IMF grants Brazil US$30 billion loan

Brazilian Central Bank President Arminio Fraga leaves the Finance Ministry as Latin America's largest economy announces it is to receive a large loan from the IMF PHOTO: REUTERS

Confronted with the prospect of another financial meltdown in Latin America, the IMF agreed Wednesday to a US$30 billion rescue loan for Brazil.

At the same time, US Treasury Secretary Paul O'Neill was urging Argentina to "move quickly" to reach a similar accord, saying that the US would not bail out the government and believes that additional reforms of the Argentine economy are needed.

The rescue package for Brazil demonstrated an attempt to meld political and economic goals.

While it runs counter to the Bush administration's public opposition to international bailouts, Brazil is the largest economy in Latin America and has attracted billions of dollars in investment by US companies. Administration officials contend that Brazilian economic policies have been fundamentally sound, but the country's currency has plunged in value as investors have grown panicky about coming elections.

Investors and banks have been badly unnerved by the strength of two left-wing presidential candidates in elections this fall, both of whom have attacked Brazil's current policies that are intended to reduce inflation, balance the budget and expand free trade.

The US$30 billion accord, which covers the next 15 months, comes on top of an existing US$15 billion credit line from the IMF to Brazil and permits Brazil's central bank to reduce the minimum level of its reserves by US$10 billion.

The developments in Brazil and Argentina underlined the growing alarm in the US and Europe at the seriousness of the financial crisis that began here last year and has recently spread to Uruguay and other nations in the region.

But the marked difference in attitudes also appeared to dash Argentina's hopes that fears of just such a regional "contagion" would make its task easier.

Argentina has been bogged down in unsuccessful talks with the IMF ever since its credit line with the body was suspended late last year.

The accord with Brazil, in contrast, was reached in near-record time, with formal discussions having begun less than a month ago, and was accompanied by a ringing endorsement of the Brazilian government's economic program.

"Brazil is on a solid long-term policy trend which deserves the support of the international community," the managing director of the IMF, Horst Koehler, said.

In a reference to a contentious presidential election that is less than two months away and has generated market nervousness, Koehler also said that "the fund stands ready to support any government committed to sound policies."

Brazil's agreement leaves only Argentina without financial protection among the three troubled South American countries that O'Neill has visited this week.

On Sunday night, as O'Neill was arriving in the region, the US announced that it was making an emergency US$1.5 billion bridge loan to Uruguay, reversing a policy that had been in place since the start of the Bush administration.