictably producing the same results in Brazil.

Annual average gross domestic product growth in Brazil was 1.6 percent between 1999 and 2003. Over the same period, unemployment more than doubled to 13 percent and cumulative real average earnings contracted by over 13 percent. The outlook for economic growth is discouraging. Gross domestic product growth will be hard-pressed to reach 1.5 percent this year. This weak economic performance and tragic deterioration in social conditions are a direct result of the IMFs demand that Brazil keep fiscal and monetary policies tight in return for continued access to multilateral credit," Gundzik says.

According to Gundzik, the primary purpose behind Brazils tight monetary and fiscal policies has been to ensure that the countrys fiscal position is sustainable. "The key indicator of fiscal sustainability is, at the minimum, stabilization of the public sector debt stock," he says. In Brazil, the debt stock has not stabilized. The ratio of public sector debt to GDP has increased from 68 percent in 1999 to over 90 percent in 2003. By 2005 the ratio of public sector debt to GDP will easily exceed 100 percent. "The IMFs policies are undermining Brazils political, social and economic stability in exactly the manner that they undermined stability in Argentina, prompting the countrys default."

Gundzik says the only factor that has prevented a default in Brazil is the generous availability of IMF credit. Brazil is the IMFs largest debtor, accounting for over 30 percent of total IMF loans outstanding. Turkey and Argentina are the second and third largest IMF debtors. Combined, these three countries account for over 70 percent of total IMF credit outstanding. In Argentina, political and social instability made continued implementation of the IMFs economic policies impossible. Exactly the same scenario is developing in Brazil and is gaining fuel from Argentinas success in stabilizing its political, social and economic structures despite its effective debt repudiation and the accompanying reversal of foreign private credit inflows," says Gundzik.

According to Gundzik, social instability is increasing in Brazil. This is undermining popular support for President Lula, weakening the coalition government and destabilizing the political system. Political and social instability will eventually force Lula to loosen monetary and fiscal policies in Brazil in order to boost economic growth," he says. "The change in economic policy will definitely shock foreign investors banking on Lula to maintain the policy status quo, resulting in rapid flight from Brazilian assets."

Condor Advisers, a Mammoth Lakes, Calif.-based consulting firm specializing in emerging markets investment risk analysis, has been serving institutional investors globally since 1995. Condors research has foreseen all the major crises in emerging markets, including the Asian liquidity crisis in 1997, Russias default and devaluation in 1998, Brazils devaluation in 1999 and Argentinas default and devaluation in 2001. Jeph Gundzik is available to speak to the media about global political and economic trends, and investment risk and opportunities in emerging markets. He can be reached in the United States at 760-937-7152 or by email at jpg@condoradvisers.com For more information please visit www.condoradvisers.com.