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IMF Loans to Argentina Lift  Brazil's Market - 2001-08-23

Brazil's stock and currency markets reacted favorably to Tuesday's decision by the International Monetary Fund to offer $8 billion in new loans to Argentina.

Trading soared Wednesday at Brazil's principal stock market, the Bovespa, in Sao Paulo in reaction to the IMF decision. At one point during the day, the Bovespa was up by 2 percent, but by the close Wednesday it finished at just under .5 percent as traders sold off stocks to take advantage of the hike.

On the currency markets, the Brazilian real, which has steadily been losing value against the U.S. dollar, gained ground slightly Wednesday. The value of the Brazilian currency increased by 1 percent by the close of trading.

Argentina's economic crisis has had a spillover effect on Brazil, weakening its currency on international financial markets. But there was notable relief Wednesday at the news that the IMF will be providing $8 billion in new loans to Argentina. The announcement late Tuesday followed almost two weeks of protracted negotiations in Washington between the IMF and an Argentine economic mission.

The new loans are expected to help stabilize Argentina which has been struggling to recover from a three-year recession and make payments on its $128 billion public debt. In Buenos Aires, the stock market reacted positively, closing up by 8 percent Wednesday.

In Brazil, analysts cautioned that the positive news from Argentina will not end continuing concerns about the future of the Brazilian economy. The world economic slowdown has affected Brazilian exports and a domestic energy crisis has hurt economic production. The Brazilian economy, which earlier this year was expected to grow by 4 percent, may end up expanding by just 2.8 percent.