BBC Wednesday, February 3, 1999 Published at 16:46 GMT
IMF talks calm Brazil's markets
Arminio Fraga Neto arrives for work
Brazilian President Fernando Henrique Cardoso has met with senior
negotiators from the International Monetary Fund who are hammering out
possible solutions for the country's deep financial crisis.
After the meeting, he said that "the situation in Brazil is developing
the way we wanted ... with the return of confidence in the markets."
The real, the Brazilian currency, has held steady on foreing exchange
markets following the appointment of a former aide to international
financier George Soros as the country's new central banker on Tuesday.
The IMF's First Deputy Managing Director Stanley Fischer and other
fund officials had a working breakfast with President Cardoso in the
official presidential residence in Brasilia.
Also attending the breakfast were Brazilian Finance Minister Pedro
Malan and the newly-nominated president of the central bank Arminio
Fraga Neto.
The President later told reporters that it was "not crucial" that the
IMF speed up a second $9bn instalment of international loans for Brazil
because the country's foreign currency reserves were at a "comfortable"
level.
However the government hopes Mr Fischer's presence will accelerate the
release of a second slice of the $41.5bn international loan package
assembled by the IMF.
High interest rates
The two sides must first negotiate new targets for Brazil's budget,
interest rates and foreign exchange rules following its surprise
devaluation three weeks ago.
The IMF has given a clear signal that it expects Brazil to keep its
interest rates high to defend the currency.
"Clearly the tightness in monetary policy will continue," said IMF
Deputy Managing Director Alassane Ouattara. "Our experience in Asia
has shown that it is important to see a firm monetary framework at the
beginning of a crisis."
Brazil raised its interest rates to 39% on Monday. But the
continuation of high interest rates could send the Brazilian economy
into a deep recession this year.
More credible banker?
Mr Fraga is a former central bank official who has until recently
directed the speculative activities of Soros Fund Management, the
powerful investment vehicle of the international billionaire George
Soros. He replaces former central bank chief Francisco Lopes, who
lasted just three weeks in the job.
He was international affairs director at the central bank between
1991 and 1992 under former President Collor de Mello, before joining
the Soros Fund in 1993.
He has now severed all his links with Mr Soros and "there is no
relation between his opinions and those of his former boss," according
to Brazil's Finance Minister Pedro Malan. Mr Soros has been advocating
some sort of international currency coordination recently.
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