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IMF, Brazil $30B Bailout Nears

October 20, 1998

WASHINGTON (AP) _ Brazil and the International Monetary Fund moved closer to agreement Tuesday on an expected $30 billion rescue package for the world’s ninth-largest economy and key American trading partner.

A joint statement by the IMF and the Brazilian government said the two sides agreed Brazil should try to reduce its budget deficit from an expected 8 percent of gross domestic product to zero by 2000.

The statement was issued after a weekend of talks between IMF officials and a Brazilian delegation headed by Pedro Parente, executive secretary of the Finance Ministry.

The statement said representatives of the World Bank and the Inter-American Development Bank took part in the talks. Both organizations as well as private banks are expected to contribute to the rescue package.

Brazil was the latest country to be hit by the financial crisis that began 15 months ago in Asia and spread to Russia. Brazil has lost about $25 billion in foreign currency reserves since August, when Russia defaulted on its debts and provoked a new crisis of confidence in emerging market countries.

If instability continues in Brazil, it could affect Argentina, its main trading partner, and other Latin American economies.

Despite the re-election of President Fernando Henrique Cardoso and the announcement Oct. 8 that Brazil and the IMF had agreed on the broad outlines of a financial assistance package, investors continued to withdraw large sums of money from Brazil last week.

Cardoso is preparing an emergency program of budget cuts to restore investor confidence and prevent a devaluation of the country’s currency, the real. Investors want Cardoso to outline his plans this week, but he is expected to wait until after Sunday’s second round of elections for state governors, whose support he needs for his budget cuts.

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