Brazil Braced For Y2K, But Investors Not Convinced

Updated 2:38 PM ET October 28, 1999

By Andrei Khalip

SAO PAULO (Reuters) - Brazil is as prepared for the millennium bug as most countries in the European Union, but many investors refuse to believe the land of samba could get that serious, analysts say.

Brazil's technical preparations for Y2K have drawn little criticism, and chances of a wide-scale problem here are considered slim. But that hasn't stopped some overseas investors from pulling money out of the country in anticipation of the millennium bug.

"There are few objective reasons to consider Brazil more Y2K-vulnerable than, say Sweden," said a Latin America analyst who did not want to be quoted. "The fear is of a psychological nature. The bigger the country, the bigger the fear.

"There is also this arrogant perception abroad that Brazilians don't care, that they dance instead," he added.

Government officials claim the country's computer systems, particularly in the financial sphere, are 90 to 95 percent compliant after thousands of tests over the past four years.

Still, foreign investment in Sao Paulo's benchmark stock exchange has fallen to around 30 percent of total investment from a high of almost 40 percent earlier this year on Y2K fears and concerns over Brazil's budget.

But analysts note that a lot of that cash is actually Brazilian money, come home from tax havens overseas. And what remains of foreign investment could soon flee.

"We're dead in the water and one reason for that is the millennium bug," said Fabio Oliveira, president of asset management at BankBoston Corp.'s Brazil headquarters.

The millennium bug, or the Y2K problem, goes back to computer programmers in 1970s who used two-digit codes to define years, such as 84 for 1984.

With the switch to the year 2000, computers may mistake 00 for 1900, which could cause system crashes and general havoc in an electronic world.

Those in the know say Brazil is better prepared than many other countries because some of its vital systems, such as those controlling its energy supply, are centralized and therefore easier to test and to clear of any glitches.

"We analyzed many Brazilian firms, including electric utilities and financial institutions, and they all have done a tremendous amount of work to combat the bug," said Ian Laming, an analyst at Morgan Stanley Dean Witter in New York.

Predictions for Y2K's ongoing impact on Brazil's financial arenas differ. Some, like New York-based I.D.E.A.'s Santiago Millan, predict capital flight in November and December, but expect improvements in early January. Citibank's chief economist Carlos Kawall also sees January as a turning point.

"There will be a lot of caution before January 1 in all financial aspects, but already in January we may see a good improvement across the board," said Citibank's Kawall.

Others say Brazil could see daredevil bargain-hunters.

"The damage is already behind us. Since August, a lot of money has gone out of Brazil's bonds and equities," Laming said. "People should start buying soon in anticipation that there will be no millennium problems or only modest problems."

The government's Commission on Coordination for the Year 2000 has said repeatedly that crucial sectors such as banking, electricity, telephones and infrastructure are well on the path to 100 percent preparedness before December.

The Brazilian Securities and Exchange Commission said last week big companies had spent 23 billion reais ($11.8 billion) to prevent computer problems and planned more Y2K works.

But analysts say more precise information is needed to help overcome Brazil's "constant fiesta" image.

"People are looking for news on Y2K. It would be very helpful for Brazil to send a coordinated signal to the world, with as much uncertainty cleared as possible," said Millan.

========================================= End

Ray

-- Ray (ray@totacc.com), October 28, 1999

Answers

Apparently, CNET has a similar article, but it appears to be unreachable. The article is entitled, "Brazil investors pull money on Y2K concerns". Here is as close as I can get to it:

Go to CNET.COM - News - Year 2000

Scroll down and click on the link:

Japan advises stockpiling food for Y2K

Scroll down the Japan article, and on the right hand side note the links:

Year 2000
Brazil investors pull money on Y2K concerns

Clicking on the Brazil article comes up with page-not-found. (Too bad, looks intriguing.)

64 days.

-- Jack (jsprat@eld.~net), October 28, 1999.