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To: Alex who wrote (31923)	4/16/1999 8:35:00 PM
From: goldsnow	Respond to of 116764

Brazil Bank Bailout Scrutinized Friday, 16 April 1999 R I O D E J A N E I R O , B R A Z I L (AP) THE NEW optimism over Brazil's rebounding economy has been suddenly muted by a deepening scandal involving charges of corruption and insider trading at the Central Bank. The bank, Brazil's equivalent of the U.S. Federal Reserve, is the target of a Senate inquiry into its unorthodox defense of commercial banks during the January devaluation of Brazil's currency, the real. "The Central Bank is always more on the side of bankers than of the people," Sen. Pedro Simon said. The new Central Bank president, Arminio Fraga, said the bank broke no rules. The Central Bank came under fire this week after Veja, Brazil's biggest weekly news magazine, ran a story on banker Salvatore Cacciola. His bank, Banco Marka, was the only financial institution to go under during the devaluation. Veja quoted Cacciola as saying he and three other bankers paid $125,000 a month to a highly placed source in the Central Bank for insider information. Still, Marka was caught short when the real suddenly plunged on Jan. 13. The bank had sold dollars on the futures market, betting the real would remain steady, and was unable to cover its debts when the currency was devalued. According to Veja, that's when the Central Bank stepped in. In a surprising move, it sold Marka 30 million reals, then worth about $20 million, at below-market prices. Another bank, Banco FonteCindam, also benefited. The same day, Cacciola transferred $13 million overseas. In published interviews, he said the money was to pay debts on the Chicago futures market. The episode raised howls of protests from Marka's Brazilian investors and questions about whether the entire operation was ethical or even legal. On Friday, police searched for documents at the homes of Cacciola and former Central Bank President Francisco Lopes, who authorized the bailout. "We are studying the possibility of legally repatriating this money," Justice Minister Renan Calheiros said. He added that federal police expect Cacciola, now in Italy, to return to testify Monday. Fraga, the current Central Bank president, told senators that the aid for Marka was to avert panic. He said the funds were just enough to allow the bank to sink without a splash. But senators questioned the lax rules that allowed the bailout in the first place. Some also asked how Marka, a small bank, could hold dollar contracts worth more than $1 billion. "What scares me is knowing that, if these operations were legal, they could happen again," said Sen. Eduardo Siqueira Campos.