IMF set to announce Brazil rescue - officials
Reuters, Thursday, November 12, 1998 at 20:42
By Adam Entous
WASHINGTON, Nov 12 (Reuters) - The IMF and the world's
richest nations plan to announce as early as Friday a
multibillion-dollar rescue package for Brazil in the hope of
warding off an Asia-style financial meltdown in Latin America.
Officials involved in the talks told Reuters the
International Monetary Fund and the Brazilian government were
preparing to release a letter of intent underpinning a package
of emergency loans for up to $45 billion to defend Latin
America's biggest economy from the financial contagion.
Negotiations over the package have dragged on weeks longer
than expected and agreement might still be pushed into next
week if more time is needed, though officials at the IMF and
the World Bank said further delays were unlikely. "We have
highest hopes for Friday," one official said.
The loan package would include up to $18 billion from the
IMF, $4.5 billion from the World Bank, $3.4 billion from the
Inter-American Development Bank (IADB) and billions of dollars
more from the United States, Japan and other bilateral donors.
Officials in Washington said the Bank for International
Settlements in Switzerland was orchestrating support from Group
of 10 nations. Some of that money may only be used by Brazil if
multilateral funds run out.
The IMF and the world's leading industrial nations hope the
program will avert a full-blown crisis in Brazil, the world's
eighth largest economy. They fear its financial meltdown might
drag the rest of Latin America into recession and further
undermine global growth, hurt by crises in Asia and Russia.
Brazil needs support to stave off a devaluation and to
reassure foreign investors. The Brazilian real has been under
pressure since Russia devalued in August, triggering a massive
flight of capital from emerging markets and sapping Brazil's
foreign currency reserves, its main defense against speculative
attack.
Officials said negotiations took longer than expected in
part because financial market turmoil had eased, and because
the package was so complex and so much was at stake. Work on
the package started months ago, and back in September IMF
officials said an agreement was within reach.
The IMF can ill-afford another fiasco like Russia, where a
$23 billion bailout set in July fell apart within weeks,
sending shock waves around the world.
Most of the terms of Brazil's package have already been
worked out.
It was expected to include up to $18 billion from the IMF,
slightly more than expected. The lending agency does not plan
to use for Brazil a newly proposed precautionary credit line,
announced with much fanfare by Group of Seven nations in an
Oct. 30 statement.
Instead, the IMF was expected to use existing lending
facilities -- specifically, a standby arrangement providing
short-term balance-of-payments support and the newly created
supplemental reserve facility, which charges higher interest
rates and demands quicker repayment than other IMF loans. The
facility was incorporated into South Korea's rescue package in
1997 and was used to help Russia in July.
At the urging of the G7, the World Bank and the IADB will
use emergency loan facilities as part of Brazil's package. The
banks will charge the government more for some of the loans and
will demand quick repayment.
The United States will most likely be the largest bilateral
contributor to the IMF-orchestrated package. To pay its share,
the U.S. administration was expected to tap into the Treasury
Department's Exchange Stabilization Fund. Use of the emergency
fund has raised hackles in Congress in the past because many
lawmakers resent Treasury Secretary Robert Rubin's ability to
use the money without their approval.
Washington's package will include a large increase in trade
finance to help Brazil buy U.S. goods. The U.S. Export-Import
Bank plans to increase financial support for Brazil by $2
billion. The Overseas Private Investment Corporation may expand
its Brazil program by $700 million.
Contributions were expected from other G7 states, Japan,
Germany, France, Italy, Britain and Canada. The G10 forum
includes another four countries despite its name --
Switzerland, Sweden, Belgium and the Netherlands.
Copyright 1998, Reuters News Service |
