U.S. Voices Support for Brazil

The U.S. government said Monday that there is “strong international support” for Brazil in any talks the country has with the International Monetary Fund--a day after Treasury Secretary Paul O’Neill said he wouldn’t endorse new aid to the troubled economy when he visits next week.

O’Neill’s comment Sunday that the U.S. had no plans for new aid triggered a 5.4% decline in the Brazilian real, the currency’s biggest one-day drop since January 1999. The real closed at 3.175 to the dollar, after dropping as much as 8.9%. The price of Brazil’s benchmark 8% bond also tumbled. Stocks firmed, however.

Brazilian markets have been pummeled by investor jitters over the implications of October’s presidential election for Latin America’s largest economy and its delicately balanced debt load. The prospect of Brazil’s adding to its debt, which has tripled since 1995, has shaken investor confidence that the government can refinance its borrowings.

Brazil said it would send a team to the U.S. today to start talks with the IMF over extending funds to the country. Investors have said Brazil may seek up to $20 billion in new financing to help it defend its currency.

Finance Minister Pedro Malan said he expected an agreement with the IMF soon, saying he had “no doubt that international support for Brazil is there.”

Friction between O’Neill and the Brazilians wasn’t resolved by the latest, more upbeat comments from the Treasury.

Brazilian President Fernando Henrique Cardoso, through the Foreign Relations Ministry, demanded that O’Neill retract remarks that foreign aid to the country may end up in Swiss bank accounts.

O’Neill said in a TV interview Sunday that Brazil, Argentina and Uruguay need “to assure that, as assistance money comes in, that it does some good and doesn’t just go out of the country to Swiss bank accounts.”

Brazilian Foreign Relations Minister Celso Lafer said in a statement Monday, “Brazil as a sovereign state cannot accept the remarks made by O’Neill.”

The U.S. ambassador to Brazil, Donna Hrinak, was scheduled to meet with Lafer on Monday night, said Ines Lima, a presidential spokeswoman.

Treasury spokeswoman Michele Davis said, “Brazil has demonstrated its ability over time to use international assistance effectively.”

She said the department had not received any request for an apology or a retraction.