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To: James Strauss who wrote (9304)	8/6/2001 6:47:46 PM
From: ~digs	Read Replies (1) \| Respond to of 13094

Brazil optimistic as awaits details of IMF deal By Shasta Darlington ; Monday August 6, 5:34 pm Eastern Time RIO DE JANEIRO, Brazil, Aug 6 (Reuters) - Brazilian markets on Monday quietly applauded a $15 billion IMF loan designed to help Brazil fend off contagion from the economic crisis in neighboring Argentina. The International Monetary Fund announced the accord on Friday, but Latin America's biggest economy awaited on Monday a more detailed explanation of the pact, which will likely include unpopular fiscal tightening. The deal, which ends with President Fernando Henrique Cardoso's government in December 2002, should bolster investor confidence in Brazil's economy and help the government meet foreign commitments in the next year and a half, helping resolve one of Brazil's biggest weaknesses. ``More money gives us more capacity to face problems, it sends a clear signal that the international community supports Brazil and is a sign that Brazil's policies are sustainable,'' said the Central Bank director of monetary policy Luiz Fernando Figueiredo. He refused to talk about the deal in detail. The Finance Ministry said Finance Minister Pedro Malan will not speak on Monday but that the ministry will announce their measures on Tuesday at 1430 local/1730 GMT. Malan was called by the opposition to testify in Congress on the deal. The Valor Economico business daily said that as part of the accord, Brazil will have to post a primary budget surplus in 2001 of 3.35 percent of gross domestic product (GDP), or 40 billion reais, up from an initial target of 3.0 percent. The 2002 target will be 3.5 percent of GDP, the newspaper said. It named no sources in the report. In the first half of the year Brazil easily beat its existing IMF-agreed primary budget surplus target. Austerity measures may not be greeted with much enthusiasm by politicians ahead of presidential elections in 2002, but markets reacted with cautious optimism. ---MARKETS LOOKING UP--- Stocks closed 1.5 percent higher, the real currency (BRBY - news) rose 1.7 percent, and Brazil's benchmark C bond ended 0.875 up at 72 of face value. ``More and more people are coming to believe that the international community has drawn a line in the sand with Brazil,'' said a trader at a London bank. In the wake of the deal, J.P. Morgan on Monday reversed its three-day-old recommendation that investors cut back their exposure to Brazil's sovereign bonds. The bank raised its allocation to Brazilian bonds in its model bond portfolio to ``overweight'' from ``underweight.'' Still, local traders warned that the honeymoon could be short-lived as long as the risk of a debt default still hangs over the Argentine government. ``There is going to be a small improvement, but Argentina remains very bad,'' said BancoCidade stock trader Tomi Taterka. While Brazil cheered new aid, Argentina had to be consoled with the IMF's offer to speed up delivery of $1.2 billion. Disappointment grew as it became apparent that a U.S. Treasury official's visit had not yielded any immediate news on aid. ``We continue having confidence in Argentina,'' Brazil's Figueiredo said on Monday. ``We believe that the measures they implemented will be sufficient, it's just question of time.'' The IMF Managing Director Horst Koehler said on Friday he would recommend a new precautionary loan for Brazil. He said $4.6 billion in funds would be available after the IMF executive board votes on the package in September. Brazil's real (BRBY - news) has lost more than a fifth of its value this year as investors, worried that Argentina will succumb to debt default, seek a safe haven in dollars and fixed-income instruments. Brazil will also seek loans with the Inter-American Development Bank (IADB) and World Bank that could bring total financing to between $18 billion and $20 billion if the Argentine situation worsens, Gazeta Mercantil business daily reported on Monday. The latest deal is much smaller than the $41 billion IMF-led accord agreed to in 1998 to stave off crisis during Asian and Russian turbulence. Under the 1998 deal the IMF contributed $18 billion while the World Bank and Inter-American Development Bank gave $4.5 billion each. The rest of the money came from leading industrial nations. biz.yahoo.com