Fund Wants to Contain Argentine Debt Crisis

By Paul Blustein
Washington Post Staff Writer

The International Monetary Fund, eager to keep Argentina's debt crisis from devastating its neighbors, signaled yesterday that it would be willing to make a substantial
new loan to Brazil if the Brazilian government asks for one.

The possibility that Brazil might get international aid has become a topic of speculation in recent days as its currency, the real, tumbled to historic lows against the U.S.
dollar in response to turmoil in Argentine financial markets. New loans for Argentina don't appear to be under consideration at a time when Buenos Aires is struggling to
resolve its financial crisis. But, the rationale for new loans for Brazil is that it is a "good performer" in Washington's eyes and strong international support might keep its
economic troubles contained.

Until now, IMF officials have responded noncommittally to questions about aid for Brazil, saying only that they are in "constant contact" with the authorities there.
Yesterday, however, Jack Boorman, director of the IMF's policy development and review department, went out of his way in an interview to praise Brazil's economic
policies and its performance under a $41 billion rescue package the IMF marshaled at the time of Brazil's last crisis, in late 1998. Brazil can still borrow about $1.2 billion
under that program, which expires in December.

"Their record on policy continues to be good," Boorman said. "They managed the situation very well, in the judgment of almost everybody" under the supplemental
reserve facility, the loan program under which Brazil borrowed in 1998.

Although Boorman declined to say so explicitly, his comments were a clear sign the IMF would welcome a Brazilian request to increase the current loan package or
mobilize a new one. Brazilian President Fernando Henrique Cardoso was quoted earlier this week in O Estado de Sao Paulo, a leading Brazilian daily, as saying that "if it
were necessary, we would ask for more resources."

The Bush administration has taken a skeptical view toward IMF bailouts.

But yesterday John Taylor, the undersecretary of the Treasury for international affairs, also responded to a question about a possible rescue package for Brazil with
praise for the Cardoso government.

Taylor declined to comment directly on whether a new loan was under consideration or might be forthcoming, but he said: "Brazil has done a good job. They've increased
their fiscal surplus, taken inflation targeting very seriously, and the banks are in good shape."

IMF and administration officials have taken a much more hands-off posture toward Argentina, at least for now, as President Fernando de la Rua battles opposition
politicians and public-employee unions in an effort to cut the government's budget deficit and avert default on the nation's $130 billion in debt.

An accord between the president and provincial governors to slash government spending encountered fresh resistance yesterday from legislators, and unions protested by
shutting down schools and businesses.

Argentina's main stock index fell 1.68 percent yesterday. Brazil's main stock index closed down 0.21 percent, as did the real in trading against the dollar.

Argentina already has a $13 billion IMF funding program, and when the fund's chief spokesman, Thomas Dawson, was asked last Friday whether it might be increased,
he replied, "I don't believe it's a possibility."

On the other hand, in a sign that Washington isn't turning its back on Buenos Aires, the World Bank yesterday approved a $330 million project supporting reforms in
public finance, health, education and private-sector development in the Argentine province of Santa Fe.

Myrna Alexander, the director of the World Bank's program in Argentina, said the bank "is encouraged by the Argentine government's latest measures and agreements
with the provinces, aimed at reaching a zero deficit."

                                                © 2001 The Washington Post