GLOBAL ECONOMY

UNCLAS SAO PAULO 000520 SIPDIS STATE INR/R/MR; IIP/R/MR; WHA/PD DEPT PASS USTR USDOC 4322/MAC/OLAC/JAFEE E.O. 12958: N/A TAGS: KMDR OPRC OIIP ETRD XM XR BR SUBJECT: GLOBAL ECONOMY Black Monday Lead editorial in center-right O Estado de S. Paulo (09/30) says: "...President Bush had defended an "audacious" action in order to avoid the aggravation of the financial crisis... Congressmen from his party did not appear so audacious: they preferred to follow the Republican tradition, avoiding another big intervention in the market and maintaining the rhetoric of protecting the taxpayer's pocketbook. But they only vetoed the package, without eliminating the crisis or removing the necessity of new actions on the part of the government. They prepared a bad beginning for the next president. ... Without the US$700 billion package and without an action plan of similar magnitude, the U.S. government can only act in the style of the Europeans, trying to take care of the problems on a case by case basis. If this is the path, the insecurity in the markets will tend to continue... The reaction of the stock markets might not be the worst consequence of the rejection of the package. If a good alternative is not found, the tightening of credit could intensify disastrously in most of the markets, increasing the risk of a large-scale recession. In light of this, President Luiz Inacio Lula da Silva should pay more attention to Central Bank president Henrique Meirelles and start taking more seriously the danger of contamination of the Brazilian economy." Convulsion in the finances Editorial in liberal Folha de S. Paulo comments (09/30): "An unpopular government at the end of a mandate; an overpowering crisis; a plan to save banks with a lot of public money; congressmen in electoral ebullition. This mixture of ingredients knocked down the White House and the Democratic and Republican legislative leaderships; it brought to the ground the US$700 billion bailout plan and provoked a world financial convulsion not seen since 1987... By following their electoral instinct - which is part of the rules of a democratic game - 228 U.S. congressmen increased the destructive power of this crisis for the U.S. society. They also probably increased the final cost of the financial help package which will fall back on the Treasury Department of the country, and therefore, on the taxpayers. The amazement with which the U.S. economic authorities reacted to the news of the legislative defeat indicates that the Bush Administration had no alternative plan. It will have to work fast now and in addition to this find means of by-passing the opposition in Congress. Meanwhile, the uncertainty future of the global economy tends to become more radical." White