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Brazil Chooses Central Bank Chief

February 3, 1999

RIO DE JANEIRO, Brazil (AP) _ When the government dismissed the Central Bank president Francisco Lopes and replaced him with a former George Soros associate, it seemed to be giving currency speculators a taste of their own medicine.

Until recently, Arminio Fraga worked for the billionaire investor, advising him on emerging markets such as Brazil’s. His appointment Tuesday is the government’s latest move to halt the financial crisis that has gripped Brazil and threatens to buffet other Latin American economies.

``By bringing to the Central Bank his experience on the other side of the table, he will certainly be an asset for Brazil,″ Finance Minister Pedro Malan told Globo News Tuesday evening.

Fraga’s appointment was generally well received. Brazil’s currency, the real, strengthened on the news and while the stock market declined, losses were less than might be expected with such a shift.

During Lopes’ short-lived presidency, the real had lost more than 40 percent of its value.

``The first impression this unexpected change may give to the international community is one of total chaos,″ said Jose Luciano Dias, a Brasilia-based political analyst. ``But in a few days it will become clear that the change was necessary for Brazil to regain its credibility and the confidence of the international financial community.″

Fraga, who arrived in Brasilia Tuesday afternoon, headed straight for the Finance Ministry where he met with Malan and International Monetary Fund Deputy Managing Director Stanley Fischer.

Malan, Fischer and a team of International Monetary Fund economists spent much of Tuesday reviewing the terms of a $41.5 billion IMF-led aid package finalized last November in light of Brazil’s currency devaluation.

In announcing the switch, the government took pains to say that the foreign exchange policy initiated by Lopes just three weeks ago would remain in place.

Senate president Antonio Carlos Magalhaes threw his support behind the nomination.

``He, more than anyone else, understands the actions of speculators and will be able to stop their criminal actions,″ Magalhaes told reporters in Brasilia.

Even with the support, Fraga has no easy task ahead of him.

``Fraga’s nomination doesn’t mean that all of Brazil’s problems are solved,″ said Marcelo Guterman, fund manager with Lloyd’s Asset Management. ``We need new direction, the IMF accord is being reviewed and if the policies are bad, no one man will hold it together.″

And opposition politicians criticized Fraga’s proximity to Soros.

``Brazil has just handed over the Central Bank to one of the biggest speculators in the world,″ leftist-Workers’ Party president Jose Dirceu told reporters in Brasilia.

The government has taken pains to stress that Fraga is no longer associated with Soros. Fraga was a managing director at Soros Fund Management, a private New York-based investment management firm, where his main responsibility was investing strategies for emerging markets. Earlier he worked for New York-based Salomon Brothers and Rio De Janeiro’s Banco Garantia.

He also taught at Columbia University’s School of International and Public Affairs and other universities in the United States and Brazil.

In the early 1990s, Fraga served as the Central Bank’s director of international affairs and was involved in earlier negotiations with the IMF.

Until he is confirmed, Demosthenes Madureira de Pinho Neto of the Central Bank will serve as interim president. Pending confirmation, Fraga will serve as a special advisor to Malan.

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