RIO DE JANEIRO, July 22 (UPI) -- The International Monetary Fund's No. 2 official is in Brazil this week to huddle with leaders in the public and private sectors, trying to keep South America's biggest economy afloat.
But with top candidates for October's presidential election distancing themselves from the IMF and any potential transitional aid package, IMF official Anne Krueger's trip has turned mostly cosmetic.
Three opposition candidates said this weekend that they would not sign a transitional agreement with the IMF before elections are held. Officials within President Fernando Henrique Cardoso's government have been working hard to win such an agreement, which would have been similar to that awarded to South Korea in 1997, when leftist opposition politicians were unnerving investors there prior to an election. The leading contender for Brazil's presidency -- the socialist Lula da Silva -- said signing an agreement with the IMF before being elected would politically amount to little. "To sign would win me nothing," Lula said. "Only after a victory is when we would begin to discuss anything. Also, the IMF has never called me to negotiate."
The left-leaning Ciro Gomes, whose political star has been rising of late, vaulting him into second place in the polls, said he understands the IMF must be dealt with, but he will not do so until he wins the presidency. "I am inclined to collaborate (with the IMF), but I am not inclined to support an agreement that shapes future economic policies that I don't agree with."
Additionally, Anthony Garotinho, a former governor of Rio de Janeiro state, rejected any deal with the IMF before being elected. Which left only Jose Serra, the government-backed and market-friendly candidate now in third place, as a contender who would sign any such agreement before elections.
But according to reports in a Brazilian newspaper, the IMF thinks all of the country's top candidates for president have presented themselves and their economic ideas seriously enough that no transitional agreement need be signed before the elections. Citing unnamed IMF officials who work closely with the country, the Folha de Sao Paulo reported in weekend editions that while the IMF wants to continue talks so that some sort of new agreement might be easily reached once a new president takes office, any new agreement will not hinge upon all candidates signing onto a deal before voters cast their ballots on Oct. 6.
All of which deflates the trip to Brazil by Krueger, IMF's first deputy managing director, who met with Brazilian Central Bank President Arminio Fraga Monday afternoon. Neither made comments as to what was discussed or how the meeting proceeded. Fraga was in the United States last week and had only optimistic comments as to how he was received by IMF and U.S. Treasury officials. Krueger is scheduled to meet with Cardoso and Finance Minister Pedro Malan in Brasilia on Tuesday, then deliver a paper on Wednesday at the Latin American Econometrics Society conference in Sao Paulo. While it never hurts to have a top IMF official visit and tell all ears that Brazil's fundamentals are solid and market turmoil of late is 100 percent political -- as IMF officials have said for months -- investors will take little from Krueger's swing through Brazil now that a transitional accord looks unlikely.
Indeed, Brazil's bond prices Monday took a hit as investors realized optimism over any IMF deal was overblown. Last Thursday, the country's benchmark 8 percent bond due in 2014 rose to a 30-day high as the IMF announced Krueger's visit, fueling speculation that a new loan agreement was upcoming. But the bond ended down Monday, losing 0.85 of a cent on the dollar to settle at $62.72, with the yield rising to 18.64 percent from Friday's 18.3. Brazil's leading stock index -- the Bovespa -- dropped nearly 5 percent, dragged down mostly by a poor showing on Wall Street and no news at home. The wait for any developments from Krueger's visit, coupled with presidential opinion polls due out later this week, kept trading volumes extremely low. Oil giant Petrobras -- which Monday announced it was taking a majority stake in the Argentine energy company Perez Companc -- fell more than 6 percent.
It was in 1998 that Brazil, working with the IMF, took a $41.5 billion multilateral loan after the Asian crisis and Russia's default pummeled the emerging economy. Last September, with the Argentine crisis heating up, Brazil signed onto a $15 billion standby loan, of which it drew $10 billion last month to help calm markets roiling amid fears of a Lula presidency. Investors are worried that should Lula take power, Brazil would attempt to renegotiate the country's $341 billion debt, reverse reforms made under Cardoso and bloat government spending.
Meanwhile, a special advisory team organized by the IMF arrived in Buenos Aires Monday to advise the country's leaders on how to escape economic ruin. The four advisers -- which include former central bank presidents from Germany, Spain and Canada -- are working with Argentine officials on how best to end a freeze on citizens' banking accounts in place since December and begin laying the groundwork for a sustainable monetary policy. The group met with Argentine President Eduardo Duhalde on Monday but made no comments about what was discussed. Also on Monday, Argentine Economy Minister Roberto Lavagna met with the head of the IMF technical mission to Argentina, John Thornton.
