Drumbeat of support for Brazil but no IMF plan yet
Tuesday October 6, 9:10 pm Eastern Time
By Martin Langfield
WASHINGTON, Oct 6 (Reuters) - Investors around the
world held their breath on Tuesday as international leaders
continued to show a steady stream of support for Brazil's embattled economy but a key financial
aid package from the IMF failed to materialize.
Economists say if Brazil becomes the next victim of an enduring world economic firestorm that
has already claimed Asia and Russia over the last year, all of Latin America -- a key export
market for the United States -- would tip into recession.
The country has been hemorrhaging several hundred million dollars a day for weeks on concerns
about its large fiscal deficit and the vulnerability of its currency, the real, to speculative attack.
Argentine President Carlos Menem said on Tuesday he expected Brazil and the International
Monetary Fund to announce a financial aid package for Latin America's biggest economy -- and
the world's ninth largest -- as early as next week.
''They're working rapidly to implement this assistance,'' he told a news conference on the
sidelines of the IMF and World Bank annual meeting in Washington.
When asked when the aid package would be announced, he said: ''Perhaps not this week.
Perhaps next week they'll be making the corresponding announcement.''
U.S. President Bill Clinton, in a speech at the opening ceremony of the meeting, also spoke up
for Latin America, the region most immediately exposed to crisis if Brazil falls. Brazil alone
accounts for 45 percent of the goods and services produced in Latin America.
He said a plan he proposed last week to set up precautionary lines of credit for nations at risk
from global economic turmoil despite sound economic policies ''was a critical way to prevent
the present crisis from reaching Latin America and other regions which are doing well.''
Menem said he had discussed Brazil's plight with Clinton during a meeting on Tuesday as well as
with other world leaders.
''Brazil's situation is going to improve, according to the conversations I have had with some
leaders of the developed world, among them President Clinton,'' he said.
Bankers expect the IMF to announce a package of around $30 billion to reestablish confidence
in the Brazilian economy, which is being undermined by investors pulling funds out in favor of
what they see as safer investments in dollars.
Menem said the financial package for Brazil, if and when it was announced, will be a boon not
just for the Brazilian economy but for Brazil's partners in Mercosur, the South American
customs union.
Menem said the IMF and World Bank were also looking at a contingency credit facility to help
other countries in Latin America facing balance of payments problems, particularly Venezuela
and Ecuador, that have been hit by low oil prices.
Menem was confident that Brazil's liquidity problems would be overcome with IMF backing and
the strong fiscal steps President Fernando Henrique Cardoso has taken and will continue
adopting now that he has been reelected.
In Brazil, a senior finance ministry official said officials were working on a cost-cutting fiscal
program for 1999 to 2001.
Cardoso, who appeared on course to win elections held on Sunday without the need for a
second-round vote, spent the day with advisers and was thought to be preparing an
announcement of new fiscal measures as early as this week.
''The president has already said we are going to have to (announce it) ahead of schedule,''
Finance Ministry Executive Secretary Pedro Parente said. ''For the moment, no date has been
set.''
Brazilian officials backed away from an indication on Monday by Central Bank President
Gustavo Franco that Cardoso would detail the fiscal plan in an address to the nation as early as
Tuesday.
Brazilian shares ended higher on Tuesday after riding out a volatile session, taking heart from a
slight rebound on Wall Street, brokers said.
''Investors are unsure about taking firm positions until details of a new fiscal plan, which could
include tax hikes, are made clear,'' said one trader at Corretora Doria & Atherino. ''So they
tend to follow Wall Street.''
The market's key Bovespa index closed up 3.49 percent after climbing as much as 6.5 percent
in the morning session.
On Monday Germany's Bundesbank President Hans Tietmeyer said the IMF hoped to have an
overall plan to ensure stability in Brazil soon, once Brazil presented a credible program for its
economy and the involvement of private banks was resolved.
U.S. Deputy Treasury Secretary Lawrence Summers echoed that theme, also saying that a plan
for Brazil would ''be in the context of Brazilian commitments.''
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