sba.gif (25753 bytes)
Click here!   

  headermenu.gif (2323 bytes)

 

Memo from the Chairman
view.gif (3718 bytes)
Venture Capital
Consulting
Mergers & Aquisitions
Corporate Finance
International Finance
Reorganization & Restructuring
Business Plan Analysis
Flow Analysis
Broker Dealer Analysis
Health Care
securities.gif (3395 bytes)
History and News

Multinationals
and
The Internet
Links
joinbot3.gif (9803 bytes)
eye.gif (5286 bytes) Point of VIEW.

A purely analytical perception...


BRAZIL

AN ACCIDENT WAITING TO HAPPEN

 

Continued from page 5

BRAZILIAN BANK ABUSE

When talking about just plain bad management, we have to take our hat off to Banco do Estado de Sao Paulo (Banespa) Brazil's second largest bank, which has seriously campaigned for designation of the world's worse. Brazilians seem to take some morbid pride in comparing the Banespa disaster with some of the great banking catastrophes of all time. The say that the $10 billion cost of Bank of Credit and Commerce International (BCCI) and even the $14 billion hosing administered to Credit Lyonnais are not even in the same league with the $23 billion blood bath suffered by Banespa. Banespa has over 50,000 employees' people and has over 600 branches, its administrative mass compares with that of the domestic arm of Citibank, with only ten percent of Citibank's capital.

A few years ago the regional government persuaded the bank to lend it money to cover shortfalls in its annual budget. Before long, this had become an annual ritual. Future tax receipts guaranteed the loans, but when the administration began to default on its loans these guarantees proved all but worthless. Sao Paulo’ debts to Banespa, which amounted to around $20 billion, constituted one of the biggest black holes in banking history. As they always say, $20 billion here and $20 billion there and soon you are talking about real money.

To give you a capsule look at how bad Banespa is, you only have to perceive the fact that of the two million accounts still with the bank, 1.7 million are people that have to leave their money in the institution, state employees. Its capital is made up 80 percent of deposits made by the state government. At one time, the bank serviced over 3 million people, but most of those that could escape ran for the hills, sensing bad things to come.

As with Credit Lyonnais, Banespa falls into two categories, one being national pride and the other being "too big to fail" syndromes and as such no one seems to know what to do. Banespa, as a favored status as a state bank in that currently all government employees are forced to keep their money in the bank as are all businesses contracting with the state, legal escrow accounts and other state and city funds in all of Sao Paulo. The logical choice in a disaster of this sort would be to privatize the bank and pray that a miracle happens. However, no miracle can occur when the bank's only profits come solely from its monopoly, the same benefits would not accrue to any privatized entity.

The people are so used to banks being on the edge that they hardly pay attention anymore. Of the ten largest banks in Brazil, five have recently gone out of business or on the brink of extinction.

The central government has had such a hard time in dealing with the situation that they have gone back to printing money to pay bills again. Effectively, this is one hell of a trick when you have a currency pegged to the dollar. They found out that this program just didn't cut the mustard when they dropped the peg by about eight percent and then let their currency float for a time. This move almost capsized the government and after their currency found stabilization substantially below the government's avowed level, it was repegged. Brazil is probably the only country in the world that has embarked on a program of pegging, repegging and money printing, but then again what choice do they have?

HEALTHCARE

While every agency in Brazil was broke, newly elected Brazilian President Fernando Henrique Cardoso ran on a ticket of Broke Shmoke, Health Care Comes First. One of his first acts upon entering office was to arrange for the Brazilian Health Ministry to receive almost $16 billion to pay its bills. According to Brazil, "The Health System in Brazil", April 1996, "Thanks to this, the Sistema Unico de Saude (Unified Health System) (SUS) was able to conduct one million doctor consultations a day, perform 4,120 heart surgeries, maintain 508,700 hospital beds and hospitalize 11,350 cancer patients. In 1989 Brazil became the first Latin American country to eradicate polio, and measles has been nearly eliminated, with only around 1,500 new cases in 1995. And, Insituto Butanta a leading research institution, has just announced that in a few months it will start producing a vaccine for hepatitis B, helping the country rid itself of this preventable disease. From the early 50s to today, life expectancy has increased from 46 to 65 years. Brazil has 6,500 hospitals and proportionally, a many doctors as England (1.46 professionals for 1,000 people) Quite impressive, huh?

All of this puts Brazil just a cut above Paraguay in resources devoted to healthcare and behind countries like India and El Salvador. From the almost $16 billion spent in 1995, $2.7 billion were used to pay staff, and another $2.9 billion went to cover old loans. While the US allocates 12.7% of its GNP to health, Brazil reserves only 4.2% for this purpose. Compare this with France (8.9%), India (6%), El Salvador (5.9%) and Paraguay (2.8%). This means that less than $80 per capita was allotted to healthcare in Brazil last year whereas in neighboring Argentina this number was $300 and in the United States, $2,300. That's what was being spent in the sector in 1987. The situation hit bottom in 1992 when a mere $45.7 per capita from federal funds was used for healthcare. In 1950 the number of hospital beds offered by the state was roughly the same as the private sector, the participation of the public sector has decreased to 29% of all beds available."

Well, now that we have seen the good news, what about the other side of the coin? Mortality for mothers is 50 times higher in Brazil than in Japan and this is in spite of the fact that as a percentage, Brazil leads the world in cesarean deliveries. Brazil has over six times the infant mortality of the United States. Seventy percent of the people in Brazil over fifty years old have no teeth in spite of over 160,000 dentists. Doctors under the Brazilian medical system receive $2 per patient visit, slightly less than the $2.50 fee for a shoeshine in the Sao Paolo Airport. The average monthly wages for a doctor is $400. Sixty-five percent of Brazilian doctors never train in a residence program, but go directly into business.

A disease that has been stamped out in most of the world, Cholera, runs rampant in Brazil, as do yellow fever and dengue, in spite of the fact that, the it has been publicly announced on several occasions that the Aedes aegypti mosquito, its transmitter, has been eliminated. Worse yet, over 500,000 Brazilians per year get malaria and tuberculosis has been growing at an exponential rate.

Some of the reasons for this dismal record are just pure and simple fraud. Investigators have turned up healthcare money being used for parties, clothes and strangest of all, obstetrical services for men. Political donations are high on the list of expenses for clinics and labs; many of which perform literally no known service and are paid millions of dollars a year. In the state of Maranhao alone, over 20% of all medical funds we found in private bank accounts and of course, that was only what was found. The world record for hospitalization occurred in Campo Grande do Sul in the state of Parana where over 60% of the population was hospitalized in one year. Many of the occupants would have had a hard time getting to the hospital on their own, as their names were lifted directly from some of the area's cemeteries. An inclusive audit of the system revealed that 24.12 percent of all diagnoses for health care in Brazil were false. Malpractice cases against doctors are growing at epidemic proportions and if were not for court delays in these hearings, the medical population of the country would have been severely impacted.

The Brazilian law clearly requires that each drug store have a pharmacist on duty. Statistics indicate that there are approximately 50,000 pharmacies in Brazil and between 30,000 and 40,000 pharmacists. We will leave it to you to figure that one out. But nobody will ever accuse the country of not having some medicine for anyone's taste. World Health Organization recommends a list of about 400 basic drugs; the Brazilian market stocks approximately 12,000. Such redundancy and over inventorying in a country practicing socialized medicine is obscene.

There are 353 laboratories that are registered in Brazil under the law; Jose Eduardo Bandeira de Mello, President of Abifarma, which represents the pharmaceutical industry in Brazil, says that 60% of those 353 are not legitimate. Someone contracting AIDS in Brazil can look forward to living less than 25% as long as his fellow sufferer in the United States or Europe. This particular problem has caused a spillover effect. Many Brazilians who become infected flee to the United States for treatment, where they make up a high percentage of the total undocumented aliens getting treatment in this country. As to going home again, the New York Brazilian contingent said, "forget about it".

PRIVATIZATION, THE ONLY HOPE

Many Brazilians believe that as they sell off their government industry to privatization, money will roll in allowing problems such as medical care, police brutality and infrastructure deficits to be taken care of. While we too would wish that would occur, we became less than sanguine when reading a recent report covering the results of what government officials termed a successful privatization.

Brazil sold its telephone company, Telebras for a goodly sum, $19 billion. The Brazilian Government is on record relative to the fact that it uses the money derived from privatization's for financing the deficit in its external current account balance of payments. This is not a bad idea as it has a stabilizing effect on the Brazilian Currency as well as reducing the country's foreign debt. The President who is running for election again shortly and in an attempt to win a few extra votes announced that he would use part of the $19 billion to beef up public spending. There are two problems with this, the first is the government doesn’t get the whole $19 billion, they only get 60% of it, with the rest paid over a period of time, the other problem is that the law doesn’t allow him to do it.

One of the President's spokesman had another idea, he announced that the money would be used to pay off internal debt and the interest savings would be used to help drought victims in Brazil's hard hit northeast. That doesn’t seem to wash either and in both cases the people that made the announcements knew better. It may be that they thought that no one would be the wiser,

Universally, there was some anticipation that at least the country would have phones that would stretch across the land for the first time. But what good is that if you can't get from here to there?

 

BRAZIL ENDNOTES

 

Previous | Next

Top

 

Home | About Us! | Search Us! | Contact Us! | Contents

Copyrighted Worldwide �1997 Chapman Spira & Carson, LLC.
45 Wall Street - Suite 1022
Tel: 212.425.6100 - Fax: 212.425.6229