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US Official's Comments Send Brazilian Currency Plunging - 2002-07-30


A team of Brazilian officials is in Washington seeking more assistance from the IMF as fears over a debt default in Latin America's biggest economy surge.

Treasury Secretary Paul O'Neill said Sunday on U.S. television that aid to Latin American countries has a tendency to end up in Swiss bank accounts. The comment sent Brazil's currency, the real, plunging to further historic lows against the dollar, taking its fall this year to nearly 30 percent.

Brazil's government demanded a retraction of Mr. O'Neill's comments from the U.S. Embassy in the capital, Brasilia.

The currency's decline is making it increasingly difficult for Brazil to pay interest on an estimated $250 billion of debt.

Left-of-center politician Ciro Gomes, who is steadily gaining in polls before October presidential elections, said he was outraged by the comments.

"There might be a problem of corruption in Brazil, but this problem concerns Brazilians," he said. "American officials should wash their mouths with soap three times and take care of their own problems before talking like this about corruption in other countries."

A spokeswoman for the Treasury Department said Mr. O'Neill was not referring to corruption, but rather to capital flight.

Five-weeks ago, Mr. O'Neill also rattled Brazil markets when he said it would be foolish to give money to a political uncertainty. Mr. Gomes and another leftist opposition candidate, Luiz Inacio Lula da Silva, lead the polls ahead of the October presidential vote, worrying markets they might veer away from conservative fiscal policies if elected.

Mr. O'Neill is scheduled to visit Brazil and Argentina next week, but is not expected to offer new IMF aid. Argentina defaulted on part of its debts in December, sparking an economic slump throughout Latin America.

A current IMF agreement with Brazil on a $15 billion line of credit ends in December. In Argentina, the IMF loan program was suspended last year, over charges of government mismanagement.

Both Brazil and Argentina are now working to convince IMF officials they deserve help to avert a regional crisis.

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