NYT: Elements of IMF Brazilian austerity plan

[Robert Weissman <rob@essential.org>]

March 11, 1999


              Bank Chief Vows to Curb Brazilian Debt

              By LARRY ROHTER

                    RASILIA, Brazil -- The new president of Brazil's
central bank promised "a
                    frontal attack" Wednesday on the swelling public debt
brought on by the
                    financial crisis here, and he predicted that Brazil
would return to the capital
              markets in a matter of weeks. 

              Meeting here with a group of foreign reporters, the
              central banker, Arminio Fraga, said the worst of the
              "recent turbulence" had passed, and he pointed to a
              firming of exchange rates and other encouraging
              signs in recent days. Fraga spoke hours before he
              and other top Brazilian officials embarked on a trip
              to New York and other financial capitals to explain
              Brazil's latest round of austerity measures and seek
              a reopening of credit lines. 

              A previous road show, led by Finance Minister
              Pedro Malan after Brazil initially signed a $41.5
              billion rescue package with the International
              Monetary Fund in November, was not successful.
              Investors and lenders remained edgy, convinced
              that the Brazilian currency, the real, remained
              overvalued, and in mid-January the government
              abandoned a fixed exchange rate against the dollar,
              which has led the value of the real to drop nearly 40
              percent. 

              Because of that sharp decline, public debt, much of
              which is calculated in dollars, has jumped to 53
              percent of the gross domestic product, Fraga
              acknowledged. A revised agreement with the IMF,
              announced on Monday, requires that to drop to 44.3
              percent by 2002. Fraga said a combination of
              increased revenue from the privatization of state
              companies and declining interest rates should enable
              Brazil to fulfill those obligations. 

              "Our financial system is healthy and well financed,"
              he said. "That will, with the passage of time, produce lower
interest rates." 

              The revised agreement with the IMF foresees an inflation
rate of nearly 17 percent for
              1999. It also projects that the Brazilian economy will
contract as much as 4 percent this
              year. But Fraga shrugged off that forecast as unduly
pessimistic, saying, "I think we
              will perform better than that." 

              He also said that Brazil should be able to meet an increased
budget-surplus target
              contained in the revised IMF agreement, the equivalent of
3.1 percent of the gross
              domestic product, without having to make additional spending
cuts. "Inflation helps a
              bit," he said, in compensating for the decrease in tax
revenue expected as a result of the
              nation's recession. 

              Once the IMF releases the second installment of $9 billion
from the loan package,
              which is expected early next month, Brazil plans to return
to foreign capital markets,
              said Fraga, a former aide to the financier George Soros. He
predicted a favorable
              response, saying that foreign creditors had already
expressed renewed confidence.
              "Many have decided to maintain credit lines," he said. "None
has told me lines would
              be reduced, and a few said they planned to increase credit
lines to Brazil in the near
              future." 

              Brazilian stocks rose in trading Wednesday, with the
benchmark index up 3.1 percent.
              The real settled in New York at 1.865 to the dollar,
improved from 1.93 late Tuesday.