Brazil's currency troubles may hit chemicals

Abstract

Chemical companies are strapping on their seat belts in preparation for a potentially rocky ride in South America, following Brazil's decision to let market forces determine the value of its currency. Since 1994, Brazil has pegged its currency—the real (pronounced ray-al)—to the U.S. dollar in an effort to control inflation. Inflation was virtually zero last year, but the country decided it could no longer afford the expensive policy, and on Jan. 15 it let the real tumble in value. The weaker currency is expected to worsen an already slow economy by raising prices for imports and lessening the buying power of consumers. This is bad news for chemical companies, particularly foreign ones that will find their sales in reals translating into smaller amounts of their home currencies. Among U.S. chemical firms, Danbury, Conn.-based industrial gas producer Praxair has the highest exposure to South America on a percent basis—21% of its 1997 sales of $4.7 ...